-----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, OiOdygNzMnrQNi3eRMWnNmL7sqbWRc2oedrx9ZVu65MLzXlJKe71VZpQxIk3vJnz woBJHbXtYBWUbudP7WHtcw== 0001012870-99-001419.txt : 19990507 0001012870-99-001419.hdr.sgml : 19990507 ACCESSION NUMBER: 0001012870-99-001419 CONFORMED SUBMISSION TYPE: S-1 PUBLIC DOCUMENT COUNT: 25 FILED AS OF DATE: 19990506 FILER: COMPANY DATA: COMPANY CONFORMED NAME: BE INC CENTRAL INDEX KEY: 0000895921 STANDARD INDUSTRIAL CLASSIFICATION: [] IRS NUMBER: 943123667 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: S-1 SEC ACT: SEC FILE NUMBER: 333-77855 FILM NUMBER: 99611778 BUSINESS ADDRESS: STREET 1: 800 EL CAMINO RD STREET 2: SUITE 300 CITY: MENLO PARK STATE: CA ZIP: 94025 BUSINESS PHONE: 6504624100 MAIL ADDRESS: STREET 1: 800 EL CAMINO REAL STREET 2: SUITE 300 CITY: MENLO PARK STATE: CA ZIP: 94025 S-1 1 FORM S-1 As filed with the Securities and Exchange Commission on May 6, 1999 Registration No. 333- - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 --------------- FORM S-1 REGISTRATION STATEMENT Under the Securities Act of 1933 --------------- BE INCORPORATED (Exact name of registrant as specified in its charter)
Delaware 7371 94-3123667 (State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer of incorporation or Classification Code Number) Identification No.) organization)
--------------- 800 El Camino Real Suite 400 Menlo Park, CA 94025 (650) 462-4100 (Address, including zip code, and telephone number, including area code, of registrant's principal executive offices) --------------- Jean-Louis F. Gassee Chief Executive Officer Be Incorporated 800 El Camino Real Suite 400 Menlo Park, CA 94025 (650) 462-4100 (Name, address, including zip code, and telephone number, including area code, of agent for service) --------------- Copies to: Andrei M. Manoliu, Esq. Michael J. Halloran, Esq. Tomas C. Tovar, Esq. Katharine A. Martin, Esq. Frank F. Rahmani, Esq. Dawn C. Steele, Esq. Cooley Godward LLP Pillsbury Madison & Sutro LLP Five Palo Alto Square 2550 Hanover Street 3000 El Camino Real Palo Alto, CA 94304-1115 Palo Alto, CA 94306-2155 (650) 233-4500 (650) 843-5000
--------------- Approximate date of proposed sale to the public: As soon as practicable after this Registration Statement becomes effective. If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, as amended (the "Securities Act"), check the following box. [_] If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering. [_] If delivery of the Prospectus is expected to be made pursuant to Rule 434, please check the following box. [_] CALCULATION OF REGISTRATION FEE - --------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------
Proposed Maximum Aggregate Amount of Registration Title of Securities to be Registered Offering Price (1) Fee (2) - --------------------------------------------------------------------------------------------- Common stock, $.001 par value............. $57,500,000 $15,985 - --------------------------------------------------------------------------------------------- - ---------------------------------------------------------------------------------------------
(1) Includes shares that the Underwriters have the option to purchase solely to cover over-allotments. (2) Estimated solely for the purpose of calculating the amount of the registration fee in accordance with Rule 457 under the Securities Act of 1933. --------------- The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment that specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission, acting pursuant to said Section 8(a), may determine. - -------------------------------------------------------------------------------- - -------------------------------------------------------------------------------- ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ +The information in this prospectus is not complete and may change. We may not + +sell these securities until the registration statement filed with the SEC is + +effective and this prospectus is delivered in final form. This preliminary + +prospectus is not an offer to sell these securities, and it is not soliciting + +an offer to buy these securities in any state where the offer or sale is not + +permitted. + ++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++ SUBJECT TO COMPLETION, DATED MAY 6, 1999 [ ] Shares [Be Incorporated LOGO] Common Stock ------------ Be Incorporated is offering shares of its common stock. This is our initial public offering, and no public market currently exists for our shares. We anticipate that the initial public offering price will be between $[ ] and $[ ] per share of common stock. ------------ We intend to list our common stock on the Nasdaq National Market under the symbol "BEOS." Please see "Risk Factors" beginning on page 7 to read about the risks you should consider before buying shares of our common stock. ------------
Per Share Total ----- ----- Public offering price............................................... $ $ Underwriting discounts and commissions.............................. $ $ Proceeds to Be Incorporated......................................... $ $
------------ Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities, or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense. The underwriters have an option to purchase [ ] shares of common stock from us to cover over-allotments. ------------ Volpe Brown Whelan & Company Needham & Company, Inc. The date of this prospectus is , 1999. You should rely only on the information contained in this prospectus. We have not authorized anyone to provide you with information different from that contained in this prospectus. We are offering to sell, and seeking offers to buy, shares of common stock only in jurisdictions where offers and sales are permitted. The information contained in this prospectus is accurate only as of the date of this prospectus, regardless of the time of delivery of this prospectus or of any sale of the common stock. In this prospectus, references to "Be," "Company," "we," "us," and "our" refer to Be Incorporated. TABLE OF CONTENTS
Page ---- Prospectus Summary....................................................... 3 Risk Factors............................................................. 7 Use of Proceeds.......................................................... 20 Dividend Policy.......................................................... 20 Capitalization........................................................... 21 Dilution................................................................. 22 Selected Financial Information........................................... 23 Management's Discussion and Analysis of Financial Condition and Results of Operations........................................................... 24 Business................................................................. 33 Management............................................................... 44
Page ---- Certain Relationships and Transactions..................................... 52 Principal Stockholders..................................................... 55 Description of Capital Stock............................................... 57 Shares Eligible for Future Sale............................................ 60 Underwriting............................................................... 61 Legal Matters.............................................................. 63 Experts.................................................................... 63 Where You Can Find More Information........................................ 64 Index to Consolidated Financial Statements................................. F-1
--------------- Be(R) and BeOS(R) are our registered trademarks. We also hold other common law trademarks such as BeDepot(TM), BeDepot.com(TM), BeBox(TM), and Be Everywhere(TM). This prospectus also includes trademarks owned by other companies. Until , 1999 (25 days after the date of this Prospectus), all dealers effecting transactions in the common stock, whether or not participating in this distribution, may be required to deliver a prospectus. This is in addition to the obligation of dealers to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions. 2 PROSPECTUS SUMMARY This summary highlights some of the information contained in this prospectus. It may not contain all of the information that you should consider before investing in our common stock. To understand this offering fully, you should read the entire prospectus carefully, including the Risk Factors, the financial statements and the notes following the financial statements thereto. About Be Incorporated We offer the BeOS(R) operating system, an operating system designed for digital media applications and Internet appliances. BeOS is capable of maximizing the performance of digital media applications that run on a wide range of devices including Internet appliances, desktop PCs and high- performance multiprocessor workstations. BeOS allows users to simultaneously operate multiple audio, video, image processing and Internet-based software applications while maintaining system stability, media quality and processor performance. BeOS provides professional users and enthusiasts with a high performance environment to quickly and easily develop applications and content and is designed to facilitate the integration of new technologies. BeOS is also architected to address the market-specific requirements of PC OEMs, Internet appliance and consumer electronic manufacturers. The modular nature of BeOS allows OEMs to incorporate only those features of our operating system that are required for a particular device, allowing them to match functionality and market requirements with cost. Using BeOS, OEMs can develop products and services tailored to specific markets without compromising the quality, stability and performance of digital media applications delivered to the user. The combination of an efficient, new operating system designed for fast performance and rich digital media applications make BeOS an ideal solution for both processor-intensive applications and smaller devices used to access the Internet. As users have embraced digital media, they have come to expect richer content, high resolution audio, video and images when using personal computers, consumer electronic devices and software applications. With the growth of the Internet, many users are also demanding that the same level of high resolution audio, real-time video and detailed 3D graphics and animation be delivered over the Internet. However, existing operating system architectures have increasingly become a key limiting factor in meeting these demands. The growing demand for richer content, audio and video editing and processing capabilities, 3D graphics, and Internet-delivered digital media is placing considerable strain on traditional operating systems. We believe the continued growth of the Internet and emergence of Internet appliances provide a significant market opportunity to increase the installed base of BeOS. Internet appliances are any device primarily used for accessing the Internet and using Internet-based content, services and applications. Internet appliances can include low-cost or entry-level PCs, flat panel terminals, smart hand-held devices such as PDAs, Internet screen-phones, and set-top boxes that provide Internet access via the television. International Data Corporation ("IDC") estimates that the number of Internet users will grow from approximately 100 million worldwide in 1998 to approximately 319 million worldwide by the end of 2002. IDC also projects that worldwide shipments of Internet appliances (excluding PCs) will grow from 5.9 million units in 1998 to over 55.7 million in 2002. By 2002, IDC estimates that there will be more than 151 million Internet appliances installed worldwide. Our strategy is to promote BeOS through relationships with OEMs, application developers, consumer electronic manufacturers and Internet service and content providers. We currently have strategic relationships with Hitachi, Ltd., Fujitsu Computers GmbH and Intel Corporation. We are working with application developers to increase the number and range of applications running on BeOS, including audio and video mixing, graphics, productivity and gaming applications. Current Internet-based applications running on BeOS include a native Web browser, email, file transfer and productivity tools. 3 To further promote BeOS as the operating system of choice for digital media and Internet-based applications, we will launch the "Be Everywhere" marketing campaign, the goal of which will be to encourage use and increase awareness of BeOS. We currently market and sell BeOS through distributors, resellers and our Be Depot.com Web site, and we intend to establish agreements with OEMs and Internet appliance manufacturers to bundle BeOS with their hardware platforms and devices. Our objective is to establish BeOS as the premier operating system for Internet appliances and for professionals, enthusiasts and consumers demanding media-rich capabilities on any hardware platform. Be was founded in 1990. Our principal executive offices are located at 800 El Camino Real, Suite 400, Menlo Park, California 94025, and our telephone number is (650) 462-4100. Our Web site address is www.be.com. Information contained on our Web site does not constitute part of this prospectus. 4 The Offering Common stock offered by us................... [ ] shares Common stock to be outstanding after the offering.................................... [ ] shares Use of proceeds.............................. For increased sales and marketing activities, research and development, working capital and other general corporate purposes. See "Use of Proceeds." Proposed Nasdaq National Market symbol....... BEOS
The total number of shares of common stock to be outstanding after the offering shown above does not include (1) up to [ ] shares issuable pursuant to the underwriters' over-allotment option, (2) 5,910,347 shares reserved for issuance upon the exercise of stock options outstanding as of March 31, 1999 under our 1992 Stock Option Plan, 1999 Equity Incentive Plan, and 1999 Non-Employee Directors' Stock Option Plan, (3) 5,089,653 shares available for future grant or issuances under our 1992 Stock Option Plan, 1999 Equity Incentive Plan, 1999 Non-Employee Directors' Stock Option Plan, and our Employee Stock Purchase Plan, and (4) outstanding warrants to purchase an aggregate of 2,870,975 shares of common stock. Except as otherwise indicated, all information in this prospectus assumes: . the underwriters' over-allotment option is not exercised; . automatic conversion of each outstanding share of preferred stock into one share of common stock; . our reincorporation in Delaware prior to the closing of this offering; and . a for one stock split of our common stock prior to the closing of this offering. 5 SUMMARY CONSOLIDATED FINANCIAL DATA The following table summarizes the financial data for our business during the periods indicated. The data set forth below should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and notes thereto included elsewhere in this prospectus.
Three Months Year Ended December 31, Ended March 31, ---------------------------------------------- ---------------- 1994 1995 1996 1997 1998 1998 1999 ------- -------- ------- -------- -------- ------- ------- (in thousands, except per share data) Consolidated Statement of Operations: Net revenues............ $ - $ - $ - $ 86 $ 1,199 $ 64 $ 309 Cost of revenues (1).... - - - 84 2,161 143 85 ------- -------- ------- -------- -------- ------- ------- Gross profit (loss)..... - - - 2 (962) (79) 224 Operating expenses: Research and development.......... 2,004 2,268 3,039 4,422 5,792 1,075 1,887 Sales and marketing... 447 1,558 2,711 4,032 4,496 856 1,754 General and administrative....... 939 927 1,292 1,694 2,310 451 865 Amortization of deferred stock compensation (2)..... - - 955 867 3,881 537 1,665 ------- -------- ------- -------- -------- ------- ------- Total operating expenses........... 3,390 4,753 7,997 11,015 16,479 2,919 6,171 ------- -------- ------- -------- -------- ------- ------- Loss from operations.... (3,390) (4,753) (7,997) (11,013) (17,441) (2,998) (5,947) Other income (expense), net.................... 53 (24) 220 580 580 74 101 Settlement received (3).................... 750 - - - - - - ------- -------- ------- -------- -------- ------- ------- Net loss................ $(2,587) $ (4,777) $(7,777) $(10,433) $(16,861) $(2,924) $(5,846) ======= ======== ======= ======== ======== ======= ======= Net loss attributable to common stockholders.... $(2,587) $ (4,777) $(7,902) $(10,448) $(18,423) $(2,990) $(5,979) ======= ======== ======= ======== ======== ======= ======= Net loss per common share--basic and diluted (4)............ $(80.84) $(154.10) $(10.85) $ (4.87) $ (5.80) $ (1.09) $ (1.54) ======= ======== ======= ======== ======== ======= ======= Shares used in per common share calculation--basic and diluted (4)............ 32 31 728 2,145 3,178 2,740 3,881 ======= ======== ======= ======== ======== ======= =======
As of March 31, 1999 -------------------------------- Actual Pro Forma Adjusted (5) -------- ---------------------- (in thousands) Consolidated Balance Sheet Data: Cash, cash equivalents and short-term investments................................. $ 8,307 $ Working capital.............................. 5,974 Total assets................................. 10,083 Mandatorily redeemable convertible preferred stock....................................... 38,137 Total stockholders' equity (deficit)......... $(31,697)
- -------- (1) Our cost of revenues for the year ended December 31, 1998 includes a $1.2 million expense attributable to the write-off of capitalized costs relating to the acquisition of technology no longer useful to the development of BeOS. (2) This expense relates to amortization of deferred compensation which was recorded by us and which represents the difference between the deemed fair value of our common stock, determined by the board with the benefit of hindsight, and the exercise price of options at the date of grant. (3) The settlement received relates to the resolution of a dispute with a supplier. In connection with the settlement, the supplier paid us $750,000. (4) See Note 2 of Notes to Consolidated Financial Statements for an explanation of the determination of the number of shares used in computing net loss per common share - basic and diluted. (5) Adjusted to give effect to the sale of shares of common stock offered by us hereby at the initial public offering price per share of $ and the receipt of the estimated net proceeds from this offering. See "Use of Proceeds" and "Capitalization." 6 RISK FACTORS An investment in our common stock involves a high degree of risk. You should carefully consider the following information about these risks together with other information contained in this prospectus, before you decide to purchase our common stock. If any of the following risks actually occur, our business would likely suffer. In such case, the trading price of our common stock could decline, and you may lose all or part of the money you paid to buy our common stock. This prospectus contains forward-looking statements that involve risks and uncertainties. Many factors, including those described below, may cause actual results to differ materially from our anticipated results. Risks Related to Competition and Market Acceptance of BeOS The market for Internet appliances may not evolve and we may not be able to compete effectively in this market. Our business and prospects depend on the development and market acceptance of Internet appliances and our ability to successfully market BeOS as a viable operating system for Internet appliances. The market for Internet appliances is new, unproven and subject to rapid technological change. This market may never develop or may develop at a slower rate than we anticipate. In addition, our success in marketing BeOS as a platform for Internet appliances is dependent upon developing and maintaining relationships with industry-leading computer and consumer electronics manufacturers, Internet service providers and content creators. There is already intense competition to offer non-PC devices that provide access to the Internet and enable digital media content on the Internet. Companies such as Microsoft Corporation, Oracle Corporation, Apple Computer, Inc. and Spyglass, Inc. have operating systems that are being used or may be used for Internet appliances. These companies have an established market presence, relationships with computer and consumer electronic manufacturers who will develop and market Internet appliances, and have significantly greater financial, marketing and technical resources than we do. These companies, together with a large number of smaller companies who offer operating systems that may be used for Internet appliances, may capture a larger portion of the market than we do. Our failure to establish relationships with other companies that offer Internet appliances and establish BeOS in this market would have a material adverse effect on our business and prospects. We have only one product that may never gain broad market acceptance. BeOS is our only product and we will derive all of our revenue for the foreseeable future from sales of BeOS. To date, BeOS has been used primarily by a limited number of enthusiasts and application developers. Our business and prospects are highly dependent on the broader market acceptance of BeOS as a viable platform for a wide variety of applications and devices enabling digital media and Internet-based applications. The ability of BeOS to gain broad support from developers, enthusiasts and OEMs is unproven. BeOS may never gain broad market acceptance among consumers and OEMs. At present, a large base of commercially available software developed for use on BeOS does not exist. Consumers and OEMs may not perceive any significant advantages over traditional operating systems such as Microsoft Windows, Apple's Mac OS or the UNIX-based operating systems. In addition, we may be unable to demonstrate the commercial viability and cost-effective nature of BeOS. We may also be unsuccessful at marketing BeOS as the operating system of choice among professional users, consumers or applications developers. As a result, potential customers may not purchase BeOS and OEMs may not elect to incorporate BeOS in their products. If BeOS is not accepted or adopted by an increasing number of developers and OEMs, our business and prospects will be materially adversely affected. Traditional or new operating systems could evolve to more effectively address the digital media requirements of users and OEMs. For example, enhancements and features could be added to Microsoft's Windows operating system and Apple's Mac OS which could significantly decrease the differences between 7 BeOS and these operating systems. As a result, any technical or marketing advantage we may have had in the market for operating systems could be lost and the demand and acceptance of BeOS would diminish. We face intense competition from companies with significantly greater financial, marketing, and technical resources. The market for computer operating systems is intensely competitive. This market is dominated by one company, Microsoft Corporation, which has significantly greater brand recognition, market presence and financial, marketing and distribution resources than we do. Other companies that offer competing operating systems include Apple Computer, Inc., IBM, Oracle Corporation, Sony Corporation and a number of companies that offer versions of the UNIX operating system, including SGI, the Hewlett-Packard Company and Sun Microsystems. In addition, we face competition from a number of smaller companies developing and marketing UNIX-based operating systems such as Linux. Many of our current and potential competitors have longer operating histories, a larger installed customer base, a greater number of applications, greater brand recognition, and greater financial, technical, marketing and distribution resources than we do. In addition, our competitors may offer their operating systems bundled with popular applications or other products which we do not have. This could discourage users from purchasing BeOS. Present and future competition could result in the failure of BeOS to gain an economically sustainable level of market acceptance, which could materially adversely affect our business or prospects. Moreover, we believe that some of our competitors may use their dominant position to secure preferential distribution and bundling contracts with third parties such as value-added resellers, OEMs, Internet service and content providers, and software developers including third parties with whom we have relationships. Such preferential arrangements could significantly reduce the demand and market acceptance for the BeOS product. See "Business-Competition." Risks Related to our Business and Operations To be successful, we need to establish and maintain strategic relationships. Our success in increasing the installed base of BeOS, particularly in the Internet appliance market, depends in large part on our ability to establish and maintain strategic relationships with industry-leading computer and consumer electronic manufacturers and Internet service and content providers. We have entered into agreements with one OEM and a number of resellers and distribution partners. We presently do not have agreements with any US-based OEM. We cannot be certain that we will be able to reach agreements with additional partners on a timely basis or at all, or that these partners will devote adequate resources to promote BeOS. We may be unable to enter into new agreements with additional partners on terms favorable to us, or at all. If we are unable to develop or maintain relationships with OEMs, we will have difficulty selling and gaining market acceptance for BeOS and our business and results of operations will be materially adversely affected. Our success depends upon availability of third party applications that operate on BeOS. Demand and market acceptance for BeOS will significantly depend upon the availability of an increasing number of third party applications that operate on the BeOS platform. These applications include video and audio editing programs, 3D games, creative audio and video content development and manipulation, and personal productivity applications. We intend to encourage the development of an increasing number of applications that operate on BeOS by attracting third party developers to the BeOS platform and by maintaining our existing developer relationships through marketing, technical support and financial incentives for third party developers. However, third party developers are generally under no obligation to develop applications based on the BeOS platform. A developer's decision to write applications for BeOS is based in part on the perception and analysis of the 8 relative technical, financial and other benefits of developing applications for the BeOS platform versus writing applications for more popular operating systems such as Microsoft's Windows or Apple's Mac OS. If we fail to attract a sufficient number of application developers who develop and market successful applications on BeOS, the demand for BeOS and our business will suffer. Moreover, any delay or unsuccessful release of third party applications could have a material adverse effect on our business and results of operations. We have limited experience marketing and selling our products, which makes it difficult to evaluate our business. We were founded in 1990 and shipped our first commercial product in December 1998. Prior to 1998, our business was primarily focused on research and product development activities. To date, we have not generated any significant revenues from sales of BeOS and this makes it difficult to evaluate our business and prospects. Your evaluation of whether to purchase our common stock must be made in light of the risks and uncertainties frequently encountered by companies in an early stage of development and offering products in a market dominated by Microsoft. Risks faced in this regard include: . our inability to gain any sustainable level of market share or to compete with traditional operating systems such as Microsoft's Windows; . costs and delays in releasing new versions and product upgrades; and . our inability to manage or adapt to new and evolving trends in digital media and Internet appliances. We may not successfully meet any of these challenges. Our failure to meet one or more of these challenges could materially adversely affect our business and prospects. It is also difficult to predict the size and future growth rate, if any, of the market for BeOS. We have limited experience upon which to determine or predict trends that may emerge and adversely affect our business or prospects. The market for BeOS may not develop or may develop more slowly than we anticipate, and may never become economically sustainable. Our revenues and operating results are subject to significant fluctuations that may negatively impact our stock price. Our revenues and operating results will likely vary significantly from period to period due to a number of factors, many of which are outside our control. These include: . the demand for and acceptance of our operating system; . deferral of customer orders in anticipation of new products, product enhancements or upgrades by us or by our competitors; . the timing and availability of key applications developed by third parties to be used on BeOS; . delays and defects in BeOS; . our ability to attract and retain key strategic partners, including OEMs and third party application developers; . success of OEMs and other third parties that sell products that incorporate BeOS; . new product releases and product enhancements by us and our competitors; . changes in our pricing policies or the pricing policies of our competitors; . the mix of sales channels through which our products and services are sold; . the mix of domestic and international sales; . the risks inherent in international operations, including foreign currency fluctuations; . potential acquisitions and integrations of technology or businesses; 9 . changes in accounting standards, including standards relating to revenue recognition, business combinations and stock-based compensation; and . the impact of Year 2000 concerns. Any one or all these factors could materially adversely affect our business and results of operations. Based on these factors, we may fail to meet the expectations of the public market in any given period and our stock price would likely be materially adversely affected. You should not rely on our quarterly revenues and operating results to predict our future performance. We may be unable to expand our sales and support organization to increase sales and market awareness for BeOS. We must expand our sales force and the number of resellers and distributors carrying BeOS domestically and internationally. Without this increase we may be unable to increase sales and market awareness of BeOS. To do this will require a significant increase in sales and marketing expenses which may not be offset by any corresponding increase in revenues. In addition, our sales and marketing efforts aimed at OEMs and Internet service and content providers require a sophisticated sales force and the commitment of significant financial resources on our part. We recently hired a senior sales and marketing executive and plan to hire additional sales and marketing personnel. Competition for qualified sales personnel is intense, especially those with an understanding of emerging Internet-based technologies and markets. We may not be able to hire the type and number of sales personnel that we require on a timely basis or at all. We will need to increase our staff to support new customers and the expanding needs of existing customers. Hiring customer service and support personnel is very competitive in our industry due to the limited number of people available with the necessary technical skills and understanding of operating systems and Internet-based applications. If we cannot hire adequate numbers of qualified sales, marketing and customer service personnel, our business could suffer materially. We are highly dependent on third party development tools. We are highly dependent on development tools provided by a limited number of third party vendors. Together with our application developers, we primarily rely upon software development tools provided by Cygnus Solutions and Perforce Software. If Cygnus or Perforce fail to support or maintain these development tools, we will either have to devote resources to maintain and support the tools ourselves or transition to another vendor. Any maintenance or support of the tools by us or the transition could be costly, time consuming, could delay our product release and upgrade schedule, and could delay the development and availability of third party applications used on BeOS. Failure to procure the needed software development tools or any delay in the availability of third party applications could negatively impact our ability and the ability of third party application developers to release and support BeOS and the applications that run on it. These factors could negatively and materially affect the acceptance and demand for BeOS, our business and prospects. We may be unable to adjust expenses in a timely manner to compensate for revenue shortfalls. Our expense levels are fixed and based, in part, on our expectations of future sales. We may be unable to adjust spending in a timely manner to compensate for any sales shortfall. A significant portion of our expenses include minimum royalty obligations for licensed technology, payment obligations under non-cancellable lease arrangements, rent and other payments that are fixed and do not vary with revenues. We plan to significantly increase our operating expenses to: . expand our sales and marketing efforts; . broaden our customer support capabilities; . expand our relationship with third party software developers; 10 . develop new distribution channels; and . fund greater levels of research and development. Any delay in generating revenue could cause significant variations in our operating results from quarter to quarter and could result in substantial operating losses. If we fail to generate sufficient sales or if our sales are below expectations, operating results are likely to be materially adversely affected. We will forego near-term revenue potential in our effort to increase market acceptance for BeOS. In an attempt to increase the installed base and market acceptance of BeOS, we may choose to forego immediate revenue potential by providing BeOS at little or no cost. Users, therefore, may be unwilling to pay for any upgrades or new releases of BeOS. Our decision to forego near term revenue in expectation of an increased installed base may not yield market acceptance and future revenues. In addition, we may reduce prices in response to competitive factors or to pursue new market opportunities. We expect continued erosion in the average selling prices of our products. We have experienced erosion in the average selling prices of our products due to a number of factors, including: . competitive pricing pressures; . mix in sales channels; . rapid technological changes; and . sales discounts. We anticipate that the average selling prices of our products will fluctuate and decrease in the future in response to these factors. We also anticipate that the average selling price of our products will decrease as we market BeOS to Internet appliances and other low-cost device manufacturers. Therefore, to maintain or increase our gross margins, we must develop and introduce new products and product enhancements on a timely basis. We must also continually reduce our product costs. As our average selling prices decline, we must increase our unit sales volume to maintain or increase our revenue. If our average selling prices decline more rapidly than our costs, our gross margins will decline, which could seriously harm our business and results of operations. We may never achieve profitability. We incurred significant net losses of approximately $7.8 million in 1996, $10.4 million in 1997 and $16.9 million in 1998. As of March 31, 1999, we had an accumulated deficit of approximately $54.6 million. We expect to incur significant additional losses and continued negative cash flow from operations in 1999 and beyond and we may never become profitable. Due to our financial position as of December 31, 1998 and absent the raising of additional funds, our independent accountants have expressed substantial doubt regarding our ability to continue as a going concern. We expect to continue to incur significant sales and marketing, research and development and general and administrative expenses. We will need to generate significant revenues to achieve profitability and positive operating cash flows. Even if we do achieve profitability and positive operating cash flow, we may not be able to sustain or increase profitability or positive operating cash flow on a quarterly or annual basis. We will need to raise additional capital that may not be available to us. We currently believe that our existing capital resources, combined with the net proceeds of this offering, will be sufficient to meet our presently anticipated cash requirements for at least the next 12 months. However, 11 we will need to raise additional capital and we cannot be certain that we will be able to obtain additional financing on favorable terms, if at all. If we cannot raise additional capital on acceptable terms, we may not be able to expand our sales and marketing efforts, further develop or enhance BeOS, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements. Any of these events could have a material adverse effect on our business and results of operations. If additional capital is raised through the issuance of equity securities, your percentage ownership of the common stock will be reduced, you may experience dilution in net book value per share, or the new equity securities may have rights, preferences or privileges senior to those of the holders of our common stock. Any debt financing, if available, may involve covenants limiting, or restricting our operations or future opportunities. We face risks relating to our product returns and price reduction policies. We provide most of our distributors and resellers with product return rights for stock balancing or limited product evaluation. Stock balancing rights permit distributors to return products to us for credit, subject to some limitations. We may experience significant returns in the future and our reserves may be inadequate to cover such returns. We also provide most of our distributors and resellers with price protection rights. Price protection rights require that we grant retroactive price adjustments for inventories of our products held by distributors or resellers if we lower our prices for these products. Product returns or price protection rights could have a material adverse effect on business and results of operations. We are dependent on the licensing of enabling technologies from third parties. The demand and acceptance of our product is also dependent upon our ability to license key enabling technologies. We license from third parties compression and decompression algorithms known as "codecs" and communications protocols that facilitate the movement of rich media data and large files and enables the connection of consumer products such as digital camcorders or set-top boxes directly to a personal computer. We may be unable to license these enabling technologies at favorable terms or at all, which may result in lower demand for BeOS. We face risks associated with international operations. We market and sell our products in the United States and internationally. International sales of our products accounted for approximately 53% and 61% of total revenues for the year ended December 31, 1998 and for the three month period ended March 31, 1999, respectively. We have a subsidiary in France that markets and sells our products in Europe. In addition, we may in the future open offices in other countries to market and sell our products in those countries and surrounding regions. The expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources. We cannot be certain that our investments in establishing facilities in other countries will produce desired levels of revenue. We currently have limited experience in developing localized versions of our products and marketing and distributing our products internationally. Additional risks inherent in our international operations, any of which could potentially harm our business, include: . the impact of economic and political factors outside the United States; . greater difficulty in accounts receivable collection and longer collection periods; . difficulties and costs of staffing and managing foreign operations; . reduced protection for intellectual property rights in some countries; . potentially adverse tax consequences; . costs of localizing our products for foreign markets; . burdens of complying with a wide variety of foreign laws, particularly with respect to intellectual property and license requirements; 12 . political and economic instability; and . impact of currency exchange fluctuations. Presently all of our international revenues are denominated in US dollars. In the future, we expect an increasing portion of our international revenues to be denominated in foreign currencies. We do not currently engage in currency hedging activities. Future fluctuations in currency exchange rates may adversely affect revenues from international sales. We depend on key personnel and attracting qualified employees for our future success. Our success depends to a significant degree upon the continued contributions of our executive management team, including our co-founders Jean-Louis Gassee and Steve Sakoman, our Chief Executive Officer and Vice President, Engineering and Chief Technical Officer, respectively, and other senior level financial, technical, marketing and sales personnel. The loss of these or other members of our senior management team could have a material adverse effect on our business and results of operations. As of March 31, 1999, we had 93 employees. We anticipate that the number of employees may increase significantly during the next 12 months as we increase our research and development activities and sales and marketing efforts. Our success depends upon our ability to attract and retain additional highly qualified senior management and technical, sales and marketing personnel to support growing operations. Competition for qualified employees is intense. The process of locating and hiring personnel with the combination of skills and attributes required to carry out our strategy is time-consuming and costly. The loss of key personnel or our inability to attract additional qualified personnel to supplement or, if necessary, to replace existing personnel, could have a material adverse effect on our business and results of operations. See "Management." We may be unable to manage any growth that we may experience. To succeed in the implementation of our business strategy, we must rapidly execute our sales and marketing strategy, further develop and enhance our products and product support capabilities, and implement effective planning and operating processes. To manage any anticipated growth we must: . establish and manage multiple relationships with OEMs, Internet service and content providers and other third parties; . continue to implement and improve our operational, financial and management information systems; and . hire, train and retain additional qualified personnel. Our systems, procedures and controls may not be adequate to support our operations, and our management may not be able to perform the tasks required to capitalize on market opportunities for our products and services. If we fail to manage our growth effectively, our business could suffer materially. We face risks associated with foreign currencies and the transition to the euro. Due to our international operations, we incur expenses in a number of currencies. A majority of our sales, including international sales, however, are currently denominated in U.S. dollars. In the future, we expect an increasing portion of our international revenues to be denominated in local currencies. Fluctuations in the value of the U.S. dollar and foreign currencies may make our products more expensive than local product offerings. We do not currently engage in currency hedging activities to limit the risks of exchange rate fluctuations. Fluctuations in the value of foreign currencies could have a negative impact on the profitability of our global operations, which would seriously harm our business, financial condition and results of operations. 13 As of January 1, 1999, several member countries of the European Union established fixed conversion rates among their existing local currencies and adopted the euro as their new common legal currency. The euro trades on currency exchanges, and the legacy currencies will remain legal tender in the participating countries for a transition period that expires January 1, 2002. During the transition period, parties can make cashless payments in the euro and elect to pay for goods and services and transact business using either the euro or a legacy currency. Between January 1, 2002 and July 1, 2002, the participating countries will introduce euro notes and coins and withdraw all legacy currencies so that they will no longer be available. We are assessing our information technology systems to determine whether they allow for transactions to take place in both the legacy currencies and the euro and accommodate the eventual elimination of the legacy currencies. Our information technology systems' inability to allow for these transactions or accommodate the elimination of the legacy currencies may harm our business, financial condition and results of operations. Risk Related to our Industry We may not be able to respond to the rapid technological change in the markets in which we compete. The markets in which we participate or seek to participate are subject to: . rapid technological change; . frequent product upgrades and enhancements; . changing customer requirements for new products and features; and . multiple, competing and evolving industry standards. The introduction of operating systems that contain new technologies and the emergence of new industry standards could render BeOS less desirable or obsolete. In particular, we expect that changes in the Internet-based technology and digital media enabling technology will require us to rapidly evolve and adapt our products to be competitive. As a result, the life cycle of each release of BeOS is difficult to estimate. To be competitive, we will need to develop and release new products and operating system upgrades that respond to technological changes or evolving industry standards on a timely and cost- effective basis. We cannot be certain that we will successfully develop and market these types of products and operating system upgrades or that our products will achieve market acceptance. If we fail to produce technologically competitive products in a cost-effective manner and on a timely basis, our business and results of operations could suffer materially. Product defects may harm our business and reputation. Computer operating systems, including BeOS, and related software products frequently contain errors or bugs. We have detected and may continue to detect errors and product defects in connection with new release and upgrades of our operating system and related products. Despite our internal testing and testing by current and potential customers, errors may be discovered after BeOS or related software and tools are installed and used by customers. These errors could result in reduced or lost revenue, delay in market acceptance, diversion of development resources, damage to our reputation, or increased service and warranty costs, any of which could materially adversely affect our business and results of operations. Our products must successfully integrate with products from other vendors, such as third party software applications and computer hardware. As a result, when problems occur in a personal computer or any other device or network using our products, it may be difficult to identify the source of the problem. The occurrence of hardware and software errors, whether caused by our products or another vendor's products, may result in reduced or loss of market acceptance of our products, and any necessary product revisions may force us to incur significant expenses. The occurrence of these problems could materially adversely affect our business and results of operations. 14 We face risks relating to our online operations. A significant barrier to widespread use of electronic commerce sites, such as our BeDepot.com Web site, is concern regarding the security of confidential information transmitted over public networks. We rely on encryption and authentication technology licensed from third parties to provide the security and authentication necessary to effect secure transmission of confidential information, such as customer credit card numbers. Concerns over the security of transactions conducted on the Internet and the privacy of users may also inhibit the growth of online services, especially as a means of conducting commercial transactions. Our failure to prevent any security breaches may have a material adverse effect on our business and results of operations. Despite our efforts to protect the integrity of our Web site and products sold on it, a party may be able to circumvent our security measures and could misappropriate proprietary information or cause interruptions in our operations and damage to our reputation. Any such 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. If any compromise of our security were to occur, it could materially adversely affect our reputation and business. Our success is dependent on the continued growth and improvement of the Internet. Our future success depends on the continued growth and reliance by consumers and businesses on the Internet, particularly in the Internet appliance market. 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 any significant market for commercial use of the Internet will continue to develop and expand. Either Internet use patterns may decline as the novelty of the medium recedes or the quality of products and services offered online may not support continued or increased use. 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 Internet appliances which could in turn materially adversely affect our business and prospects. Problems related to the "Year 2000 Issue" could adversely affect our business. The "Year 2000 Issue" is typically the result of limitations of certain software written using two digits rather than four digits to define the applicable year. If software with date-sensitive functions are not Year 2000 compliant, they may recognize a date using "00" as the year 1900 rather than the year 2000. We believe that our principal product, BeOS, has been designed to avoid the Year 2000 Issue. However, if for any reason, BeOS is not Year 2000 compliant, we could face unexpected expenses redesigning BeOS, which could harm our business and reputation and delay any market acceptance for BeOS. In addition, our operating system operates in complex network environments and directly and indirectly interacts with a number of other hardware and software systems and applications. These hardware system and software applications may contain errors or defects associated with Year 2000 date issues. We are presently 15 unable to predict to what extent our business may be affected if hardware systems or software applications and tools that operate in conjunction with our operating system experience the Year 2000 Issue. Known or unknown errors or defects that affect the operation of BeOS, when used in conjunction with other hardware or software could result in delay or loss of revenue, interruption of our Web site product distribution, damage to our reputation and possible litigation, any of which could materially adversely affect our business and results of operations. We have initiated an internal review of our information systems including software programs used in our accounting and financial reporting functions. Based on our review to date and preliminary information gathered from third party vendors, we do not believe that there are any significant Year 2000 Issues relating to our information systems. However, our review to date has been preliminary and is not expected to be completed until the third quarter of 1999. We will continue to request vendors of the material hardware and software components of our information systems to provide assurances of their Year 2000 compliance. We plan to complete this process during the third quarter of 1999. We are currently assessing our material non-information technology systems and will seek assurances of Year 2000 compliance from providers of these systems. Our costs incurred to date with respect to Year 2000 compliance have not been significant. While we believe our future Year 2000 compliance costs will not be significant, we have no way of ascertaining this until our testing is complete and key vendors and suppliers are contacted. We may not be able to completely evaluate whether our systems will need to be revised or replaced and the costs associated with such efforts. If our efforts to address Year 2000 risks are not successful, or if suppliers or other third parties with whom we conduct business do not successfully address such risks, it could have a material adverse effect on our business. We also depend on the Internet and more specifically on our BeDepot.com Web site for release and distribution of BeOS and related support tools and applications. The Internet is a medium which is susceptible to the Year 2000 Issues. The Year 2000 Issue could result in a system failure or miscalculations causing significant disruption of our Web site operations, including, among other things, interruptions in the distribution of BeOS and related support tools and applications over the Internet. This could also include disruption in the distribution of third party software applications over our electronic commerce Web site. It is possible that this disruption will continue for an extended period of time. Any disruption in our Web site operations or our electronic commerce site could result in loss of revenues and could harm our reputation and business. Also, Year 2000 compliance efforts may involve significant time and expense, and uncorrected problems could materially adversely affect our business. We have not yet fully developed a comprehensive contingency plan to address situations that may result if we are unable to achieve Year 2000 readiness of our critical operations. Development of a contingency plan is in progress and is expected to be developed in detail and expanded during the second half of 1999. We may not be able to develop a contingency plan that will adequately address all Year 2000 Issues. Our failure to develop and implement, if necessary, an appropriate contingency plan could materially adversely affect our business and results of operations. Our success depends on our ability to protect and enforce our proprietary rights. Our success depends significantly on our ability to protect our proprietary rights to technologies used in our products. We rely primarily on a combination of copyright, trademark and trade secret laws, as well as confidentiality procedures and contractual provisions to protect our proprietary rights. To date, we have no patents, and existing copyright laws afford only limited protection for our software. A substantial portion of our sales are derived from the licensing of products under "shrink wrap" license agreements that are not signed by licensees and therefore may be unenforceable under the laws of certain jurisdictions. Despite any measures taken to protect our proprietary rights, attempts may be made to copy aspects of BeOS or to obtain and use information that we regard as proprietary, which could harm our business. In addition, the laws of some foreign countries do not protect our intellectual property to the same extent as U.S. laws. Finally, our competitors may independently develop similar technologies. The loss or misappropriation of any material trademark, trade name, trade secret or copyright could have a material adverse effect on our business and results of operations. 16 The software industry is characterized by the existence of a large number of patents and frequent litigation based on allegations of patent infringement. As the number of entrants into our market increases, the possibility of an infringement claim against us grows. For example, we may be inadvertently infringing on a patent. In addition, because patent applications can take many years to issue, there may be a patent application now pending of which we are unaware upon which will be infringing when it issues in the future. Although we do not believe that our products infringes on the rights of third parties, third parties may still assert infringement claims against us in the future and this could result in costly litigation and distraction of management. To address such patent infringement claims, we may have to enter into royalty or licensing agreements. Licenses may not be available on reasonable terms or at all, which could have a material adverse effect on our business and results of operations. Risks Related to our Stock The market price of our common stock will fluctuate. Prior to this offering, there has been no public market for our common stock. The initial public offering price will be determined by negotiations between the representatives of the underwriters and us and may not be indicative of the market price for the common stock that may develop after this offering. We do not know the extent to which investor's interest will lead to the development of an active public market. Investors may not be able to resell our common stock at or above the initial public offering price. In addition, many factors could cause the market price of our common stock to fluctuate substantially, including: . changes in estimates of our financial performance or changes in recommendations by securities analysts; . release of new or enhanced products or introduction of new marketing initiatives by us or our competitors; . announcement by us or our competitors of significant strategic partnerships, joint ventures, significant contracts, or acquisitions; . announcement by us of loss of significant strategic partnerships, joint ventures, significant contracts or acquisitions; . the market price generally for technology stocks; . fluctuations in operating results; . announcements by us or our competitors concerning software errors or delays in product releases; . additions or departures of key personnel; and . availability of key software applications developed for our products or our competitor's products. Specifically, certain market segments such as the computer software industry have experienced dramatic price and volume fluctuations from time to time. These fluctuations may or may not be based upon any business or operating results. Our common stock may experience similar or even more dramatic price and volume fluctuations which may continue indefinitely. These fluctuations, as well as general economic and market conditions, may have a material adverse effect on the market price of our common stock. In the past, securities class action litigation has often been brought against a company following price declines. We may in the future be the target of similar litigation. Securities litigation could result in substantial costs and diversion of management attention and resources, all of which could materially harm our business and results of operation. 17 Future sales of our common stock may depress our stock price. The market price of our common stock could drop as a result of sales of a large number of shares of common stock in the market after this offering or in response to the perception that sales of large number of shares could occur. No prediction can be made about the effect that future sales of common stock will have on the market price of such shares. Upon completion of the offering, we will have [ ] shares of common stock outstanding ([ ] shares if the underwriters' over-allotment option is exercised in full). Immediately upon effectiveness of this offering, the shares offered hereby (plus any shares issued upon exercise of the underwriters' over-allotment option) will be freely tradable. Of the remaining shares, [ ] are subject to lock-up agreements under which the holders of these shares have agreed not to sell or otherwise dispose of their shares for a period of 180 days after the date of effectiveness of this offering without the prior written consent of Volpe Brown Whelan & Company, LLC. Of the shares outstanding prior to the offering, all of these shares will be shares of "restricted" common stock as the term is defined under Rule 144 promulgated under the Securities Act. In addition, options to purchase up to 5,910,347 shares of common stock from us are outstanding as of March 31, 1999 under our 1992 Stock Option Plan, 1999 Stock Incentive Plan and 1999 Non-Employee Directors' Stock Option Plan. Following this offering, it is expected that the shares underlying these options will be registered. See "Management," "Shares Eligible for Future Sale" and "Underwriting." Purchasers of common stock in this offering will suffer immediate and substantial dilution. The initial public offering price is substantially higher than the book value per share of our common stock. As a result, you will experience immediate and substantial dilution if you purchase shares of common stock in this offering. This dilution is in large part because the earlier investors in Be paid substantially less than the initial public offering price in this offering when they purchased their shares of common stock. You will experience additional dilution upon exercise of outstanding stock options and warrants. See "Dilution." Management has broad discretion on how to use the proceeds from this offering. Management will have broad discretion with respect to the expenditure of the net proceeds from this offering. A substantial portion of the net proceeds we receive in connection with this offering will be for sales and marketing of the BeOS, research and development activities and other working capital and general corporate purposes. You will be entrusting your funds to our management, upon whose judgment you must depend, with limited information concerning the specific working capital requirements and general corporate purposes to which the funds will ultimately be applied. We may not be able to yield a significant return on any investment of the proceeds. See "Use of Proceeds." We may engage in acquisitions that may harm our results, dilute our stockholders and cause us to incur debt or assume contingent liabilities. As part of our business strategy, we may make investments in complementary companies, products or technologies that we believe would be advantageous to the development of our business. While we currently have no formal discussions, agreements or negotiations underway with respect to any such acquisition, we may acquire businesses, products or technologies in the future. If we buy a company, we could have difficulty in assimilating that company's personnel and operations. In addition, the key personnel of the acquired company may decide not to work for us. If we make other types of acquisitions, we could have difficulty in assimilating the acquired technology or products into our operations. These difficulties could disrupt our ongoing business, distract our management and employees and increase our expenses. Furthermore, we may be required to incur debt or issue equity securities to pay for any future acquisitions, the issuance of which could be dilutive to our existing stockholders. 18 Our Amended and Restated Certificate of Incorporation, bylaws and Delaware law contain provisions that could discourage a third party from acquiring us and consequently decrease the market value of our common stock. Our Amended and Restated Certificate of Incorporation grants our board of directors the authority to issue up to 2,000,000 shares of preferred stock, and to determine the price, rights, preferences, privileges and restrictions, including voting rights of these shares without any further vote or action by the stockholders. Since the preferred stock could be issued with voting, liquidation, dividend and other rights superior to those of the common stock, the rights of the holders of common stock will be subject to, and may be adversely affected by, the rights of the holders of any preferred stock that may be issued. The issuance of preferred stock could have the effect of making it more difficult for a third party to acquire a majority of our outstanding voting stock which could decrease the market value of our stock. Further, provisions in our Amended and Restated Certificate of Incorporation and bylaws and of Delaware law could have the effect of delaying or preventing a third party from acquiring us, even if a change in control would be in the best interest of our stockholders. These provisions include the inability of stockholders to act by written consent without a meeting and procedures required for director nomination and stockholder proposal. See "Description of Capital Stock." 19 USE OF PROCEEDS We estimate that the net proceeds to us from the sale of the [ ] shares of common stock offered by us will be approximately $[ ] million, assuming an initial offering price of $[ ] per share and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. If the underwriter's over-allotment option is exercised in full, we estimate that the net proceeds will be approximately $[ ] million. We intend to use the net proceeds of this offering to increase sales and marketing activities, expand research and product development efforts, working capital and general corporate purposes. Pending use of such net proceeds for the foregoing purposes, the Company intends to invest such net proceeds in investment grade, interest-bearing marketable securities. DIVIDEND POLICY We have never declared or paid cash dividends on our capital stock. We currently expect to retain our future earnings, if any, for use in the operation and expansion of our business and do not anticipate paying any cash dividends in the foreseeable future. 20 CAPITALIZATION The following table sets forth our total capitalization as of March 31, 1999: (1) on an actual basis; (2) on a pro forma basis to reflect the automatic conversion of all outstanding shares of preferred stock into common stock; and (3) on a pro forma as adjusted basis to give effect to the receipt by us of the estimated net proceeds from the sale of [ ] shares of our common stock at an assumed initial public offering price of [ ] from this offering. This information should be read in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the financial statements and the notes thereto included elsewhere in this prospectus.
As of March 31, 1999 ------------------------------- Pro Forma Actual Pro Forma as Adjusted -------- --------- ----------- (in thousands) Long-term obligations, less current portion.... $ 601 $ 601 $ Mandatorily redeemable convertible preferred stock: $0.001 par value, 22,500,000 shares authorized on an actual basis; no shares authorized on a pro forma basis and pro forma as adjusted basis; 22,498,874 shares issued and outstanding on an actual basis; no shares issued outstanding on a pro forma basis and pro forma as adjusted basis................... 38,137 - - Stockholders' equity (deficit): Preferred Stock, $0.001 par value, no shares authorized on an actual basis; 2,000,000 shares authorized on an as adjusted basis and pro forma as adjusted basis, no shares outstanding................................. - - - Common stock, $.001 par value, 40,000,000 shares authorized, on an actual basis; 5,143,700 shares issued and outstanding on an actual basis; 78,000,000 shares authorized on a pro forma basis; 27,642,574 shares issued and outstanding on a pro forma basis; 78,000,000 shares authorized on a pro forma as adjusted basis, [ ] shares issued and outstanding on a pro forma as adjusted basis....................................... 5 28 Additional paid-in capital................... 32,719 70,833 Deferred stock compensation.................. (9,858) (9,858) Accumulated deficit.......................... (54,563) (54,563) -------- ------- ---- Total stockholders' equity..................... $(31,697) $ 6,440 $ -------- ------- ---- Total capitalization (deficit)............. $ 7,041 $ 7,041 $ ======== ======= ====
The share numbers above exclude: . up to [ ] shares issuable pursuant to the underwriters' over-allotment option; . 5,910,347 shares reserved for issuance upon the exercise of stock options outstanding as of March 31, 1999 under our 1992 Stock Option Plan, 1999 Equity Incentive Plan, and 1999 Non-Employee Directors' Plan; . 3,589,653 shares available for future grant or issuances under our 1992 Stock Option Plan, 1999 Equity Incentive Plan, and 1999 Non-Employee Directors' Plan; and . 2,870,975 shares of common stock issuable upon the exercise of warrants outstanding as of March 31, 1999. 21 DILUTION Our pro forma net tangible book value as of March 31, 1999 was approximately $6.4 million or $0.23 per share of common stock. After giving effect to the receipt by us of the estimated net proceeds from the sale of the [ ] shares of common stock offered by us at an assumed initial public offering price of $[ ] per share, we had a pro-forma as adjusted net tangible book value of approximately $[ ], or $[ ] per share of common stock. Net tangible book value per share, as adjusted, represents the amount of total tangible assets less total liabilities, divided by the number of shares of common stock outstanding. This represents an immediate increase in the net tangible book value of $[ ] per share to existing stockholders and an immediate dilution of $[ ] per share to new investors. The following table illustrates this per share dilution: Assumed initial public offering price per share.............. $[ ] Pro forma net tangible book value per share................ $(0.23) Increase per share attributable to new investors........... [ ] ------ Pro forma as adjusted net tangible book value per share after this offering............................................... [ ] ---- Pro forma dilution per share to new investors................ $[ ] ====
The following table sets forth, on a pro forma basis as of March 31, 1999, after giving effect to the automatic conversion of all outstanding preferred stock into common stock, the difference between the number of shares of common stock purchased from us, the total consideration paid to us and the average price per share paid by the existing stockholders and by new investors purchasing shares in this offering, before deducting estimated underwriting discounts and commissions and offering expenses payable by us at an assumed public offering price of $[ ] per share.
Shares Purchased Total Consideration ------------------ -------------------- Average Price Number Percent Amount Percent Per Share ---------- ------- ----------- ------- ------------- Existing stockholders... 27,642,574 [ ]% $53,149,341 [ ]% $1.92 New total............... [ ] $ [ ] [ ] [ ] --- ----------- --- ----- Total................. [ ] $ [ ] 100 % === =========== ===
The table and calculations above exclude: . options outstanding as of March 31, 1999, to purchase a total of 5,910,347 shares of common stock, with a weighted average exercise price of $3.45 per share; . warrants outstanding as of March 31, 1999 to purchase a total of 2,870,975 shares of common stock, with a weighted average exercise price of $2.31 per share; and . an aggregate of 9,500,000 shares of common stock reserved for issuance under our 1992 Stock Option Plan, 1999 Equity Incentive Plan, and 1999 Non-Employee Directors' Stock Option Plan. 22 SELECTED FINANCIAL DATA The tables that follow present portions of our consolidated financial statements and are not complete. You should read the following selected financial information in conjunction with our Consolidated Financial Statements and related Notes thereto and with "Management Discussion and Analysis of Financial Condition and Results of Operations" included elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 1996, 1997 and 1998, and the consolidated balance sheet data as of December 31, 1997 and 1998, are derived from and are qualified in their entirety by our Consolidated Financial Statements that have been audited by PricewaterhouseCoopers LLP, independent accountants, which are included elsewhere in this prospectus. The consolidated statement of operations data for the years ended December 31, 1994 and 1995 and the consolidated balance sheet data as of December 31, 1994, 1995 and 1996 are derived from audited consolidated financial statements that are not included in this prospectus. The historical results presented below are not necessarily indicative of the results to be expected for any future fiscal year. The consolidated statement of operations for the three months ended March 31, 1998 and 1999 and the consolidated balance sheet data as of March 31, 1999 are derived from unaudited consolidated financial statements included elsewhere in this prospectus. In the opinion of management, the unaudited consolidated financial statements include all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial position and results of operations for the period. See "Management's Discussion and Analysis of Financial Condition and Results of Operations."
Three Months Year Ended December 31, Ended March 31, ---------------------------------------------- ---------------- 1994 1995 1996 1997 1998 1998 1999 ------- -------- ------- -------- -------- ------- ------- (in thousands, except per share data) Consolidated Statement of Operations Data: Net revenues............ $ - $ - $ - $ 86 $ 1,199 $ 64 $ 309 Cost of revenues (1).... - - - 84 2,161 143 85 ------- -------- ------- -------- -------- ------- ------- Gross profit (loss)..... - - - 2 (962) (79) 224 Operating expenses: Research and development.......... 2,004 2,268 3,039 4,422 5,792 1,075 1,887 Sales and marketing... 447 1,558 2,711 4,032 4,496 856 1,754 General and administrative....... 939 927 1,292 1,694 2,310 451 865 Amortization of deferred stock compensation (2)..... - - 955 867 3,881 537 1,665 ------- -------- ------- -------- -------- ------- ------- Total operating expenses........... 3,390 4,753 7,997 11,015 16,479 2,919 6,171 ------- -------- ------- -------- -------- ------- ------- Loss from operations.... (3,390) (4,753) (7,997) (11,013) (17,441) (2,998) (5,947) Other income (expense), net.................... 53 (24) 220 580 580 74 101 Settlement received (3).................... 750 - - - - - - ------- -------- ------- -------- -------- ------- ------- Net loss................ $(2,587) $ (4,777) $(7,777) $(10,433) $(16,861) $(2,924) $(5,846) ======= ======== ======= ======== ======== ======= ======= Net loss attributable to common stockholders.... $(2,587) $ (4,777) $(7,902) $(10,448) $(18,423) $(2,990) $(5,979) ======= ======== ======= ======== ======== ======= ======= Net loss per common share--basic and diluted (4)............ $(80.84) $(154.10) $(10.85) $ (4.87) $ (5.80) $ (1.09) $ (1.54) ======= ======== ======= ======== ======== ======= ======= Shares used in per common share calculation--basic and diluted (4)............ 32 31 728 2,145 3,178 2,740 3,881 ======= ======== ======= ======== ======== ======= =======
As of December 31, As of ----------------------------------------- March 31, 1994 1995 1996 1997 1998 1999 ------ ------- ------ -------- -------- --------- (in thousands) Consolidated Balance Sheet Data: Cash, cash equivalents and short-term investments............. $ 712 $ 340 $6,670 $ 899 $ 11,648 $ 8,307 Working capital.......... 872 401 6,222 (3,206) 9,702 5,974 Total assets............. 1,123 7,140 7,385 1,303 13,634 10,083 Mandatory redeemable convertible preferred stock................... - - 14,037 14,052 38,005 38,137 Total stockholders' equity (deficit)........ $1,040 $(1,215) $6,467 $(16,978) $(27,900) $(31,697)
- ------- (1) Our cost of revenues for the year ended December 31, 1998 includes a $1.2 million expense attributable to the write-off of capitalized costs relating to the acquisition of technology no longer useful to the development of BeOS. (2) This expense relates to amortization of deferred compensation which was recorded by us and which represents the difference between the deemed fair value of our common stock, determined by the board with the benefit of hindsight, and the exercise price of options at the date of grant. (3) The settlement received relates to the resolution of a dispute with a supplier. In connection with the settlement, the supplier paid us $750,000. (4) See Note 2 of Notes to Consolidated Financial Statements for an explanation of the determination of the number of shares used in computing net loss per common share--basic and diluted. 23 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Except for historical information, the discussion in this prospectus contains forward-looking statements that involve risks and uncertainties. These forward- looking statements include, among others, those statements including the words, "expects", "anticipates", "intends", "believes", and similar language. Our actual results could differ materially from those discussed below. Factors that could cause or contribute to these differences include, but are not limited to, those discussed in the sections titled "Risk Factors" and "Business" in this prospectus. Overview Be was founded in 1990. We develop and sell BeOS, an operating system designed for digital media applications and Internet appliances. Prior to 1997, we had no revenues and our operations consisted primarily of research and development. In December 1998, we shipped the first commercial version of the BeOS. Our revenues are generated primarily from the following sources: sale of BeOS to resellers and distributors, and direct sales of BeOS to end users through our BeDepot.com Web site. We also generate revenue by collecting commission from sales of third party software through our BeDepot.com Web site. In the future, we also expect our revenues to be generated from royalties received from OEMs bundling BeOS on their products. In an attempt to increase the installed base of BeOS users and increase market acceptance of BeOS, we may choose to forego immediate revenue potential by providing BeOS at little or no cost. Our agreements with third party software vendors provide that we will sell and, if desired by the customer, electronically distribute software that has been written for BeOS. We do not carry inventory in connection with the third party software sold through our Web site. We defer revenues from sales to distributors and resellers. We also defer an allocated portion of revenues attributable to free product upgrades. We recognize revenues from sales to distributors and resellers when we have evidence that our product has been sold to end users. For example, we typically recognize revenue when we receive confirmation from the distributor or reseller of sales to end users. Revenues deferred due to free product upgrades are recognized as upgrades are shipped. As of March 31, 1999, we had $747,000 in deferred revenues. Our cost of revenues consist primarily of the cost of packaging, software duplication, documentation, translation and product fulfillment. We use a third party fulfillment house to store, package and ship BeOS in retail channels. We also include in the cost of revenues the amortized costs relating to the license of third party technology used in the development of BeOS. Our research and development expenses consist primarily of compensation and related costs for research and development personnel. We also include in research and development expenses the costs relating to licensing of technologies and amortization of costs of software tools used in the development of BeOS. Costs incurred in the research and development of new releases and enhancements of BeOS are expensed as incurred. These costs include cost of licensing technology that is incorporated into a product or an enhancement which is still in preliminary development and technological feasibility has not been established. Once the product is further developed and technological feasibility has been established, development costs are capitalized until the product is available for general release. To date, products and enhancements have generally reached technological feasability and have been released for sale at substantially the same time. We expect that research and development expenses will increase substantially in the future as we further develop and enhance BeOS and develop new products including those intended for the Internet appliances market. Our sales and marketing expenses consist primarily of compensation and related costs for sales and marketing personnel, marketing programs, public relations, promotional materials, travel and related 24 expenses for attending trade shows. We also include costs relating to third party application developers, including financial incentives and cost of technical support provided to them in our sales and marketing expenses. In 1996 and 1997, we developed and shipped the "BeBox," a multiprocessor hardware platform installed with initial versions of BeOS. The BeBox was developed primarily for the purpose of promoting development of applications for BeOS. We shipped the BeBox to software developers who would then write applications to run on BeOS. When third party hardware platforms suitable for development of BeOS applications became available at the beginning of 1997, we stopped shipping the BeBox. We subsidized the cost of BeBoxes purchased by the development community. Cash received from developers resulting from shipment of BeBoxes was netted against the cost of manufacturing the BeBoxes, and the resulting expense was charged to sales and marketing. We expect our sales and marketing expenses to increase substantially as we promote awareness of BeOS. We plan to initiate an advertising and a direct marketing campaign, by increasing print and Internet-based advertising, distributing demonstration copies of BeOS to targeted potential customers, and hiring additional sales and marketing personnel. We expect that sales and marketing expenses will also increase as we expand our domestic and international distributor and reseller channel and hire new personnel, establish new facilities and increase distributor and reseller promotions. Sales and marketing expenses will also increase as we further develop and expand our relationships with third party application developers including providing developers technical support and financial incentives. General and administrative expenses consist primarily of compensation and related expenses for finance and accounting personnel, professional services and related fees, occupancy costs and other expenses. General and administrative expenses may increase in the future as we expand our existing facilities or relocate to new facilities that better address any growth that we may experience. We also expect general and administrative expenses to increase as we hire additional personnel and incur costs related to the anticipated growth in our business and cost of operating as a public company. We market and sell our products in the United States and internationally. International sales of products accounted for approximately 53% and 61% of total revenues for the year ended December 31, 1998 and the three month period ended March 31, 1999, respectively. We have a subsidiary located in France to market and sell our products in Europe. In addition, we may in the future open new offices in other countries to market and sell in those countries and surrounding regions. The expansion of our existing international operations and entry into additional international markets will require significant management attention and financial resources and we cannot be certain that our investments in establishing offices in other countries will produce desired levels of revenues. While the majority of our international revenues are presently denominated in US dollars, we expect an increasing portion of our international revenues to be denominated in local currencies. We do not currently engage in currency hedging activities. Although exposure to currency fluctuations to date has been insignificant, future fluctuations in currency exchange rates may adversely affect revenues from international sales. From time to time in the past, we have granted stock options to employees, consultants and non-employee directors and expect to continue to do so in the future. As of March 31, 1999, we had recorded deferred compensation related to these options in the total amount of $17.2 million representing the difference between the deemed fair value of our common stock, determined by the board with the benefit of hindsight, and the exercise price of option at the date of grant. Of this amount, $955,000 had been amortized in 1996, $867,000 amortized in 1997, $3.9 million in 1998 and approximately $1.7 million in first quarter of 1999. Future amortization of expense arising out of options granted through March 31, 1999 is estimated to be $4.8 million for the remaining nine months of 1999, $3.3 million for the year ended 2000, $1.4 million for the year ended 2001, and $369,000 for the year ended 2002. We amortize the deferred compensation charge monthly over the vesting period of the underlying option. 25 Comparison of the Three Month Period ended March 31, 1999 to the Three Month Period Ended March 31, 1998 Net Revenues. Net revenues increased $245,000 to $309,000 for the three month period ended March 31, 1999 from $64,000 for the three month period ended in March 31, 1998. This increase is primarily attributable to sales of the first commercial version of the BeOS. Cost of Revenues. Cost of revenues decreased $58,000, or 41%, to $85,000 for the three month period ended March 31, 1999 from $143,000 for the three month period ended March 31, 1998. The cost of revenues for the three month period ended March 31, 1998 includes $68,000 of amortized costs associated with licensed technology incorporated in BeOS which are not present in the three month period ended March 31,1999. Research and Development. Research and development expenses increased $812,000, or 76%, to $1.9 million for the three month period ended March 31, 1999 from $1.1 million for the three month period ended March 31, 1998. The increase is primarily attributable to the hiring of additional research and development personnel and increased costs of licensing third party technology used in the development of BeOS. Sales and Marketing. Sales and marketing expenses increased $898,000 to $1.8 million for the three month period ended March 31, 1999 from $856,000 for the three month period ended March 31, 1998. This increase is primarily attributable to costs relating to our third party developer programs including financial incentives and technical support provided to developers. Sales and marketing expenses also increased due to amortization of purchased technology related to the acquisition of StarCode, a software development company. General and Administrative. General and administrative expenses increased $414,000, or 92%, to $865,000 for the three month period ended March 31, 1999 from $451,000 for the three month period ended March 31, 1998. This increase was primarily attributable to increases in professional services and related fees, increased personnel and related costs, and expansion of leased facilities. Amortization of Deferred Stock Compensation. Amortization of deferred stock compensation increased $1.1 million to $1.7 million for the three month period ended March 31, 1999, from $537,000 for the three month period ended in March 31, 1998. These amounts represent the allocated portion of the difference between the deemed fair value of our common stock and the exercise price of stock options granted by us to employees, consultants and non-employee directors. Other Income (Expense), Net. Net other income increased $27,000, or 36%, to $101,000 for the three month period ended March 31, 1999 from $74,000 for the three month period ended March 31, 1998. The increase is primarily attributable to increased interest income on the investment of net proceeds from the sale of our preferred stock in 1998. Comparison of the Year Ended December 31, 1998 to the Year Ended December 31, 1997 Net Revenues. Net revenues increased $1.1 million to $1.2 million for the year ended December 31, 1998 from $86,000 for the year ended December 31, 1997. The increase is attributable to sales of earlier versions of BeOS. Cost of Revenues. Cost of revenues increased $2.1 million to $2.2 million for the year ended December 31, 1998 from $84,000 for the year ended December 31, 1997. Our cost of revenues for the year ended December 31, 1998 include $1.2 million attributable to a one-time non-cash write-off of costs relating to acquisition of technology which was used with BeOS, the cost of which was no longer recoverable from future forecasted revenues. Research and Development. Research and development expenses increased $1.4 million, or 31%, to $5.8 million for the year ended December 31, 1998 from $4.4 million for the year ended December 31, 1997. The 26 increase is primarily attributable to hiring of additional research and development personnel and increased costs of licensing third party technology used in the development of BeOS. Sales and Marketing. Sales and marketing expenses increased $464,000, or 12%, to $4.5 million for the year ended December 31, 1998 from $4.0 million for the year ended December 31, 1997. The increase is primarily attributable to hiring additional sales and marketing personnel in advance of the first commercial release of BeOS. The increase in sales and marketing is also attributable to amortization of purchased technology related to the acquisition of StarCode, a software development company, and costs relating to establishing our developer programs, including technical and financial incentives to third party developers. In May 1998, we purchased StarCode for $567,000 in cash. The cost of the StarCode acquisition was capitalized and is amortized as purchased Web site technology and will be expensed through the end of 1999. General and Administrative. General and administrative expenses increased $616,000, or 36%, to $2.3 million for the year ended December 31, 1998 from $1.7 million for the year ended December 31, 1997. The increase was primarily attributable to an increase in professional services and legal fees relating to various licensing and technology acquisition activities, expansion of our leased facilities, and hiring of additional administrative personnel. Amortization of Deferred Stock Compensation. Amortization of deferred stock compensation increased $3.0 million to $3.9 million in 1998 from $867,000 in 1997. These amounts represent the allocated portion of difference between the deemed fair value of our common stock and the exercise price of stock options granted by us to employees, consultants, and non-employee directors. Other Income (Expense), Net. We had net other income of $580,000 for each of the years ended December 31, 1998 and December 31, 1997. The other income in 1998 was primarily attributable to $650,000 in net interest income generated by the investment of proceeds from the sale of Series 2 Preferred Stock in 1998, as compared to $89,000 in net interest income for the year ended December 31, 1997. We also realized income of $550,000 in 1997 related to a feasibility study we performed for a third party. Comparison of the Year Ended December 31, 1997 to the Year Ended December 31, 1996 Net revenues. Net revenues were $86,000 for the year ended December 31, 1997. We recognized no revenues for the year ended December 31, 1996. Prior to 1997, our operations consisted primarily of research and development activities. We began recognizing revenue on shipments of BeOS in July 1997. Cost of Revenues. Cost of revenues was $84,000 for the year ended December 31, 1997. We had no revenues and as a result, no cost of revenues for the year ended December 31, 1996. Research and Development. Research and development expenses increased $1.4 million, or 46%, to $4.4 million for the year ended December 31, 1997 from $3.0 million for the year ended December 31, 1996. The increase is primarily attributable to hiring of additional research and development personnel and costs related to licensing of technologies and amortization of software tools used for the development of BeOS. Sales and Marketing. Sales and marketing expenses increased $1.3 million, or 49%, to $4.0 million for the year ended December 31, 1997 from $2.7 million for the year ended December 31, 1996. The increase is primarily attributable to hiring of additional sales, marketing and customer support personnel to promote BeOS, increased participation at trade shows, and preparation and distribution of promotional material. Included in sales and marketing expenses for the year ended in 1996 and 1997 is $715,000, and $857,000, respectively, relating to expenses of developing, manufacturing and selling the BeBox, net of any proceeds received from the sale of the BeBox. We stopped shipping the BeBox in early 1997 and, as a result, did not have sales and marketing expenses relating to the BeBox in 1998. General and Administrative. General and administrative expenses increased $402,000, 31%, to $1.7 million for the year ended December 31, 1997 from $1.3 million for the year ended December 31, 1996. 27 The increase was primarily attributable to an increase in professional services and related fees arising from increased licensing activities and recruiting efforts. Amortization of Deferred Stock Compensation. Amortization of deferred stock compensation decreased $88,000, or 9%, to $867,000 in 1997 from $955,000 in 1996. These amounts represent the allocated portion of the difference between the deemed fair value of our common stock and the exercise price of stock options granted by us to employees and consultants. Other Income (Expense), Net. Net other income increased approximately $360,000 to $580,000 for the year ended December 31, 1997 from $220,000 for the year ended December 31, 1996. This income was primarily attributable to miscellaneous income of $550,000 from a feasibility study performed for a third party. Selected Quarterly Results of Operations The following table sets forth certain unaudited statements of operations data for the five quarters ended March 31, 1999. This data has been derived from unaudited financial statements that, in the opinion of our management, include all adjustments consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the information when read in conjunction with our audited financial statement and the notes thereto. The operating results for any quarter are not necessarily indicative of the results for any future period.
Quarter Ended --------------------------------------------------------- March 31, June 30, September 30, December 31, March 31, 1998 1998 1998 1998 1999 --------- -------- -------------- ------------ --------- (in thousands) Net revenues............ $ 64 $ 602 $ 226 $ 307 $ 309 Cost of revenues........ 143 1,620 99 299 85 ------- ------- ------- ------- ------- Gross profit (loss)..... (79) (1,018) 127 8 224 Operating expenses: Research and development.......... 1,075 1,951 1,270 1,496 1,887 Sales and marketing... 856 1,027 887 1,726 1,754 General and administrative....... 451 678 549 632 865 Amortization of deferred stock compensation......... 537 1,078 1,097 1,169 1,665 ------- ------- ------- ------- ------- Total operating expenses........... 2,919 4,734 3,803 5,023 6,171 ------- ------- ------- ------- ------- Loss from operations.... (2,998) (5,752) (3,676) (5,015) (5,947) Other income (net)...... 74 195 148 163 101 ------- ------- ------- ------- ------- Net loss................ $(2,924) $(5,557) $(3,528) $(4,852) $(5,846) ======= ======= ======= ======= ======= Net loss attributable to common stockholders.... $(2,990) $(5,654) $(3,625) $(6,154) $(5,979) ======= ======= ======= ======= =======
In the first quarter of 1998, we released an enhanced version of BeOS. Sales of this version of BeOS, as well as the launch of our BeDepot.com Web site, which enabled customers to purchase BeOS directly from us, resulted in increased revenues of $602,000 for the second quarter of 1998. Our net revenues in the third quarter of 1998 decreased to $226,000 due to, we believe, potential customers deferring their purchases in anticipation of the release of the first commercial version of BeOS in fourth quarter of 1998. We released the first commercial version of BeOS, version 4.0, in December of 1998 and had revenues of $307,000 in that quarter. Net revenues in the fourth quarter were net of $332,000 in deferred revenues relating to sales made to distributors and resellers and revenue which was deferred due to free upgrades provided to retail customers who purchased the version 4.0 of BeOS. Revenues deferred from 28 sales to resellers and distributors are generally recognized when we have evidence that our product has been sold by the reseller or distributor to end users. For example, when we receive confirmation from the reseller or distributor of the sale to the end user. Revenues deferred due to free product upgrades are recognized when BeOS upgrades are shipped. Net revenues increased slightly to $309,000 for the first quarter of 1999. We recorded deferred revenue of $355,000 in the first quarter of 1999 relating to shipments to resellers and distributors and free upgrades of BeOS for retail purchasers of BeOS. Our first quarter 1999 net revenues included $125,000 of revenues related to a distributor, which were previously deferred and which were recognized by confirmation of sales by the distributor to end users. Amortization of licensed or acquired technology in the amount of $113,000 was charged in the first quarter of 1998. In the second quarter of 1998, we amortized $157,000 of costs relating to licensed technology and wrote-off $1.2 million of costs relating to technology which was used with BeOS, the cost of which was no longer recoverable from forecasted revenues. Quarterly fluctuations in sales and marketing expenses relate primarily to increased sales and marketing personnel and related costs, attendance at trade shows and costs relating to our developer programs. Sales and marketing expenses may fluctuate in the quarter as we increase our advertising and promotional efforts prior to product releases and upgrade introductions and participate in various trade shows and developer conferences. Our sales and marketing expenses in the second quarter of 1998 increased primarily due to additional sales and marketing personnel and related costs, increased costs relating to trade show attendance, and costs of establishing our third party developer programs. In the second quarter of 1998, we began amortizing the acquisition costs of purchased Web site technology from the acquisition of StarCode. Quarterly fluctuations in research and development expenses relate primarily to costs associated with increased personnel and related costs and the costs of licensing technology used for development of BeOS. Research and development expenses increased in the second quarter of 1998 primarily due to the costs of licensing software tools used in the development of BeOS. Our quarterly and annual operating results will likely vary significantly from quarter to quarter in the future due to a number of factors, many of which are outside our control, including: . demand for and acceptance of our operating system; . deferral of customer orders in anticipation of new products, product enhancements or upgrades by us or by our competitors; . the timing and availability of key applications developed by third parties to be used in BeOS; . delays and defects in BeOS; . ability to attract and retain key strategic partners, including OEMs and third party application developers; . new product releases and product enhancements by us and our competitors; . changes in our pricing policies or the pricing policies of our competitors; . the mix of sales channels through which our products and services are sold; . the mix of domestic and international sales; . risks inherent in international operations, including foreign currency fluctuations; . potential acquisitions and integration of technology or businesses; . changes in accounting standards, including standards relating to revenue recognition, business combinations and stock-based compensation; and . impact of any Year 2000 issues. Any one or all these factors could materially adversely affect our business and results of operations. 29 Liquidity and Capital Resources Since our inception, we have financed our operations primarily through the sale of our equity securities and through borrowing arrangements. As of March 31, 1999, we had $8.3 million in cash and cash equivalents and short-term investments. Cash and cash equivalents and short-term investments increased $10.7 million to $11.6 million at December 31, 1998, from $899,000 at December 31, 1997. This increase is primarily attributable to net proceeds from the sale of Series 2 Preferred Stock. Cash used in operating activities increased $1.3 million to $9.9 million for the year ended December 31, 1998 as compared to $8.6 million for the year ended December 31, 1997. This increase is primarily attributable to increase in net loss during the year ended 1998 and an increase in accounts receivable. Cash used in investing activities increased approximately $14.8 million to $10.3 million for the year ended December 31, 1998 as compared to cash provided from investing activities of $4.5 million for the year ended December 31, 1997. This increase is primarily attributable to purchases of short-term investments from proceeds of the sale of Series 2 Preferred Stock, acquisition of licensed technology, purchase of StarCode, and acquisition of computer hardware, software and other equipment. Cash provided by financing activities increased $19.9 million to approximately $22.9 million for the year ended December 31, 1998 as compared to $3.0 million for the year ended December 31, 1997. This increase is primarily attributable to net proceeds received from the sale of Series 2 Preferred Stock. We require substantial working capital to fund our operations. We expect to use a significant portion of the net proceeds of this offering to fund operating losses, expand sales and marketing efforts, increase research and development activities, and to license and acquire new technologies. Since inception, we have experienced losses and negative cash flow from operations and expect to continue to experience significant negative cash flow in the foreseeable future. While our current lack of adequate financial resources raises substantial doubt regarding our ability to continue as a going concern, we believe that upon the closing of this offering and the receipt of the net proceeds of this offering, we will have sufficient cash to meet our presently anticipated cash needs for at least the next 12 months. However, in the future, we may need to raise additional capital and we cannot be certain that we will be able to obtain additional financing on favorable terms, if at all. If we cannot raise additional capital on acceptable terms, if and when needed, we may not be able to further develop or enhance BeOS, take advantage of future opportunities or respond to competitive pressures or unanticipated requirements, any of which could have a material adverse effect on our business and results of operations. Year 2000 Issue The "Year 2000 Issue" is typically the result of limitations of certain software written using two digits rather than four digits to define the applicable year. If software with date-sensitive functions are not Year 2000 compliant, they may recognize a date using "00" as the year 1900 rather than the year 2000. Risks We believe that our principle product, BeOS, has been designed to avoid the Year 2000 Issue. However, if for any reason, BeOS is not Year 2000 compliant, we could face unexpected expenses redesigning BeOS, which could harm our business and reputation and delay any market acceptance for BeOS. In addition, our operating system operates in complex network environments and directly and indirectly interacts with a number of other hardware and software systems and applications. These hardware system and software applications may contain errors or defects associated with the Year 2000 Issue. We are presently unable 30 to predict to what extent our business may be affected if hardware systems or software applications and tools that operate in conjunction with our operating system experience the Year 2000 Issue. Known or unknown errors or defects that affect the operation of BeOS, when used in conjunction with other hardware or software, could result in delay or loss of revenue, interruption of our Web site product distribution, damage to our reputation and possible litigation, any of which could materially adversely affect our business and results of operations. We also depend on the Internet and more specifically on our BeDepot.com Web site for release and distribution of BeOS and related support tools and applications. The Internet is a medium which is susceptible to the Year 2000 Issues. The Year 2000 Issue could result in a system failure or miscalculations causing significant disruption of our Web site operations, including, among other things, interruptions in the distribution of BeOS and related support tools and applications over the Internet. This could also include disruption in the distribution of third party software applications over our electronic commerce Web site. It is possible that this disruption will continue for an extended period of time. Any disruption in our Web site operations or our electronic commerce site could result in loss of revenues and could harm our reputation and business. Also, Year 2000 compliance efforts may involve significant time and expense, and uncorrected problems could materially and adversely affect our business. Readiness We have initiated an internal review of our information systems including software programs used in our accounting and financial reporting functions. Based on our review to date and preliminary information gathered from third party vendors, we do not believe that there are any significant Year 2000 Issues relating to our information systems. However, our review to date has been preliminary and is not expected to be completed until the third quarter of 1999. We will continue to request vendors of the material hardware and software components of our information systems to provide assurances of their Year 2000 compliance. We plan to complete this process during the third quarter of 1999. We are currently assessing our material non-information technology systems and will seek assurances of Year 2000 compliance from providers of these systems. Our costs incurred to date with respect to Year 2000 compliance have not been significant. While we believe our future Year 2000 compliance costs will not be significant, we have no way of ascertaining this until our testing is complete and key vendors and suppliers are contacted. We may not be able to completely evaluate whether our systems will need to be revised or replaced and the cost associated with such efforts. If our efforts to address Year 2000 risks are not successful, or if suppliers or other third parties with whom we conduct business do not successfully address such risks, it could have a material adverse effect on our business. Contingency Plans We have not yet fully developed a comprehensive contingency plan to address situations that may result if we are unable to achieve Year 2000 readiness of our critical operations. Development of contingency plans is in progress and is expected to be developed in detail and expanded during the second half of 1999. We may not be able to develop a contingency plan that will adequately address all Year 2000 issues. Our failure to develop and implement, if necessary, an appropriate contingency plan could materially adversely affect our business and results of operations. Quantitative and qualitative disclosures about market risk We considered the provision of Financial Reporting Release No. 48 "Disclosure of Accounting Policies for Derivative Financial Instruments and Derivative Commodity Instruments, and Disclosure of Quantitative and Qualitative Information about Market Risk Inherent in Derivative Financial Instruments, Other Financial Instruments and Derivative Commodity Instruments." We had no holdings of derivative financial or commodity instruments at March 31, 1999. However, we are exposed to financial market risks, including changes in foreign currency exchange rates and interest rates. Much of our revenue and capital spending is transacted in U.S. dollars. However, the expenses and capital spending of our French subsidiary are transacted in French francs. Results of operations from our French subsidiary are not material to the results of our 31 operations, therefore, we believe that foreign currency exchange rates should not materially adversely affect our overall financial position, results of operations or cash flows. We believe that the fair value of our investment portfolio or related income would not be significantly impacted by increases or decreases in interest rates due mainly to the short-term nature of our investment portfolio. However, a sharp increase in interest rates could have a material adverse effect on the fair value of our investment portfolio. Conversely, sharp declines in interest rates could seriously harm interest earnings of our investment portfolio. The table below presents principal amounts by expected maturity (in U.S. dollars) and related weighted average interest rates by year of maturity for our investment portfolio.
1999 Thereafter Total ---------- ---------- ---------- Federal Government Obligations............ $5,264,000 $ -- $5,264,000 Weighted Average Interest Rate........... 5.53% -- 5.53% Corporate Debt Obligation................. $2,990,000 -- $2,990,000 Weighted Average Interest Rate........... 6.86% -- 6.86% ---------- ---- ---------- Total Portfolio, excluding equity securities .............................. $8,254,000 $ -- $8,254,000 ========== ==== ==========
Recent Accounting Pronouncements In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued Statement of Position No. 98-1 or SOP 98-1, "Accounting for the costs of Computer Software Developed or Obtained for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. We are currently evaluating the impact of SOP 98-1 on our financial statements and related disclosures. In December 1998, AcSEC released Statement of Position 98-9 or SOP 98-9, Modification of SOP 97-2, "Software Revenue Recognition." SOP 98-9 amends SOP 97-2 to require that an entity recognized revenue for multiple element arrangements by means of the "residual method" when (1) there is no vendor- specific objective evidence ("VSOE") of the fair values of all the undelivered elements that are not accounted for by means of long-term contract accounting, (2) VSOE of fair value does not exist for one or more of the delivered elements, and (3) VSOE of fair value does not exist for one or more of the delivered elements, and (4) all revenue recognition criteria of SOP 97-2 (other than the requirement for VSOE) of the fair value of each delivered element) are satisfied. The provisions of SOP 98-9 that extend the deferral of certain paragraphs of SOP 97-2 became effective December 15, 1998. These paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions that are entered into in fiscal years beginning after March 15, 1999. Retroactive application is prohibited. We are currently evaluating the impact of the requirements of SOP 98-9 and the effects, if any, on our current revenue recognition policies. In April 1998, the AcSEC issued Statement of Position 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up Activities." This standard requires companies to expense the costs of start-up activities and organization costs as incurred. In general, SOP 98-5 is effective for fiscal years beginning after December 15, 1998. We believe the adoption of SOP 98-5 will not have a material impact on our results of operations. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, or SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. CFAS 133 requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of hedging relationship that exists. SFAS 133 will be effective for fiscal years beginning after June 15, 1999. We do not currently hold derivative instruments or engage in hedging activities. 32 BUSINESS Overview We offer BeOS, an operating system designed for digital media applications and Internet appliances. BeOS is capable of maximizing the performance of digital media applications that run on a wide range of devices including Internet appliances, desktop PCs and high-performance multiprocessor workstations. BeOS allows users to simultaneously operate multiple audio, video, image processing and Internet-based software applications while maintaining system stability, media quality and processor performance. BeOS provides professional users and enthusiasts with a high performance environment to quickly and easily develop applications and content and is designed to facilitate the integration of new technologies. BeOS is also architected to address the market-specific requirements of PC OEMs, Internet appliance and consumer electronic manufacturers. The modular nature of BeOS allows OEMs to incorporate only those features of our operating system that are required for a particular device, allowing them to match functionality and market requirements with cost. Using BeOS, OEMs can develop products and services tailored to specific markets without compromising the quality, stability and performance of digital media applications delivered to the user. The combination of an efficient, new operating system designed for fast performance and rich digital media applications make BeOS an ideal solution for both processor-intensive applications and smaller devices used to access the Internet. Industry Background The Evolution of Operating Systems Operating systems are software programs that control the functionality of computers and consumer electronic devices. Operating systems manage the user's experience, coordinate the operation of software applications, hardware and peripheral devices, and provide tools that enable the development of software applications. A variety of desktop operating systems are in use today such as Microsoft Windows (including Windows 98, Windows CE and Windows NT), Apple Mac OS, UNIX, Linux and IBM's OS/2. These traditional operating systems are based largely on design concepts pioneered in the 1970s and 1980s to support text-intensive software applications like word processing, basic spreadsheet and database operations. Due to the cost and technical limitations of computer hardware during this time, operating systems and applications were not originally architected to support the demanding needs of applications that utilize audio, video, image, and 3D animation. Technical advances and the declining price of computer hardware have helped to dramatically increase the installed base of personal computers. Operating systems also improved and increased the ease of use and functionality of personal computers. For example, operating systems such as Apple Mac OS and Microsoft's Windows operating systems began to incorporate intuitive, icon- driven graphical user interfaces, supplanting the complicated set of text-based commands used in older systems. These easier-to-use interfaces have helped encourage the growth of office productivity applications like enhanced word processing and spreadsheet applications, presentation graphics and electronic mail. In most cases, however, these improved user interfaces were layered on top of older operating system architectures. The Growth of Digital Media Advances in computing technologies have led to the creation of software applications and devices that can capture, synthesize, manipulate and store images and sounds in a digital format. These images and sounds, often called "digital media," are used by professionals and consumers alike on a wide variety of computer and entertainment platforms. The music industry initially embraced digital technology in the 1980s by introducing CDs for audio playback. Later, the application of digital technologies expanded to include video and graphics images, 33 enabling a variety of devices that are capable of capturing and displaying digital images. Today, these devices include digital cameras, digital video camcorders, direct satellite receivers, digital TV and DVDs. Digital media allows users to create, edit and deliver a full range of audio, video, images and animation for use in games, film, television and the Internet. Many of today's feature films, advertisements, video programming and games include realistic animation, audio and video streams and still images, all created, combined and distributed using digital technologies. As users have embraced digital media, they have come to expect richer content, high resolution audio, video and images when using personal computers, consumer electronic devices and software applications. With the growth of the Internet, many users are also demanding the same level of high resolution audio, real-time video and detailed 3D graphics and animation delivered over the Internet. However, existing operating system architectures have increasingly become a key limiting factor in meeting these demands. For example, layer upon layer of legacy programming and an increasingly larger code base interfere with the ability of modern processors to efficiently run multiple high-bandwidth applications and files. File systems designed for word processing documents and spreadsheets are not easily adaptable to the significant storage and bandwidth requirements of digital video and audio. To access and manipulate this content, users have generally had to purchase high- performance computers, sophisticated software applications and other third- party hardware. These systems are hard to integrate, costly and not intended for the mainstream consumer. Even with these systems, users are often unable to experience the full potential of digital media due to the design limitations inherent in the operating systems serving as the platform for these systems. Based upon the assumption that broadband capabilities are becoming more readily available, leading developers are placing increasing focus on how to provide enhanced digital media content to users. Developers, however, face significant obstacles in creating applications to provide this media-rich content to users within constraints of traditional operating systems. Although traditional operating systems support the ability to run multiple applications simultaneously, they can often become unstable and non-responsive when using processor-intensive or memory-intensive applications, such as digital media. Applications running on traditional operating systems are also limited in their ability to decode digital audio and video streams due to the operating systems' inability to allocate processor capacity efficiently and prioritize tasks. While a variety of technologies have improved the user's Internet experience by accelerating data transmission rates and broadening the array of content delivered online, the underlying operating system technology has remained relatively static. Increase in Digital Media Content on the Internet The Internet has evolved from a mass of static, text-oriented Web pages and basic email services to a richer environment, with a growing ability to deliver interactive digital media content to users. For example, new streaming media and other technologies have enabled users to play live and recorded audio and video clips, enjoy Internet-based animation and download applications while online. The proliferation of digital media content on the Internet and the declining price of PCs has enabled people worldwide to electronically share information, communicate, conduct business and be entertained. International Data Corporation ("IDC") estimates that the number of Internet users will grow from approximately 100 million worldwide in 1998 to approximately 319 million worldwide by the end of 2002. This growth is expected to be driven in part by the large and growing number of PCs installed in homes and offices and easier, faster and less expensive access to broadband technologies such as xDSL and cable modems. Though the price/performance of PCs has substantially improved, their cost and complexity remains a limiting factor in making the Internet as ubiquitous as televisions or telephones. Emergence of the Internet Appliance Access to the Internet today is primarily accomplished using PCs. As new users seek access to the Internet, hardware manufacturers have recognized the need to create a class of low-cost, easy to use devices 34 often referred to as "Internet appliances." Internet appliances are any device primarily used for accessing the Internet and using Internet-based content, services and applications. Internet appliances can include low-cost or entry- level PCs, flat panel terminals, smart hand-held devices such as PDAs, Internet screen-phones, gaming consoles, and set-top boxes that provide Internet access via the television. Internet appliances are generally expected to provide ease of use and affordability similar to widely used consumer electronic devices such as television. Excluding PCs, IDC currently projects: (1) worldwide shipments of Internet appliances will grow from 5.9 million units in 1998 to over 55.7 million in 2002, (2) worldwide value of Internet appliance shipments will grow from $2.2 billion in 1998 to more than $15.3 billion in 2002, and (3) more than 151 million Internet appliances installed worldwide by 2002. While customers and OEMs desire low-cost Internet appliances, traditional operating systems are unable to deliver the required functionally in a low-cost manner. Constraints Imposed by Traditional Operating Systems The growing demand for richer content, audio and video editing and processing capabilities, 3D graphics, and Internet-delivered digital media is placing considerable strain on traditional operating systems. While digital technologies enable the delivery of richer media to professionals, enthusiasts and consumers, currently these users must invest in expensive computers and applications to fully enjoy this media and to develop applications and content. Even when using expensive computing systems, the applications incorporating digital media often disrupt the reliability and usability of traditional operating systems. As a result, the range of digital media capabilities are often limited on basic PC configurations, and traditional operating systems are often challenged in extending and managing the full range of digital audio, video, image and graphics capability to all users. Existing computer systems and new devices, such as Internet appliances, require flexible operating systems that can address a growing range of digital media content without sacrificing system stability, media quality or processor performance. Furthermore, new classes of devices, such as Internet appliances, will require an operating system that electronic manufacturers can adapt to fit their cost, hardware, ease of use, performance and market requirements. The Be Solution We offer BeOS, an operating system designed for digital media applications and Internet appliances. BeOS is capable of maximizing the performance of digital media applications that run on a wide range of devices including Internet appliances, desktop PCs and high-performance multiprocessor workstations. BeOS offers several advantages over traditional operating systems. It allows users to simultaneously operate multiple audio, video, image processing and Internet-based software applications while maintaining system stability, media quality and processor performance. BeOS provides professional users with a high performance environment to quickly and easily develop applications and content, and it is designed to facilitate the integration of new technologies. The modular nature of BeOS allows OEMs to incorporate only those features of our operating system that are required for a particular device allowing them to match functionality and market requirements with cost. Using BeOS, OEMs can develop products and services tailored to specific markets without compromising the quality, stability and performance of digital media applications delivered to the user. The combination of an efficient, new operating system design for fast performance and rich digital media applications make BeOS an ideal solution for both processor-intensive applications and smaller devices used to access the Internet. Key elements of BeOS include: Optimized Design for Digital Media Applications. BeOS is designed specifically to enable high-performance audio and video applications on a wide range of devices. BeOS is optimized for media manipulation and playback and employs features that provide a stable, accessible environment for the use and development of digital media applications and content. BeOS also employs an advanced, 64-bit file system to meet the file size and bandwidth requirements of digital video applications. 35 Support for Simultaneous Use of Multiple, Processor-Intensive Applications. BeOS allows software applications to be partitioned into multiple compact execution units called "threads" and allows these threads to be automatically executed as required by the application and system load. BeOS is able to distribute these threads among one or more processors, giving priority to media tasks performed on the system. This, together with the other features of BeOS, allows simultaneous use of multiple, processor-intensive applications, editing and playback of uncompressed, high-resolution video and audio files, and increased efficiency and performance of all applications running on the system. System Performance and Stability. BeOS is designed to reduce operating system overhead to a minimum. It makes extensive use of shared code, resulting in the creation of smaller, faster applications. A key element of BeOS' performance and stability is its journaled file system. This file system provides added levels of protection against corrupted files and reduces start-up time. BeOS' journaled file system differentiates it from the leading desktop operating systems. Furthermore, BeOS provides fully protected memory which increases operating system stability and helps prevent a crashing application from affecting other applications running on the system. Modular, Flexible Architecture. BeOS is based on a modular design that allows new software features, such as drivers, audio and video compression and depression algorithms, known as "codecs," and additional file system support to be used immediately after downloading these features onto the system. Using BeOS, manufacturers and users can update and reconfigure their systems through the Internet or other networks without the need to "re-boot" the system. This modular approach also allows OEMs to incorporate only those elements of BeOS needed for a particular application or device, facilitating the creation of new devices such as Internet appliances and allowing OEMs to address specific price points and markets. Scaleable Architecture Allows Use of BeOS on a Wide Range of Systems. BeOS delivers optimized performance on hardware with one to eight processors, ranging from entry-level Internet appliances and personal computers priced as low as $295 to sophisticated multi-processor workstations costing more than $50,000. This benefit allows computer and consumer electronic manufacturers to develop products to address multiple market segments using BeOS. Strategy Our objective is to establish BeOS as the premier operating system for professionals, enthusiasts and consumers demanding media-rich content on any hardware platform. Key elements of our strategy include the following: Establish Relationships with Key Industry Partners. We intend to establish relationships with industry-leading personal computer and consumer electronic manufacturers, Internet service and content providers. Our goal is to have BeOS used on a wide range of personal computers, devices, applications and systems. By leveraging the established sales, marketing and distribution channels and brand recognition of these key industry partners, we expect to increase the installed base of BeOS and encourage the development of applications and devices that enable rich content, capability and Internet access to consumers. Expand Base of Application Developers. We intend to increase the number and range of applications that use BeOS, in particular, widely accepted audio, video and game applications. To do this, we will provide application developers financial incentives as well as development, technical and marketing support to encourage the use of BeOS as their operating system of choice. We believe that the capabilities of BeOS make it an ideal choice for application developers, digital media content creators, and Internet-based application and Internet appliance developers. Focus on Internet Appliance Applications. We believe the continued growth of the Internet and emergence of Internet appliances provide a significant market opportunity to increase the installed base of BeOS. BeOS provides an ideal environment for application developers to create and distribute applications that 36 deliver richer digital media on the Internet. We are establishing an Internet appliance reference model and intend to establish key partnerships with industry-leading Internet appliance developers to embed BeOS in such systems to provide ready Internet access to end users. Pursue "Be Everywhere" Marketing Campaign. We expect to aggressively promote BeOS as the operating system of choice among professional digital media content creators, developers of Internet applications and Internet appliances. To do this, we intend to increase print-based and Internet-based advertising and initiate a direct mail campaign. We also intend to identify segments of the computer enthusiast, consumer and professional digital media markets and target tailored promotions to these groups. These promotions will include bundling BeOS with third party applications and distributing demonstration copies of BeOS to targeted potential customers to encourage use and increase awareness of BeOS. We believe that acceptance by these segments provides the best opportunity to capture and maintain a growing customer base of BeOS. Leverage Our Technology and Capabilities. We developed BeOS over the course of eight years and have developed a significant body of technical expertise relating to the challenges of handling rich media types and Internet applications. We will leverage this investment to enhance BeOS to deliver optimized performance for next-generation computing platforms. Some of these innovations include the implementation of additional modular functionality, broader device driver support and portability to new computing platforms. To rapidly deliver this functionality to users and applications developers, we intend to release new versions of BeOS at least annually. We believe that this commitment to frequent upgrades and extensions of BeOS will facilitate our ability to better meet the new product development cycle requirements of our customers. Promote BeOS as the Standard for Digital Media and Internet Computing. Differentiating it from existing operating systems that are designed primarily to support enterprise productivity applications, we intend to promote BeOS as the optimal operating system for audio, video, animation and for broadband communications applications. We also will promote the flexibility of BeOS as a logical choice for new classes of computing devices whose primary function is related to the Internet or entertainment rather than business or engineering. Through product differentiation and targeted marketing, we intend to position BeOS as an open, flexible and stable standard for a broad class of applications. Products and Technologies BeOS We offer BeOS, an operating system designed for digital media applications and Internet appliances. BeOS was created to support applications that require real-time display of images, video, graphics and other digital media. BeOS enables users to simultaneously operate multiple audio, video, image processing and Internet-based software applications on single or multiple-processor platforms and to access, manipulate and distribute rich media content over the Internet and other networks. Applications currently running on BeOS include music production, digital signal processing, medical imaging and computer-based education applications. End users running BeOS can be large corporate users who require, real-time response to digitally-intensive media applications, audio and video studio professionals, and consumers wishing to edit their family movies and use Internet applications. BeOS is packaged in a variety of ways to meet specific market and customer needs. BeOS is available either for retail sales or as a customized version for specific high volume OEMs. For the retail market, BeOS is supplied shrink- wrapped with or without manuals. The manuals are available in English, French, German and Japanese with other language versions planned for the future. To meet the specific needs of the OEM markets, we sell a version without the retail packaging. Support for the product is available through our Web site via email and by direct telephone support. 37 BeOS is sold on a per-license basis to customers who purchase the product through retail outlets. OEM customers will be able to purchase BeOS according to individual volume-based agreements between us and the OEM. In addition, OEM customers may pay us a fee for custom development work performed by us to tailor BeOS to an OEM's specific product. We intend to sell specific modules of BeOS to Internet appliance developers. We believe OEMs will appreciate BeOS' modular feature which allows them to purchase and incorporate only those aspects of BeOS required for their devices. This modularity allows them to achieve their desired level of functionality without being required to buy or install a full version of BeOS. Key Technologies Key technologies of BeOS include: . Pervasive Multithreading. On BeOS, an application comprises a group of separate execution units known as "threads." BeOS is heavily multithreaded, from the lowest level of the OS to the applications themselves. Pervasive multithreading enables users to perform a number of different tasks at the same time without facing the system delays and freezes exhibited by other operating systems. . Symmetric Multiprocessing. BeOS is optimized to take advantage of hardware with more than one processor. To achieve the maximum performance from all of the processors on the platform, BeOS distributes threads intelligently across the processors while the application is running. The heightened performance achievable on multi-processor systems running on BeOS is especially evident in computationally intensive applications such as 3D modelers, video editors, and audio effects programs. . Protected Memory. On BeOS, each application has its own protected memory independent of other applications and BeOS itself. As a result, users experience significantly better overall system stability as compared to traditional operating systems. . 64-bit Journaled File System. BeOS uses a 64-bit file system that enables it to utilize extremely large files thus improving performance of media applications. Since massive data files often associated with digital media do not have to be divided into smaller files, programming is easier and data throughput--integral to any media application--is increased. In addition, the file system is "journaled," which means that the file system remains intact even if the computer was abruptly shut down, for example due to a power failure. . Extensive Graphics and Media Libraries. BeOS features a number of components that makes programming simpler. These components, known as "kits," include the Media Kit, for recording, playing, and processing audio and video data; the Interface Kit, which provides tools for building a graphical user interface; the Game Kit, for direct access to graphics hardware, which is essential for creating realistic computer games; and the Network Kit, an object-oriented tool box for the network and Internet access applications. BeOS also provides an implementation of the industry-standard OpenGL 3D graphics library. . Modular Architecture. BeOS promotes programming modularity throughout the system, from the device driver level up to the applications themselves. Modularity makes the application designer's job easier since improvements to an application can be "plugged in," rather than requiring that the user install a completely new version of the application. Modularity also gives the users and OEMs a much broader range of application modules that can be mixed and matched. Also, because of modularity at the driver level, a user can install and run a new device driver without rebooting the machine. . Internet services. BeOS file sharing is based on standard Internet protocols, allowing users to transfer files to and from users on Windows, UNIX, MacOS, or any other system connected to the Internet. BeOS also includes NetPositive, a BeOS-native Web browser. Additional services include an Internet mail client that can be extended or replaced by third party developers. 38 . Internationalization. BeOS recognizes multibyte Unicode text and fonts, and provides Unicode utilities, thus allowing localization of the operating system to meet the demands of non-English applications. Underlying these key features are BeOS components which include the kernel, the servers, and the kits. The kernel is the lowest level of BeOS and is the only level that interfaces directly with the system hardware. Above the kernel is a wide array of servers which provide higher level services to application processes and to the operating system itself. Finally, the object-oriented set of software kits provides the programmer's interface to the operating system. In addition, the kits combine the functions of the various servers into more complex capabilities. This array of BeOS software provides a wide range of classes and functions that applications can draw upon to deliver broad band media rich capabilities. We intend to continuously extend and improve these components in each release of BeOS. Future Products We currently plan to ship new versions of BeOS at least annually. Our next release of BeOS is scheduled for the summer of 1999. This new version will offer broader hardware support, improved media services, and a reduced memory footprint. Key features of this new release include support for hardware expansion via Universal Serial Bus and PC Card and a new Media Player with system level support for standard audio and video file formats such as AVI, QuickTime, and MPEG as well as a broad range of audio and video codecs. We intend for future versions of BeOS to include support for new hardware, enhancements to performance and reliability, and new features as may be required by OEM partners, Internet appliance manufacturers and market demands. Marketing, Sales and Distribution We market and sell BeOS through three principle channels: (1) personal computer and consumer electronics manufacturers and other OEMs who install BeOS on a variety of systems; (2) retail channels such as distributors and resellers; and (3) directly to end users through our Web site. Our sales and marketing group consists of approximately 35 people and is located at our corporate headquarters in Menlo Park, California and at our regional office in Paris, France. Our sales and marketing group is dedicated to four principal tasks: broadening the installed base of BeOS; increasing available third-party applications developed for BeOS; expanding sales to the reseller and distribution channel; and increasing partnerships with OEMs and Internet appliance manufacturers. The target end user markets for BeOS are Internet appliance customers, PC customers using digital media applications, and professional and enthusiast digital media content creators. We are actively pursuing sales in the audio and video professional market, where BeOS delivers a significantly lower cost platform for real-time media editing. We intend to work with key equipment, audio and video suppliers to have BeOS installed on their audio and video creation and editing solutions. We also intend to aggressively pursue the market for digital media-enabled PCs. This market sector is characterized by consumers who want to access, manipulate or edit audio and video content and play electronic games. We intend to create awareness for BeOS through a "Be Everywhere" marketing campaign, including aggressive print and Internet-based advertising campaigns. These campaigns will be executed in conjunction with our channel partners which include both resellers as well as PC manufacturers. We also intend to promote BeOS as the operating system of choice for Internet appliances. We believe that OEMs and consumer electronic companies are actively pursuing this market and that the demand for Internet appliances will grow rapidly as an increasing number of people use and depend on the Internet in their day to day activities. We believe that our operating system's digital media capabilities, scalable nature, modular features and ease of use positions it to address the emerging needs of OEMs and consumer electronic companies offering Internet appliances. Also the initial software requirements of core Internet software applications such as Web browsers, email and easy to use productivity applications are all available on the BeOS today, facilitating rapid product roll-out. 39 PC Manufacturers and OEMs We have announced strategic relationships with Hitachi, Ltd. and Fujitsu Computers. Hitachi announced its support of BeOS in November 1998, and began shipping the first two BeOS-equipped models of its FLORA Prius series machines in Japan. These machines are single-processor systems, one of which includes an integrated flat-panel LCD monitor, and are targeted at the enthusiast market in Japan. In March 1999, Fujitsu Computers announced that it would soon begin shipments of three BeOS-equipped models of its Silverline series PCs in Europe. The Silverline series PCs are high-end configurations: one single-processor version and two dual-processor versions, all based on Pentium III processors. Fujitsu is targeting the Silverline series PCs at both professional media authors and enthusiasts in Europe, with a particular focus on Germany and Scandinavia. Retail Outlets We work with distributors and resellers to sell BeOS in retail outlets in North America, Europe, Japan and other selected countries. While we have only recently begun selling our products through this channel, BeOS can already be found in the United States in selected stores. In Europe, we are developing a network of distributors and resellers covering most of the European Union. In Japan, we distribute our products through Plat'Home, a distributor and reseller of computer hardware and software. We also sell BeOS through specialty resellers who specialize in the audio and video content creation market, such as Digital Edge in the United States. As new applications are developed for BeOS, we intend to extend the distribution network to include more broad based distributors. We have already initiated key target audience awareness campaigns, including attendance at various industry trade shows. BeDepot.com Web site We believe that one area that differentiates us from other operating system vendors is the total solution approach we take in marketing third party applications. One aspect of this approach is to provide a "one-stop-shop" for users where they can select and order third party applications as well as BeOS itself. We provide this through our BeDepot.com Web site. In addition to providing an electronic shopping mall for end users, the BeDepot.com Web site provides application developers with an electronic commerce forum where they can quickly and inexpensively market their products without having to incur inventory and related inventory costs. We charge the developers a commission on each license of software sold on BeDepot.com. End users can enter our Web site, order products and receive them via electronic or physical delivery. As updates and upgrades are made available, we notify BeDepot.com customers and can update their software automatically. Strategic Relationships We believe that strategic relationships provide us with significant opportunities to gain market acceptance for BeOS and increase the overall installed base of BeOS users. We maintain strategic relationships with the following companies: Intel Corporation. Intel has provided us with assistance in the development and enhancement of BeOS. Intel has licensed us Universal Serial Bus and Indeo Video encode/decode technologies. Additionally, Intel has assisted us in developing relationships with current and potential partners. Hitachi, Ltd. Hitachi, a leading PC manufacturer in Japan, was the first major OEM to ship Intel architecture- based computers with BeOS pre-installed. In April 1999, we executed a memorandum of understanding with Hitachi to implement a multi-year strategic relationship. According to the terms of this memorandum, we will collaborate with Hitachi on the development and marketing of digital audio systems, home theater systems, Internet appliances and other devices which will operate on BeOS. 40 Fujitsu Computers GmbH. Fujitsu announced in March 1999 that it would begin shipping a line of personal computers pre-installed with BeOS. We expect that the first such computers will be delivered to customers in July 1999. We also expect to collaborate with Fujitsu Computers to create additional PCs and devices on a continuing basis. Software Developers We devote significant resources to encourage software developers to develop software applications for BeOS. A growing base of independent third party software development is critical to expanding the installed base of BeOS users and ultimately increasing the market acceptance for BeOS. As of March 31, 1999, there were over 10,000 registered developers using BeOS to develop applications, some of which are commercial developers. To assist developers in their activities, we sponsor annual developer conferences and smaller focused development workshops and provide technical support, electronic newsletters, and general marketing services. Currently there are about 800 applications that use BeOS, including utility and smaller "shareware or freeware" applications. BeOS also features an extensive set of development tools including an integrated development environment, industry- standard compilers for code generation, programming libraries and documentation, and debugging tools. We believe that this facilitates development of software and applications based on the BeOS platform. We have a dedicated team of developer support and marketing personnel focused on media authoring applications. These people proactively recruit and cultivate targeted accounts, particularly for audio, video, image processing and 3D applications. One of our strategies is to encourage the development of a significant catalogue of applications by increasing our focus on larger application developers. For the Internet appliance market, early versions require Web browsers, email and simple productivity applications, all of which are currently available on BeOS. Our efforts have resulted in a number of key third party developers choosing to write applications for BeOS. Additionally, our release of version R4.0 of BeOS provided key services and architecture for the construction of media creation applications. We believe that these applications will be introduced into the market in two primary phases. We anticipate that the first wave of digital video and audio editing applications will ship in the second half of 1999 followed by a second wave of authoring applications and add-ons for filtering, file translation and additional hardware support introduced in the first half of 2000. As the market for Internet and related appliances further develops, we will focus additional efforts working with content creators and developers of interactive media applets. 41 Set forth below is a partial list of independent third party developers and related applications as of March 31, 1999:
Developer Application Status --------- ----------- ----------- BeatWare, Inc. .......... Web Imaging and productivity tools Shipping Gobe Software, Inc. ..... Productivity tools Shipping GLW Incorporated......... Professional audio mixing consoles Shipping Level Control Systems Limited................. Theatre audio systems Shipping Adamation, Inc. ......... Digital Video, Audio, and e-mail Beta Electronic Arts, Inc. ... Games Alpha Human Touch Restorations............ Painting and photo manipulation Alpha IK Multimedia............ Consumer music applications Alpha Maxon Computer GmbH...... 3D modeling and rendering Alpha Mediapede, Inc. ......... Digital video editing Alpha MGI Software Corp. ...... Consumer video and image manipulation Alpha The Mozilla Organization............ Web browser, open source Alpha Arboretum Systems, Inc. ................... Audio editing software Development CreamWare................ Studio audio hardware and software Development Cycling 74............... MIDI and signal processing software Development Emagic Soft-und Hardware GmbH.................... MIDI sequencing and audio software Development Beatnik, Inc. ........... Sound synthesis and web audio Development MetaCreations Corporation............. Imaging software Development Nichimen Graphics, Inc. ................... 3D modeling Development Opera Software A/S....... Web browser Development RoDesign, Inc. .......... Professional digital video Development Seer Systems, Inc. ...... Music synthesis Development Steinberg Soft-und Hardware GmbH........... Audio editing Development Strata, Inc.............. Video and image editing Development
Competition The market for computer operating systems is intensely competitive. This market has been dominated by Microsoft Corporation, which has significantly greater financial and marketing resources than we do. Other companies that offer competing operating systems include Apple Computer, Inc., IBM, Oracle Corporation, Sony Corporation and a number of companies that offer versions of the UNIX operating system, including SGI, the Hewlett-Packard Company, and Sun Microsystems. In addition, we face competition from a number of smaller companies developing and marketing UNIX-based operating systems such as Linux. We believe the principal competitive factors impacting the market for our operating system are: . the overall installed base of users; . key technological features and capabilities of the operating system; . the number and strength of third party applications available for use on the operating system; . partnerships with OEMs and consumer electronic companies; . strength of reseller and distributor channel; and . technical, financial and marketing resources. Many of our current and potential competitors compete more favorably than we do with respect to some or all of these factors and have longer operating histories, larger overall installed customer bases, a greater number of popular applications and tools specifically designed for their operating systems, greater brand recognition, 42 and greater financial, technical, marketing and distribution resources than we do. Present and future competition could result in the failure of our BeOS product to gain an economically sustainable level of market acceptance, which could materially adversely affect our business or prospects. Moreover, we believe that some of our competitors may use their dominant position to secure preferential distribution and bundling contracts with third parties such as value-added resellers, OEMs, Internet service and content providers, and software developers, including third parties with whom we have relationships. Such preferential arrangements could significantly reduce the demand and market acceptance for our BeOS product. New product releases or improvements in our competitor's existing operating systems could enable these operating systems to more effectively address the requirement of using digital media in a manner similar to those offered by BeOS. For example, enhancements and features could be added to Microsoft's Windows operating system and Apple's Mac OS, which could significantly decrease the differences in our BeOS and these operating systems. As a result, any advantage we may have had in the marketing for BeOS would be lost and the demand for and acceptance of our operating system would therefore diminish. Research and Product Development Our research and development efforts are focused primarily on developing new features and enhancing the functionality, reliability, performance and flexibility of BeOS. We also spend considerable resources on the development of new products and core technologies. We obtain significant input concerning product development from users and our OEM partners. We have invested significant time and resources in creating a structured process for product development and testing. This process uses both commercially available and proprietary tools. Source code control is maintained using the Perforce Fast Source Code Management tool set. Source code is compiled and linked using the EGCS tools from Cygnus Inc. Both tools sets run natively on BeOS. This enables BeOS to be developed using BeOS, resulting in rapid identification and resolution of problems. Product testing is performed in house by a dedicated quality assurance team and also through a formal beta test program. Software errors are filed and tracked using a proprietary Web based system. This error data base is available to customers via our Web site. We believe that by using BeOS in our own software development, we gain valuable insight into the experiences of third party developers and users of BeOS. In 1997 and 1998 and the first three months of 1999, our research and development expenses were approximately $4.4 million, $5.8 million, and $1.9 million, respectively. Facilities The Company leases 20,575 square feet in Menlo Park, California. The Company also leases 2,184 square feet in Paris, France to focus on channel distribution, sales to OEMs, and third party developer relations and recruitment. While we believe that our current facilities are adequate to meet our needs for the next six months, however, we will need to expand our existing facility or possibly relocate to a larger facility that would better address any growth that we may experience in the future. Employees As of March 31, 1999, the Company had 93 employees. Of these employees, 35 are in sales and marketing, 49 are in research and development and 9 are in general and administrative. We consider our employee relations to be good. 43 MANAGEMENT Executive Officers, Directors and Certain Key Employees The executive officers, directors and certain key employees of Be as of March 31, 1999 and their ages as of March 31, 1999, are as follows:
Name Age Position ---------------------------- --- ------------------------------------------ Jean-Louis F. Gassee........ 55 President, Chief Executive Officer and Director Roy Graham.................. 48 Executive Vice President, Sales and Marketing Steve M. Sakoman............ 45 Vice President, Engineering and Chief Technical Officer Wesley S. Saia.............. 54 Vice President and Chief Financial Officer Jean R. Calmon.............. 53 Vice President and General Manager, Europe Christian E. Marchandise.... 50 Director Barry M. Weinman (1)(2)..... 60 Director Garrett P. Gruener (2)...... 45 Director Stewart Alsop (1)........... 47 Director
- -------- (1) Member of the Audit Committee. (2) Member of the Compensation Committee Jean-Louis F. Gassee co-founded Be in 1990 and has served as our President, Chief Executive Officer and Chairman of the Board since October 1990. Prior to forming Be, Mr. Gassee was associated with Apple Computer, Inc. for ten years serving in numerous capacities including President of Apple Products, the R&D and Manufacturing division of Apple. Prior to joining Apple Computer, Inc., Mr. Gassee was President and General Manager of the French subsidiary of Exxon Chemical Company. He also held several management positions with Data General Corporation, including Chief Executive Officer of Data General for France and Director of Product Marketing for Europe. Mr. Gassee serves as a director of several private and publicly traded companies. Mr. Gassee serves as a director of 3Com Corporation, Electronics for Imaging, Inc., Logitech International S.A., and VirtualFund.com, Inc. Mr. Gassee holds an M.A. of Science from the Faculty of Sciences (France). Roy Graham has served as our Executive Vice President, Sales and Marketing since March 1999. From 1996 to 1998, Mr. Graham served as Senior Vice President of Sales, Marketing and Customer Service for Wyse Technology, Inc., a thin client desktop company. From 1988 to 1995, Mr. Graham served in various positions at Tandem Computers, Inc., most recently as the Director and General Manager of the Windows NT Business Group. Mr. Graham holds a B. Sc. Honors in Mathematical Physics, from Sussex University (UK). Steve M. Sakoman co-founded Be in 1990 and has served as our Vice President, Engineering and Chief Technical Officer since August 1996. From 1994 to 1996, Mr. Sakoman served in various management positions at SGI, including Director of Consumer Technology. Prior to forming Be, Mr. Sakoman served as Director of Macintosh and Apple II Development for Apple from 1985 until 1987 and Director of Newton Development from 1987 to 1990. Mr. Sakoman has also held various management positions at the Hewlett-Packard Company. Mr. Sakoman has also served as a consultant and contract designer for the consumer electronics industry in the area of home theater sound systems. Mr. Sakoman holds a B.S. in Computer Engineering from Case Western Reserve University. Wesley S. Saia has served as our Vice President and Chief Financial Officer since November 1994. From 1993 until he assumed his current position, Mr. Saia served as Vice President of Finance and Chief Financial Officer for Asante Technologies, Inc., a company that specializes in computer networking products. While at Asante, Mr. Saia completed an initial public offering that raised approximately $25 million. Mr. Saia holds a B.S. degree in Industrial Technology and an M.B.A. from Louisiana State University. Jean R. Calmon has served as our Vice President and General Manager, Europe since April 1994. From 1993 to 1994, he served as Vice President, Europe for EO, Inc., a subsidiary of AT&T and Olivetti. From 1990 44 to 1992, he served as Directeur General (CEO) of Electronic Data Systems Corporation France. Mr. Calmon holds an undergraduate degree in Business Administration from Ecole Superieure de Commerce de Bordeaux (France). Christian E. Marchandise has served as one of our directors since December 1995. Since 1991, Mr. Marchandise has served as the Chief Executive Officer of e-LaSer. He also serves as the Chief Executive Officer of Smart Valley Investment, LLC. Mr. Marchandise attended the University of Economics and Law, Paris X - Nanterre. Barry M. Weinman has served as one of our directors since February 1998. Since 1993, Mr. Weinman has served as a General Partner for Media Technology Ventures and as Managing Director of Media Technology Equity Partners, the newly created media fund of AVI Management Partners III. Mr. Weinman also serves on the Boards of Women.com, Quokka Sports, Inc., TalkCity, Inc., and InfoGear Technology Corporation. Mr. Weinman holds a B.S. from the Clarkson University, and an M.A. from the London School of Economics/University of Southern California. Garrett P. Gruener has served as one of our directors since April 1996. Since 1996, Mr. Gruener has served as a General Partner in Alta Partners Venture Capital Company. From 1992 to 1996, Mr. Gruener served as a Vice President of Burr, Egan, Deleage & Co. Mr. Gruener specializes in information technology. He holds a B.S. in Political Science from the University of California, San Diego and an M.A. from the University of California, Berkeley. Stewart Alsop has served as one of our directors since March 1999. Mr. Alsop has served as a General Partner at New Enterprise Associates, a venture capital investment firm, since 1998. Mr. Alsop was a Venture Partner at New Enterprise Associates from 1996 to 1998. From June 1991 to 1996, Mr. Alsop served as Senior Vice President and Editor-in-Chief of InfoWorld Media Group, Inc., which publishes InfoWorld, a weekly newspaper for information-technology professionals. Mr. Alsop also serves on the board of directors of Macromedia, Inc. Mr. Alsop holds a B.A. in English from Occidental College. Board Composition The number of directors is fixed by one or more resolutions by the board of directors. Upon the closing of the offering, the number of directors will remain set at five. In accordance with the terms of our Amended and Restated Certificate of Incorporation, the terms of the office of the board of directors will be divided into three classes, with each class holding office for staggered three year terms: the Class I directors' term will expire at the annual meeting of stockholders to be held in 2000, the Class II directors' terms will expire at the annual meeting of stockholders to be held in 2001, and the Class III directors' terms will expire at the annual meeting of stockholders to be held in 2002. The Class I director is Mr. Marchandise, the Class II directors are Messrs. Weinman and Gruener and the Class III directors are Messrs. Gassee and Alsop. At each annual meeting of stockholders after the initial classification, the successors to directors whose term will then expire will be elected to serve from the time of election and qualification until the third annual meeting following their election. Any additional directorships resulting from an increase in the number of directors will be distributed among the three classes so that, as nearly possible, each class will consist of one- third of the directors. This classification of the board of directors may have the effect of delaying or preventing changes in control or management of Be. Under Delaware law, directors may be removed for cause by the affirmative vote of the holders of a majority of the common stock. Board Committees Audit Committee. The audit committee is responsible for, among other things, making recommendations to the board of directors regarding the engagement of our independent public accountants, reviewing with the independent public accountants the plans and results of the audit engagement, approving professional services provided by the independent public accountants, and reviewing the adequacy of our internal accounting controls. The audit committee consists of Messrs. Weinman and Alsop. 45 Compensation Committee. The compensation committee is responsible for determining salaries and incentives compensation for our directors, officers, employees and consultants and administering our stock option incentive plans. The compensation committee consists of Messrs. Weinman and Gruener. Compensation Committee Interlocks and Insider Participation The members of our compensation committee are Messrs. Weinman and Gruener. None of the members of our compensation committee of the board of directors is currently or has been, at any time since the formation of Be, an officer or employee of Be. Prior to the formation of the compensation committee, all decisions regarding compensation for directors, officers, employees and consultants and administration of stock and incentive plans were made solely by the board of directors. Director Compensation Directors who are also our executive officers do not receive any additional compensation for serving as members of the board of directors or any committee thereof. Under our 1999 Non-Employee Directors' Stock Option Plan, each of the current non-employee directors received an initial option to purchase 150,000 shares of common stock (at a per share exercise price of $5.00) for serving on the board of directors and any committees thereof. Any future non-employee directors will automatically be granted a nonstatutory option to purchase 100,000 shares of common stock under our 1999 Non-Employee Directors' Stock Option Plan on the date on which such person is first elected or appointed a director. Options initially granted under our 1999 Non-Employee Directors' Stock Option Plan typically vest over a four (4) year period with 25% vesting at the end of the first year of service and thereafter at a rate of 1/48th monthly. On the date the option becomes fully vested, the optionholder, if still a non-employee director, will automatically be granted a nonstatutory option to purchase an additional 100,000 shares of common stock. The exercise price of options under the 1999 Non-Employee Directors' Stock Option Plan will be equal to the fair market value of the common stock on the date of grant. For more information, please see "1999 Non-Employee Director's Stock Option Plan." Executive Compensation The following table sets forth the total compensation paid or accrued for the year ended December 31, 1998, our Chief Executive Officer and for our four most highly compensated executive officers whose salary and bonus for that year were in excess of $100,000 (the "Named Executive Officers"): Summary Compensation Table
Long-Term Compensation Awards ------------ Annual Compensation Shares ---------------- Underlying Name and Principal Position Salary Bonus Options - --------------------------- -------- ------- ------------ Jean-Louis F. Gassee, President................. $187,500 -- 500,000 Chief Executive Officer and Director Steve M. Sakoman................................ $175,000 -- 340,000 Vice President, Engineering and Chief Technical Officer Wesley S. Saia.................................. $162,500 -- 250,000 Vice President and Chief Financial Officer Jean R. Calmon.................................. $144,027 $48,008 125,000 Vice President and General Manager, Europe Frank C. Boosman................................ $136,784 $30,000 68,000 Vice President, Business Development
46 Option Grants in Last Fiscal Year The following table sets forth information concerning the grant of stock options to our Named Executive Officers during the fiscal year ended December 31, 1998. The exercise price per share of each option was equal to the fair market value of the common stock on the date of grant as determined by the board of directors. The potential realizable value is calculated based on the term of the option at the time of grant. It is calculated assuming that the deemed value of common stock on the date of grant appreciates at the indicated annual rate compounded annually for the entire term of the option and that the option is exercised and sold on the last day of its term for the appreciated stock price. These values are calculated based on the requirements of the Securities and Exchange Commission ("Commission" or the "SEC") and do not reflect our estimate of future stock price growth.
Potential Realizable Value at Assumed Annual Rates of Stock Price Appreciation for Stock Option Individual Grants Term (3) --------------------------------------------------- --------------------- Number of Securities % of Total Underlying Options Exercise Options Granted in Price Name Granted 1998 (1) Per Share (2) Expiration Date 5% 10% - ---- ---------- ---------- ------------- --------------- ---------- ---------- Jean-Louis F. Gassee.... 500,000 20.5% $ 0.35 4/28/08 $2,903,611 $4,727,173 Steve M. Sakoman........ 340,000 14.0 0.35 3/31/08 1,819,385 2,967,554 Wesley S. Saia.......... 250,000 10.3 0.35 3/31/08 1,337,783 2,182,025 Jean R. Calmon.......... 125,000 5.1 0.35 3/31/08 668,891 1,091,012 Frank C. Boosman........ 68,000 2.8 0.20-0.35 1/27/08-2/25/08 308,241 500,477
- -------- (1) The total number of options granted to our employees in fiscal year 1998 was 2,436,500. (2) The exercise price per share of options granted represents the fair market value of the underlying shares of common stock on the dates the respective options were granted. The options vest over a four-year period. (3) In order to comply with the rules of the Commission, we are including the gains or "option spreads" that would exist for the respective options we granted to the Named Executive Officers. We calculate these gains by assuming an annual compounded stock price appreciation of 5% and 10%, respectively, from the date of the option grant until the termination date of the option. These gains do not represent our estimate or projection of the future common stock price. Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option Values The following table sets forth certain summary information concerning the exercise of stock options during the fiscal year ended December 31, 1998 by the Named Executive Officers.
Number of Securities Value of Unexercised Underlying Unexercised In-The-Money Options Shares Options at December 31, 1998 at December 31, 1998 (1) Acquired Value ----------------------------- ------------------------- Name on Exercise Realized Exercisable (2) Unexercisable Exercisable Unexercisable - ---- ----------- --------- --------------- ------------- ----------- ------------- Jean-Louis F. Gassee.... 500,000(3) 2,745,000 -- -- -- -- Steve M. Sakoman........ -- -- 340,000 -- $1,866,600 -- Wesley S. Saia.......... 15,640 85,864 234,360 -- 1,286,636 -- Jean R. Calmon.......... -- -- 125,000 -- 686,250 -- Frank C. Boosman........ -- -- 68,000 -- 380,820 --
- -------- (1) The value of unexercised "in-the-money" options is $5.84 per share, based on the deemed fair value as of December 31, 1998, as determined by the board of directors with the benefit of hindsight, minus the exercise price, multiplied by the number of shares underlying the option. (2) These shares include an unvested portion of the options which may be exercised prior to vesting under our 1992 Stock Option Plan and will be subject to our right of repurchase. (3) A portion of these shares includes unvested options subject to our right of repurchase. 47 Employee Benefit Plan 1992 Stock Option Plan Our 1992 Stock Option Plan (the "Option Plan") became effective on February 5, 1992 and was terminated on March 30, 1999. No further options will be granted under the Option Plan. However, existing options will continue in force and effect in accordance with the terms of their agreements and those of the Option Plan. The purpose of the Option Plan is to attract and retain qualified personnel, to provide additional incentives to our employees (including officers), directors and consultants and to promote the success of our business. A reserve of 8,000,000 shares of common stock was set aside for issuance under the Option Plan. The Option Plan was administered by our board of directors. The board has complete discretion to determine the status of any granted option as either an incentive stock option or a non-statutory option, the vesting schedule to be in effect for the option grant and the maximum term for which any granted option is to remain outstanding. As of March 31, 1999, we had options outstanding under the Option Plan that were exercisable for an aggregate of 1,943,347 shares of common stock. As outstanding options terminate unexercised, the shares underlying the options are released and returned to our pool of authorized and unissued shares, and a corresponding number of shares are, as a result, reserved under our 1999 Equity Incentive Plan and become available for grant under that plan. This is explained in more detail under the heading "1999 Equity Incentive Plan." 1999 Equity Incentive Plan The 1999 Equity Incentive Plan (the "Incentive Plan") was adopted on March 30, 1999. As of March 31, 1999, a total of 8,000,000 shares of common stock have been authorized for issuance under our Incentive Plan. Under the Incentive Plan, as of March 31, 1999, options to purchase an aggregate of 3,367,000 shares were outstanding and 2,689,653 shares continue to be available for future grants under stock options, restricted stock purchase rights and stock bonuses. Of the 8,000,000 shares of common stock reserved, however, 1,943,347 shares of common stock only become available for future grants under stock options and stock purchase rights to the extent that options granted and still outstanding under the Option Plan as of March 30, 1999 are cancelled or terminated unexercised. The Incentive Plan provides for the grant of incentive stock options within the meaning of Section 422 of the Internal Revenue Code of 1986 ("Code"), nonstatutory stock options, restricted stock purchase rights and stock bonuses to our employees, consultants and directors. Incentive stock options may be granted only to employees. The Incentive Plan is administered by the board or a committee appointed by the board, which determines the terms of awards granted, including the exercise price and the number of shares subject to the award and the exercisability thereof. The exercise price of incentive stock options granted under the Incentive Plan must be at least equal to the fair market value of our common stock on the date of grant. However, for any employee holding more than 10% of the voting power of all classes of our stock, the exercise price will be no less than 110% of the fair market value. The exercise price of nonstatutory stock options is set by the administrator of the Incentive Plan, but can be no less than 85% of the fair market value. The maximum term of options granted under the Incentive Plan is ten years. An optionee whose relationship as an employee, director or consultant with us or any related corporation ceases for any reason, other than due to death or total and permanent disability, may exercise options in the three-month period following such cessation, or such other period of time as determined by the administrator, unless such options terminate or expire sooner, or later, by their terms. The three-month period is extended to twelve months for terminations due to death or total and permanent disability. In the event of our merger with or into another corporation, any outstanding options held by persons then performing services for us as an employee, director or consultant may either be assumed or an equivalent award may be substituted by the surviving entity or, if such options are not assumed or substituted, such options shall become fully exercisable, 48 including shares which would not otherwise be exercisable, and restricted stock shall become fully vested. If not exercised at or prior to the merger, the options shall terminate. At the end of each of our fiscal years, an additional number of shares will automatically be added to the number of shares already reserved for issuance under the Incentive Plan. The additional number of shares will not be more than the lesser of (A) 5% of the number of shares of our common stock issued and outstanding on that date, or (B) the number equal to 8% of the number of shares of common stock issued and outstanding on that date, less the number of shares of our common stock then reserved under the Incentive Plan but not subject to outstanding awards. None of our employees may be granted, in any calendar year, options to purchase more than 2,000,000 shares. During the course of the Incentive Plan, no more than 23,000,000 shares may be issued pursuant to incentive stock options and all such option grants must be made prior to the tenth anniversary of the earlier of the date the board adopted the Incentive Plan or the date our stockholders approved the Incentive Plan. The board may amend (subject to stockholder approval as necessary) the Incentive Plan at any time. The Incentive Plan will terminate at the discretion of the board. None of our employees may be granted, in any calendar year, options to purchase more than 2,000,000 shares. The board may amend (subject to stockholder approval as necessary) the Incentive Plan at any time. The Incentive Plan will terminate in March 2009, unless sooner terminated by the board. The board may also grant stock purchase rights to employees, directors and consultants under the Incentive Plan. Such grants are made pursuant to a restricted stock purchase agreement, and the price to be paid for the shares granted thereunder is determined by the administrator. The restricted stock purchase agreement grants us a repurchase option exercisable on the voluntary or involuntary termination of the purchaser's services to us for any reason, including death or disability. The exercise price of the repurchase option is the original purchase price paid by the purchaser. Our repurchase option lapses at a rate determined by the board at the time the stock purchase right is granted. Once a stock purchase right has been exercised, the purchaser has the rights equivalent to those of a stockholder. The board may also grant stock bonuses to employees, directors and consultants under the Incentive Plan in consideration for services actually rendered to us. Employee Stock Purchase Plan The Employee Stock Purchase Plan, (the "Purchase Plan"), was adopted on May 4, 1999, and a total of 1,500,000 shares of common stock have been reserved for issuance thereunder, all of which are available for future issuance. The Purchase Plan, which is intended to qualify under Section 423 of the Code, is administered by the board or by a committee appointed by the board. Under the Purchase Plan, we withhold a specified percentage, not to exceed 15%, of each participating employee's compensation (excluding certain specified items of compensation) over certain offering periods. Any employee who is currently employed by us for at least 20 hours per week and for at least five months in a calendar year is eligible to participate in the Purchase Plan. Unless the board or a committee of the board determines otherwise, each offering period will run for 24 months and will be divided into consecutive purchase periods of approximately 6 months. The first offering period and the first purchase period commences on the date on which our stock is first offered for purchase by the public. Thereafter, new 24-month offering periods commence every 6 months on each August 1st and February 1st, beginning February 1, 2000. In the event of a change in control, including a merger of us with or into another corporation, or the sale of all or substantially all of our assets, the offering and purchase periods then in progress may be shortened if the offering and purchase periods are not continued by the surviving corporation. The price of common stock purchased under the Purchase Plan is equal to 85% of the fair market value of the common stock on the first day of the applicable offering period or the last day of the applicable purchase period, whichever is lower. Employees may end their participation in the offering at any time during the 49 offering period, and participation ends automatically on termination of employment with us. The maximum number of shares that a participant may purchase on the last day of any offering period is determined by dividing the payroll deductions accumulated during the purchase period by the purchase price. However, no person may purchase shares under the Purchase Plan to the extent such person would own 5% or more of the total combined value or voting power of all classes of our capital stock or of any of our subsidiaries, or to the extent that such person's rights to purchase stock under all employee stock purchase plans would accrue at a rate in excess of $25,000 per calendar year. The board may amend (subject to stockholder approval as necessary) or terminate the Purchase Plan at any time, however, full termination will generally not occur until all then ongoing offerings have concluded. 1999 Non-Employee Directors' Stock Option Plan The Non-Employee Directors' Stock Option Plan (the "Directors' Plan") was adopted on March 30, 1999, and a total of 1,500,000 shares of common stock have been reserved for issuance thereunder. On adoption of the Directors' Plan, each non-employee director at that time was granted a nonstatutory stock option to purchase 150,000 shares. As of March 31, 1999, options to purchase an aggregate of 600,000 shares of common stock were outstanding and 900,000 shares of common stock are currently available for future grants. Thereafter, each person who becomes a non-employee director of Be will automatically be granted a nonstatutory option to purchase 100,000 shares of common stock on the date on which such person is first elected or appointed a director. On the date the option becomes fully vested, the optionholder, if still a non-employee director, will automatically be granted a nonstatutory option to purchase an additional 100,000 shares of common stock. The exercise price of options granted under the Directors' Plan will be equal to the fair market value of the common stock on the date of grant. The maximum term of the options granted under the Directors' Plan is ten years. Each initial grant under the Directors' Plan will vest at 1/4th of the shares subject to the option one year after the date of grant and 1/48th of the shares each month thereafter. The rate of vesting of each subsequent grant will be 1/48th of the shares on a monthly schedule after the date of grant. In the event we merge with or into another corporation, all outstanding options may either be assumed or an equivalent option may be substituted by the surviving entity or, if such options are not assumed or substituted, such options shall become exercisable as to all of the shares subject to the options, including shares which would not otherwise be exercisable. The board may amend (subject to stockholder approval as necessary) or terminate the Directors' Plan at any time. Description of 401(k) Plan We maintain a retirement and deferred savings plan (the "401(k) Plan") for our U.S. employees that is intended to qualify as a tax-qualified plan under the Code. The 401(k) Plan provides that each participant may contribute up to 15% of his or her pre-tax compensation (up to a statutory limit, which was $10,000 in calendar year 1998). Under the 401(k) Plan, each employee is fully vested in his or her deferral salary contributions. Employee contributions are held and invested by the 401(k) Plan's Trustee. The 401(k) Plan also permits us to make discretionary contributions, subject to established limits. To date, we have not made any discretionary contributions to the 401(k) Plan on behalf of participating employees. Employment Agreements Wesley S. Saia entered into an at-will employment agreement with Be on June 22, 1998 for the position of Vice President and Chief Financial Officer. This agreement provides that Mr. Saia is entitled to a severance package consisting of six months salary in the event that his employment is terminated without cause or resulting from our change in control. This employment agreement also entitles him to all company benefits for a period of six months from the date of written notice of termination. Roy Graham entered into an at-will employment agreement with Be on March 12, 1999 for the position of Executive Vice President, Sales and Marketing. This agreement provides for base compensation of $216,000 50 per year with a $54,000 bonus the first year. After the first year, a bonus will be paid subject to accomplishment of goals set forth by our management and board of directors. In addition, Mr. Graham was granted an option to purchase 660,000 shares of common stock, of which 160,000 shares vested immediately upon his date of hire and of the remaining 500,000 shares, 1/4th of these shares vest on the first anniversary date of employment and 1/48th of these shares will vest monthly over the remaining three-year period. Jean R. Calmon entered into an employment agreement with Be on October 4, 1998 for the position of Vice President and General Manager, Europe. This agreement, governed by French law, provides for base compensation of FF 827,496 per year. A bonus equal to one-third of his gross salary will be paid subject to the accomplishment of 100% of the goals set forth by our management. Mr. Calmon's remuneration is revised on an annual basis. In addition, Mr. Calmon's employment agreement entitles him to all company benefits. Indemnification of Directors and Executive Officers and Limitation of Liability As permitted by Section 145 of the Delaware General Corporation Law, our bylaws provide that: . we are required to indemnify our directors and officers to the fullest extent permitted by the Delaware General Corporation Law; . we may, in our discretion, indemnify other employees and agents as set forth in the Delaware General Corporation Law; . to the fullest extent permitted by the Delaware General Corporation Law, we are required to advance all expenses incurred by our directors and executive officers in connection with a legal proceeding (subject to certain exceptions); . the rights conferred in the bylaws are not exclusive; . we are authorized to enter into indemnification agreements with our directors, officers, employees and agents; . to the fullest extent permitted by the Delaware General Corporation Law, we may purchase insurance on behalf of any person required or permitted to be indemnified; and . we may not retroactively amend the bylaws, provisions relating to indemnity. We intend to enter into agreements to indemnify our officers and directors. A form of the indemnity agreement has been filed as an exhibit to the Registration Statement, of which this prospectus is a part. We intend to obtain officer and director liability insurance with respect to liabilities arising out of certain matters, including matters arising under the Securities Act. In addition, our Amended and Restated Certificate of Incorporation provides that our directors will not be liable for monetary damages for breach of their fiduciary duty as directors to the fullest extent permitted by the Delaware General Corporation Law. This provision in our Amended and Restated Certificate of Incorporation does not eliminate their fiduciary duty and in appropriate circumstances, equitable remedies such as an injunction or other forms of non-monetary relief would remain available under Delaware General Corporation Law. This provision does not affect a director's responsibilities under any other laws such as the federal securities laws or state or federal environmental laws. At present, there is no pending litigation or proceeding involving a director or officer in which indemnification is required or permitted, and we are not aware of any threatened litigation or proceeding that may result in a claim for such indemnification. We are aware that the Commission considers indemnification for liabilities arising under the Securities Act to be against public policy. Even if our indemnification for liabilities of our directors, officers and controlling persons is permitted under indemnification agreements, it would be unenforceable as a matter of public policy. 51 CERTAIN RELATIONSHIPS AND TRANSACTIONS Private Placement Transactions On April 12, 1996, we sold an aggregate of 14,116,000 shares of Series 1 Convertible Preferred Stock at a per share price of $1.00. In connection with the issuance and sale of the Series 1 Convertible Preferred Stock, we issued warrants to purchase an aggregate of 1,219,648 shares of common stock to certain stockholders at an exercise price per share of $1.00. These warrants are exercisable at any time on or before March 31, 2001. This financing was consummated in conjunction with a recapitalization of the Company. As part of the recapitalization, all outstanding shares of Series A, Series A1 and Series B Preferred Stock were converted into shares of common stock. On August 22, 1997 and December 17, 1997, we issued uncollateralized promissory notes in an aggregate principal amount of $3,000,000. The notes bear interest at the rate of 10% per annum and were payable on February 28, 1998. Under this debt financing, notes in the aggregate principal amount of (1) $288,849 were issued to Jean-Louis F. Gassee, the Company's founder and Chief Executive Officer; (2) $1,083,377 were issued to August Capital, a principal stockholder; (3) $609,399 were issued to entities affiliated with Alta California Partners, a principal stockholder; (4) $747,531 were issued to New Enterprise Associates, a principal stockholder; and (5) $270,845 were issued to entities affiliated with AVI Capital, of which Mr. Weinman, one of our directors, is an affiliate. At the option of the note holders, all of the uncollateralized promissory notes, including accrued interest, on these notes were converted into shares of Series 2 Convertible Preferred Stock on February 4, 1998. On February 4, 1998 and December 23, 1998, we sold an aggregate of 8,276,730 shares of Series 2 Convertible Preferred Stock at a per share price of $3.25. In connection with the issuance and sale of the Series 2 Convertible Preferred Stock, we issued warrants to purchase an aggregate of 1,538,462 shares of common stock to Intel Corporation at an exercise price per share of $3.25. These warrants are exercisable at any time on or before December 23, 2003. All mandatorily redeemable convertible preferred stock was sold in private financings, pursuant to convertible preferred stock purchase agreements and investors' rights agreements. The terms of those agreements (with the exception of amount and price) are substantially similar for the Series 1 and Series 2 Convertible Preferred Stock, under which we made the standard representations, warranties and covenants, and which provided the purchasers thereunder with rights of first offer, tag-along rights, preemptive rights, and demand and piggyback registrations rights. All of the material terms of the Series 1 and Series 2 agreements, with the exception of the registration rights, will terminate upon the effective date of the Registration Statement of which this prospectus is a part. The purchasers of the Convertible Preferred Stock included, among others, the following directors, entities associated with directors, and holders of 5% or more of our common stock:
Common Common Equivalent Equivalent Shares of Shares of Series 1 Series 2 Common Convertible Convertible Stock Investor (1) Preferred Stock Preferred Stock Warrants ------------ --------------- --------------- --------- Alta California Partners, L.P. (2)............................. 2,250,000 384,615 -- August Capital, L.P. ............ 4,000,000 615,385 -- AVI Capital, L.P. (3)............ 1,000,000 307,693 -- Jean-Louis F. Gassee............. 1,066,476 91,952 -- Intel Corporation................ -- 1,538,462 1,538,462 Christian E. Marchandise......... 250,578 0 182,537 New Enterprise Associates VI, L.P.(4)......................... 2,760,000 538,462 -- State of Michigan................ -- 1,538,462 --
- -------- (1) Shares held by all affiliated persons and entities have been aggregated. See "Principal Stockholders" for more details on shares held by these purchasers. 52 (2) Garrett P. Gruener, an affiliate of Alta California Partners, is one of our directors. (3) Barry M. Weinman, an affiliate of AVI Capital, is one of our directors. (4) Includes shares held by affiliated stockholders. Stewart Alsop, a general partner of NEA (a stockholder of the Company), is a director of the Company. See "Principal Stockholders" for more details. The foregoing table has been adjusted to reflect the conversion of each outstanding share of Series 1 and Series 2 Convertible Preferred Stock of the Company into common stock on a 1-for-1 basis upon the completion of this offering. See "Description of Capital Stock--Registration Rights." Relationship with Intel Corporation In connection with the Series 2 Convertible Preferred Stock financing, we entered into a separate stock purchase agreement with Intel Corporation, which provided to Intel, among other rights also given to other purchasers in the financing: (1) certain board representation rights; (2) a right to notice upon any offer to acquire all or substantially all of our assets or capital stock; (3) a right to cause the sale of Be upon a determination of a third party that our business is no longer financially viable; and (4) certain indemnification rights. All of these rights expire upon the completion of this offering. We regularly collaborate with Intel on technical, public relations and marketing activities. StarCode Acquisition On May 1, 1998, we acquired StarCode Software, Inc. for an aggregate purchase price of $567,000. StarCode owned and operated an electronic commerce Web site which the Company and certain developers of application software for use on BeOS. We had previously contracted with StarCode to provide access to this Web site and paid a fee based on the level of revenue generated by orders therefrom. The acquisition has been accounted for using the purchase method of accounting and the results of operations of StarCode have been included with our financial statements since the date of the acquisition. Notes Payable During 1995, we issued notes to two officers in exchange for $985,000 of cash with an additional $1 million issued as notes in exchange for cash in 1996. These uncollateralized notes carried interest at an annual rate of 10% and were payable at various dates during fiscal year 1996. In April 1996, $1,266,000 of the notes payable were converted into Series 1 Convertible Preferred Stock and the remaining $719,000 in notes was repaid. During 1997, we issued notes to certain stockholders in exchange for $3,000,000 of cash. These notes bore interest at an annual rate of 10% and were due in February 1998. The entire amounts due under the notes, including accrued interest, were converted to Series 2 Convertible Preferred Stock in February 1998. Other Transactions On October 2, 1997, we (1) sold an aggregate of 50,000 shares of our common stock at a per share price of $0.10 and (2) issued an option to purchase an aggregate of 50,000 shares of our common stock at an exercise price of $0.10 to Jo Ann Heidi Roizen, a former non-employee director. The options issued to Ms. Roizen were subject to vesting over a four year period and the stock sold to Ms. Roizen was subject to our right of repurchase. On March 30, 1999, we accelerated the vesting of these options and released our repurchase rights on the 50,000 shares of stock held by Ms. Roizen. On June 17, 1997, we entered into an engagement agreement with Cowen & Company, under which Cowen acted as our exclusive placement agent in connection with the Series 2 Convertible Preferred Stock financing. This agreement was modified in February 1998. As part of Cowen's compensation under this agreement, we issued to Cowen: (1) an aggregate of 106,144 shares of Series 2 Convertible Preferred Stock at a per share price of $3.25; and (2) warrants to purchase an aggregate of 112,865 shares of common stock at an exercise price per share of $3.58. These warrants are exercisable at any time on or before March 31, 2001. 53 We have entered into indemnification agreements with our directors and certain of our other officers for the indemnification of and advancement of expenses to these persons to the full extent permitted by law. We also intend to execute these agreements with our future directors and certain other officers. We believe that each of the foregoing transactions were in our best interest. As a matter of policy the transactions were, and all future transactions between ourselves and any of our officers, directors or principal stockholders will be approved by a majority of the independent and disinterested members of the board of directors, will be on terms no less favorable to us than could be obtained from unaffiliated third parties and will be in connection with bona fide business purposes. 54 PRINCIPAL STOCKHOLDERS The following table sets forth certain information regarding the beneficial ownership of our common stock as of March 31, 1999, and as adjusted to reflect the sale of our common stock offered hereby by: (1) each stockholder who is known by us to own beneficially more than 5% of our common stock; (2) each of our Named Executive Officers; (3) each of our directors; and (4) all of our directors and executive officers as a group. Unless otherwise indicated, to our knowledge, all persons listed below have sole voting and investment power with respect to their shares of our common stock, except to the extent authority is shared by spouses under applicable law.
Percentage of Shares Outstanding (1) Number of Shares ----------------------- Beneficially Before the After the Name of Beneficial Owner Owned (1) Offering Offering (2) ------------------------ ---------------- ---------- ------------ Stewart Alsop (3)................. 3,298,462 10.81% % Alta California Partners, L.P. (4).............................. 2,634,615 8.63 August Capital, L.P. (5).......... 4,615,385 15.13 Frank C. Boosman (6).............. 72,167 * Jean R. Calmon (7)................ 715,417 2.33 Jean-Louis F. Gassee (8).......... 3,952,595 12.94 Roy Graham........................ 160,000 * Garrett P. Gruener (9)............ 2,634,615 8.63 Intel Corporation (10)............ 3,076,924 10.08 Christian E. Marchandise (11)..... 436,847 1.43 New Enterprise Associates VI, L.P. (12)............................. 3,298,462 10.81 Wesley S. Saia (13)............... 510,417 1.66 Steve M. Sakoman (14)............. 510,528 1.65 State of Michigan (15)............ 1,538,462 5.04 Barry M. Weinman (16)............. 1,307,693 4.29 All officers and directors as a group (10 persons) (17).......... 13,598,741 43.21
- -------- * Represents beneficial ownership of less than one percent of the common stock. (1) Beneficial ownership is determined in accordance with the rules of the Securities and Exchange Commission. Applicable percentage ownership based on 30,513,549 shares of common stock outstanding as of March 31, 1999 (including 2,870,975 shares issuable upon exercise of warrants), together with applicable options for such stockholder. Shares of common stock subject to options currently exercisable or exercisable within 60 days of March 31, 1999 are not deemed outstanding for computing the percentage ownership of any other person. (2) After giving effect to the issuance of [ ] shares of common stock offered hereby (assuming no exercise of the underwriters' over- allotment option). (3) Consists of 3,298,462 shares held by New Enterprise Associates VI, L.P. and its affiliated entity. Mr. Alsop is a partner of New Enterprise Associates, the general partner of New Enterprise Associates VI. Mr. Alsop disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. (4) The address of record for Alta California Partners, L.P. is c/o Alta Partners, One Embarcadero Center, Suite 4050, San Francisco, CA 94111. Consists of 2,561,126 shares held by Alta California Partners, L.P. and 73,489 shares held by Alta Embarcadero Partners, LLC. These entities are part of an affiliated group. (5) The address of record for August Capital, L.P. is 2480 Sand Hill Road, Suite 101, Menlo Park, CA 94025. August Capital holds these shares for itself and as nominee for August Capital Strategic Partners, L.P. and August Capital Associates, L.P. (6) Consists of 72,167 shares issuable pursuant to options exercisable within 60 days of March 31, 1999. (7) Consists of 580,000 shares held by Mr. Calmon and 135,417 shares issuable pursuant to options exercisable within 60 days of March 31, 1999. (8) Includes an aggregate of 20,834 shares issuable pursuant to options exercisable within 60 days of March 31, 1999. 55 (9) Consists of 2,634,615 shares held by Alta California Partners, L.P. and its affiliated entity. Mr. Gruener is a partner of Alta California Partners and its affiliated entity. Mr. Gruener disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. (10) The address of record for Intel Corporation is 2200 Mission Boulevard, Santa Clara, CA 95052. Includes 1,538,462 shares issuable pursuant to a warrant. (11) Consists of (i) 100 shares held directly by Mr. Marchandise; (ii) 747 shares and 452 shares issuable upon exercise of warrants held by Charlotte Marchandise; (iii) 1,000 shares held by Smart Valley Investment LLC; and (iv) 252,463 shares and 182,085 shares issuable upon exercise of warrants held by Dotcom Ventures, S.A. Mr. Marchandise claims voting power over the shares and warrant held by Charlotte Marchandise, his daughter. Mr. Marchandise is the Chief Executive Officer of Smart Valley Investment, and disclaims beneficial ownership of these shares except to the extent of his pecuniary interest therein. Mr. Marchandise holds a 30% equity ownership in Dotcom Ventures, and disclaims beneficial ownership in the shares and warrants except to the extent of his pecuniary interest therein. (12) The address of record for New Enterprise Associates VI is c/o New Enterprise Associates, 2490 Sand Hill Road, Menlo Park, CA 94025. Includes 10,000 shares held by NEA Ventures 1996, L.P. an affiliated entity. (13) Consists of 312,512 shares held by Mr. Saia and 197,905 shares issuable pursuant to options exercisable within 60 days of March 31, 1999. (14) Consists of 160,111 shares held by Mr. Sakoman and 350,417 shares issuable pursuant to options exercisable within 60 days of March 31, 1999. (15) The address of record for the State of Michigan is c/o Department of Treasury, Bureau of Investments, 430 West Allegan Street, 3rd floor, Lansing, MI 48922. The State of Michigan holds these shares as custodian of the Michigan Public School Employees' Retirement System, State Employees' Retirement System, Michigan State Police Retirement System, and Michigan Judges Retirement System. (16) Consists of 1,121,977 shares held by AVI Capital, L.P., 173,731 shares held by Associated Venture Investors III and 11,985 shares held by AVI Silicon Valley Partners L.P. Mr. Weinman disclaims beneficial ownership of these shares. (17) Includes an aggregate of 936,740 shares issuable pursuant to options exercisable within 60 days of March 31, 1999. Also includes an aggregate of 3,298,462 shares held by New Enterprise Associates VI and its affiliated entity, 1,000 shares held by Smart Valley Investment llc, 747 shares and 452 shares upon the exercise of warrants held by Charlotte Marchandise, 252,463 shares and 182,085 shares upon the exercise of warrants held by Dotcom Ventures, 2,634,615 shares held by Alta California Partners and its affiliated entity and 1,307,693 shares held by the AVI entities. 56 DESCRIPTION OF CAPITAL STOCK General Immediately following the consummation of this offering, our authorized capital stock will consist of 78,000,000 shares of common stock, par value $.001, and 2,000,000 shares of preferred stock, par value $.001 per share. Upon completion of this offering, there will be [ ] outstanding shares of common stock, outstanding options to purchase [ ] shares of common stock and outstanding warrants to purchase 2,870,975 shares of common stock. Common Stock Subject to preferences that may apply to shares of preferred stock outstanding at the time, the holders of outstanding shares of common stock are entitled to receive dividends out of assets legally available thereof at such time and in such amounts as the board of directors may from time to time determine. Each stockholder is entitled to one vote for each share of common stock held by such stockholder on matters submitted to a vote of stockholders. Cumulative voting for the election of directors is not provided for in our Amended and Restated Certificate of Incorporation, which means that the holders of a majority of the shares voted can elect all of the directors then standing for election. The common stock is not entitled to preemptive rights and is not to subject to conversion or redemption. Upon the occurrence of a liquidation, dissolution or winding-up, the holders of shares of common stock would be entitled to share ratably in the distribution of all of our assets remaining available for distribution after satisfaction of all of its liabilities and the payment of the liquidation preference of any outstanding preferred stock. Each outstanding share of common stock is, and all shares of common stock to be outstanding upon completion of this offering will be, fully paid and nonassessable. Preferred Stock The board of directors has the authority, within the limitations and restrictions stated in our Amended and Restated Certificate of Incorporation, to provide by resolution for the issuance of shares of preferred stock, in one or more classes or series, and to fix the rights, preferences, privileges and restrictions thereof, including dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences and the number of shares constituting any series or the designation of such series. The issuance of preferred stock could have the effect of decreasing the market price of the common stock and could adversely affect the voting and other rights of the holders of common stock. Options As of March 31, 1999, (1) options to purchase a total of 5,910,347 shares of common stock were outstanding; and (2) up to 3,589,653 additional shares of common stock may be subject to options granted in the future under the 1999 Equity Incentive Plan and 1999 Non-Employee Directors' Stock Option Plan (collectively, the "Stock Plans"). See "Management" and " Summary of Compensation." Recommendations for option grants under the Stock Plans are otherwise made by the Compensation Committee, subject to ratification by the full board of directors. The Compensation Committee may issue options with varying vesting schedules, but all options granted pursuant to the Stock Plans must be exercised within ten years from the date of grant. Warrants As of March 31, 1999, we had outstanding warrants to purchase an aggregate of 2,870,975 shares of our common stock at an exercise price ranging from $1.00 to $3.58 per share, weighted average price of $2.31. The warrants expire at various times ranging from March 31, 2001 to December 23, 2003. Generally, each warrant contains provisions for the adjustment of the exercise price and the aggregate number of shares issuable upon the exercise of the warrant under certain circumstances, including stock dividends, stock splits, reorganizations, reclassifications, consolidations and certain dilutive issuances of securities at prices below the then existing warrant exercise price. All warrants are currently exercisable. 57 Delaware Anti-takeover Law and Amended and Restated Certificate of Incorporation, Bylaw and Delaware Law Upon completion of the merger, we are subject to the provisions of Section 203 of the Delaware General Corporation Law regulating corporate takeovers. This section prevents certain Delaware corporations from engaging under certain circumstances, in a "business combination," which includes a merger or sale of more than 10% of the corporation's assets, with any stockholder who owns 15% or more of the corporation's outstanding voting stock ("interested stockholder"), as well as affiliates and associates of any such persons, for three years following the date that such stockholder became an "interested stockholder" unless: . The transaction in which such stockholder became an "interested stockholder" is approved by the board of directors prior to the date the "interested stockholder" attained such status; . Upon consummation of the transaction that resulted in the stockholder's becoming an "interested stockholder," the "interested stockholder" owned at least 85% of the voting stock of the corporation outstanding at the time the transaction commenced, excluding those shares owned by persons who are directors and also officers; or . On or subsequent to such date the "business combination" is approved by the board of directors and authorized at an annual or special meeting of stockholders by the affirmative vote of at least two-thirds of the outstanding voting stock that is not owned by the "interested stockholder." This statute could prohibit or delay mergers or other takeover or change-in- control attempts with respect to Be and, accordingly, may discourage attempts to acquire us. Our Amended and Restated Certificate of Incorporation and bylaws also require that, effective upon the closing of this offering, any action required or permitted to be taken by stockholders of the Be must be effected at a duly called annual or special meeting of the stockholders and may not be effected by a consent in writing. In addition, as provided by the our bylaws, special meetings of our stockholders may be called only by the chairman of the board of directors, the Chief Executive Officer, the board of directors or by the holders of shares entitled to cast not less than 50% of the votes at the meeting. The Amended and Restated Certificate of Incorporation also provides that, beginning upon the closing of this offering, the board of directors will be divided into three classes, with each class staggered three-year terms, and specifies that the provisions authorized number of directors may be changed only by resolution of the board of directors. These provisions, which require the vote of stockholders holding at least two-thirds of the outstanding shares to amend, may have the effect of deferring hostile takeovers or delaying changes in our control or management. California Foreign Corporation Law We are currently subject to section 2115 ("Section 2115") of the California Corporations Code ("California Code"). Among other things, Section 2115 limits the ability of a corporation to elect a classified board of directors. Section 2115 provides that, regardless of a company's legal domicile, certain provisions of California Code may be applied to that company if (1) the company meets certain requirements relating to its property, payroll and sales in California, and (2) if more than 50% of its outstanding voting securities are held of record by persons having addresses in California. Despite this, we will not be subject to Section 2115 if we are qualified for trading as a national market security on the Nasdaq National Market, and we have at least 800 stockholders as of the record date of our most recent annual meeting after becoming a public company. In addition, under section 301.5 of the California Code we will be permitted to eliminate cumulative voting and to maintain a staggered board since we will have outstanding securities designated as qualified for trading as a national market system security on the Nasdaq National Market. Registration Rights The holders of an aggregate of 23,931,192 shares of common stock ("Registrable Securities"), including 1,538,462 shares issuable upon exercise of warrants, or their transferees are entitled to certain rights with respect to the registration of such shares under the Securities Act. These rights are provided under the terms of 58 an agreement between ourselves and the holders of the Registrable Securities ("Investors' Rights Agreements"). Subject to certain limitations in this agreement, the holders of the Registrable Securities may require, on three occasions at any time after the third anniversary from the date of the Investors' Rights Agreement, that we use its best efforts to register the Registrable Securities, for public resale, provided that the proposed aggregate offering price of such Registrable Securities exceeds $5,000,000. If we register any of our common stock either for our own account or for the account of other security holders, the holders of Registrable Securities are entitled to include their shares of common stock in the registration. A holder's right to include shares in an underwritten registration is subject to the ability of the underwriters to limit the number of shares included in this offering. All fees, costs and expenses of such registrations must be borne by us and all selling expenses, including underwriting discounts, selling commissions and stock transfer taxes, relating to the Registrable Securities must be borne by the holders of the securities being registered. Transfer Agent and Registrar The Transfer Agent and Registrar for our common stock is Norwest Bank Minnesota, N.A. Listing We have applied for quotation of our common stock on the Nasdaq National Market under the trading symbol "BEOS." 59 SHARES ELIGIBLE FOR FUTURE SALE Prior to this offering, there has not been any public market for our common stock, and no prediction can be made as to the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Nevertheless, sales of substantial amounts of our common stock in the public market, or the perception that such sales could occur, could adversely affect the market price of our common stock and could impair our future ability to raise capital through the sale of our equity securities. After this offering, we will have outstanding [ ] shares of common stock. Of these shares, the [ ] shares being offered hereby are freely tradable. Our directors and officers, stockholders, optionholders and warrantholders, who, as of March 31, 1999, held a total of [ ] shares of our outstanding or issuable common stock have entered into lock-up agreements. Under these lock-up agreements, they have agreed that they will not sell, directly or indirectly, any shares of common stock without the prior written consent of Volpe Brown Whelan & Company, LLC, for a period of 180 days from the date of this prospectus. Of these shares, 26,017,300 become eligible for sale in the public market 180 days after the date of this prospectus, subject in some cases to volume limitations. In general, under Rule 144, as currently in effect, a person or persons whose shares are required to be aggregated, including an affiliate, who has beneficially owned shares for at least one year is entitled to sell, within any three-month period commencing 90 days after the date of this prospectus, a number of shares that does not exceed the greater of: . 1% of the then outstanding shares of common stock (approximately [ ] shares immediately after this offering) or . the average weekly trading volume in the common stock during the four calendar weeks preceding the date on which notice of such sale is filed, subject to restrictions. In addition, a person who is not deemed to have been our affiliate at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least two years would be entitled to sell such shares under Rule 144(k) without regard to the requirements described above. To the extent that shares were acquired from one of our affiliates, such person's holding period for the purpose of effecting a sale under Rule 144 commences on the date of transfer from the affiliate. As of March 31, 1999, options to purchase a total of 5,910,347 shares of common stock were outstanding, of which options to purchase 587,489 shares were exercisable. Upon the closing of this offering, we intend to file a registration statement to register for resale the 11,000,000 shares of common stock reserved for issuance either under our stock option plans or underlying options granted outside of our plans. We expect such registration statement to become effective immediately upon filing. Shares issued upon the exercise of stock options granted under our stock option plans will be eligible for resale in the public market from time to time subject to vesting and the expiration of the lock-up agreements referred to above. Net of repurchases, 5,011,994 shares have already been issued upon exercise of options granted under our plans. These shares may be freely tradable subject to the requirements of Rule 701 and contractual obligations beginning 180 days after the date of this prospectus. As of March 31, 1999, preferred stockholders and warrantholders holding approximately 23,931,192 shares of outstanding or issuable common stock had the right to include their shares in registration statements relating to our securities. All of these shares are subject to the lock-up agreements described above. By exercising their registration rights and causing a large number of shares to be registered and sold in the public market, these holders may cause the price of the common stock to fall. In addition, any demand to include such shares in our future registration statements could have a material adverse effect on our ability to raise needed capital. 60 UNDERWRITING Under the terms and conditions contained in an underwriting agreement among the underwriters and us, each of the underwriters, for whom Volpe Brown Whelan & Company, LLC and Needham & Company, Inc., are acting as representatives, have severally agreed to purchase from us the number of shares of common stock set forth opposite its name below:
Number of Underwriter Shares ----------- --------- Volpe Brown Whelan & Company, LLC.................................. Needham & Company, Inc. ........................................... ---- Total.......................................................... ====
The underwriting agreement provides that the obligations of the several underwriters to purchase shares of common stock are subject to approval of certain legal matters by their counsel and to certain other conditions. Under the terms and conditions of the underwriting agreement, all of the underwriters are obligated to take and pay for all such shares of common stock if any are taken. The underwriters propose initially to offer the shares of common stock directly to the public at the public offering price set forth on the cover page of this prospectus and to certain dealers at such price, less a concession not in excess of $[ ] per share. The underwriters may allow, and such dealers may reallow, concessions not in excess of $[ ] per share of the common stock to certain other dealers. After the initial public offering of the common stock, the offering price of the common stock and other selling terms may be changed by the underwriters. Pursuant to the underwriting agreement, we have granted to the underwriters an option, exercisable for 30 days from the date of this prospectus, to purchase up to [ ] additional shares of common stock on the same terms and conditions as set forth on the cover page of this prospectus. The underwriters may exercise this option solely to cover over-allotments. To the extent such option is exercised, each underwriter will have a commitment subject to certain conditions, to purchase a number of additional shares of common stock proportionate to such underwriter's initial commitment pursuant to the underwriting agreement. From the date of this prospectus until 180 days after such date, we and all of our stockholders, officers and directors have agreed not to (1) offer, sell, contract to sell, make any short sale, pledge or otherwise dispose of, directly or indirectly, any shares of common stock or any options to acquire shares of common stock or any options to acquire shares of common stock or securities convertible into or exchangeable for any other rights to purchase or acquire common stock or (2) enter into any swap or other agreements that transfers, in whole or in part, any of the economic consequences or ownership of common stock, without the prior consent of Volpe Brown Whelan & Company, LLC. The underwriters have reserved for sale, at the initial public offering price, [ ] shares of common stock for certain of our directors, officers, employees, friends and family who have expressed an interest in purchasing shares of common stock in this offering. Such persons are expected to purchase, in the aggregate, not more than 5% of the common stock offered in this offering. The number of shares available for sale to the general public in this offering will be reduced to the extent such persons purchase such reserved shares. Any reserved shares not purchased will be offered by the underwriters on the same basis as other shares offered hereby. 61 We have agreed to indemnify the underwriters against certain liabilities, losses and expenses, including liabilities under the Securities Act of 1933, or to contribute to payments that the underwriters may be required to make in respect thereof. Prior to this offering, there has been no public market for our common stock. The initial public offering price for the shares of common stock in this offering was determined by agreement between us and the underwriters. Among the factors considered in making such determination were the history of, and the prospects for, the industry in which we compete, an assessment of our management, our present operations, our historical results of operations and the trend of our revenues and earnings, our prospects for future earnings, the general condition of the securities markets at the time of this offering and the price of similar securities of generally comparable companies. We cannot assure you that an active trading market will develop for our common stock or that our common stock will trade in the public markets at or above the initial public offering price. In order to facilitate this offering, certain persons participating in this offering may engage in transactions that stabilize, maintain or otherwise affect the price of the common stock during and after this offering. Specifically, the underwriters may over-allot or otherwise create a short position in the common stock for their own account by selling more shares of common stock than have been sold to them by us. The underwriters may elect to cover any such short position by purchasing shares of common stock in the open market or by exercising the over-allotment option granted to the underwriters. In addition, the underwriters may stabilize or maintain the price of the common stock by bidding for or purchasing shares of common stock in the open market and may impose penalty bids, under which selling concessions allowed to syndicate members or other broker-dealers participating in this offering are reclaimed if shares of common stock previously distributed in this offering are repurchased in connection with stabilization transactions or otherwise. The effect of these transactions may be to stabilize or maintain the market price at a level above that which might otherwise prevail in the open market. The imposition of a penalty bid may also affect the price of the common stock to the extent that it discourages resales thereof. No representation is made as to the magnitude or effect of any such stabilization or other transactions. Such transactions may be effected on the Nasdaq National Market or otherwise and, if commenced, may be discontinued at any time. The representatives have informed us that the underwriters do not intend to confirm sales to accounts over which the underwriters have discretionary authority. 62 LEGAL MATTERS The validity of the issuance of the shares of common stock offered hereby and certain other matters will be passed upon for us by Cooley Godward LLP, Palo Alto, California. Pillsbury Madison & Sutro LLP, Palo Alto, California, is acting as counsel for the underwriters in connection with certain legal matters relating to the shares of common stock offered by this prospectus. GC&H Investments, an entity in which certain attorneys of Cooley Godward have an interest, holds 50,000 shares of our common stock. EXPERTS PricewaterhouseCoopers LLP, independent accountants, have audited our financial statements and schedule included in this prospectus as of December 31, 1997 and 1998 and for each of the three years in the period ended December 31, 1998, as set forth in their report, which includes an explanatory paragraph about our ability to continue as a going concern and is included in this prospectus. In addition, PricewaterhouseCoopers LLP have audited the financial statements of StarCode Software, Inc. included in this prospectus as of December 31, 1997 and for the period from September 14, 1996 (date of inception) to December 31, 1996, the year ended December 31, 1997 and the period from September 14, 1996 (date of inception) to December 31, 1996, as set forth in their report which is included in this prospectus. Our financial statements and the financial statements of StarCode are included in this prospectus in reliance on PricewaterhouseCoopers LLP's reports, given on their authority as experts in accounting and auditing. 63 WHERE YOU CAN FIND MORE INFORMATION We have filed with the Commission a registration statement on Form S-1 (including the exhibits, schedules and amendments to the registration statement) under the Securities Act of 1933 with respect to the shares of common stock to be sold in this offering. This prospectus does not contain all of the information set forth in the registration statement. For further information about us and the shares of common stock to be sold in this offering, please refer to the registration statement. Statements contained in this prospectus as to the contents of any contract, agreement or other document referred to are not necessarily complete, and in each instance reference is made to the copy of such contract, agreement or other document filed as an exhibit to the registration statement, each such statement being qualified in all respects by such reference. You may read and copy all or any portion of the registration statement or any other information we file at the SEC's public reference room at 450 Fifth Street, N.W., Washington, D.C. 20549. You can request copies of these documents, upon payment of a duplicating fee, by writing to the SEC. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference rooms. Our SEC filings, including the registration statement, are also available to you on the Commission's Web site (http://www.sec.gov) As a result of this offering, we will become subject to the information and reporting requirements of the Securities Exchange Act of 1934, and, in accordance therewith, will file periodic reports, proxy statements and other information with the SEC. Upon approval of the common stock for the quotation on the Nasdaq National Market, such reports, proxy and information statements and other information may also be inspected at the offices of Nasdaq Operations, 1735 K Street, NW, Washington, DC 20006. We intend to furnish our stockholders with annual reports containing audited financial statements and with quarterly reports for the first three quarters of each year containing unaudited interim consolidated financial information. We intend to provide our stockholders with annual reports containing combined financial statements audited by an independent accounting firm and quarterly reports containing unaudited combined financial data for the first three quarters of each year. 64 Index to Consolidated Financial Statements Be Incorporated Report of Independent Accountants.......................................... F-2 Consolidated Balance Sheets................................................ F-3 Consolidated Statements of Operations...................................... F-4 Consolidated Statements of Stockholders' Deficit........................... F-5 Consolidated Statements of Cash Flows...................................... F-6 Notes to Consolidated Financial Statements................................. F-7 Pro Forma Condensed Consolidated Financial Information..................... F-26 StarCode Software, Inc. Report of Independent Accountants.......................................... F-28 Balance Sheets............................................................. F-29 Statement of Operations.................................................... F-30 Statements of Shareholders' Deficit........................................ F-31 Statement of Cash Flows.................................................... F-32 Notes to Financial Statements.............................................. F-33
F-1 Report of Independent Accountants April 2, 1999 To The Board of Directors and Stockholders of Be Incorporated In our opinion, the accompanying consolidated balance sheets, and the related consolidated statements of operations, of stockholders' deficit and of cash flows present fairly, in all material respects, the financial position of Be Incorporated and its subsidiaries at December 31, 1997 and 1998, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1998, in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. The accompanying consolidated financial statements have been prepared assuming the Company will continue as a going concern. As discussed in Note 2 to these financial statements, the Company has incurred losses and negative cash flows from operations in each year since inception and is dependent upon obtaining sufficient financing in order to fund operations for 1999. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 2. The consolidated financial statements do not include any adjustments that might result from the outcome of this uncertainty. /s/ PricewaterhouseCoopers LLP San Jose, California F-2 BE INCORPORATED Consolidated Balance Sheets
Pro Forma Year Ended December 31, March 31, -------------------------- March 31, 1999 1997 1998 1999 (see Note 12) ------------ ------------ ------------ ------------- (unaudited) (unaudited) Assets Current assets: Cash and cash equivalents.......... $ 699,000 $ 3,394,000 $ 1,027,000 Short-term investments.......... 200,000 8,254,000 7,280,000 Accounts receivable... 37,000 477,000 342,000 Prepaid and other current assets....... 87,000 327,000 367,000 ------------ ------------ ------------ Total current assets.............. 1,023,000 12,452,000 9,016,000 Property and equipment, net.................... 251,000 403,000 425,000 Purchased web site technology, net of amortization........... -- 303,000 212,000 Other assets, net of accumulated amortization........... 29,000 476,000 430,000 ------------ ------------ ------------ Total assets......... $ 1,303,000 $ 13,634,000 $ 10,083,000 ============ ============ ============ Liabilities, mandatorily redeemable convertible preferred stock and stockholders' equity (deficit) Current liabilities: Accounts payable...... $ 571,000 $ 576,000 $ 538,000 Accrued expenses...... 606,000 1,094,000 1,052,000 Technology license obligations, current portion.............. -- 688,000 705,000 Deferred revenue...... 52,000 392,000 747,000 Notes payable to shareholders......... 3,000,000 -- -- ------------ ------------ ------------ Total current liabilities......... 4,229,000 2,750,000 3,042,000 Technology license obligations, net of current portion........ -- 779,000 601,000 ------------ ------------ ------------ Total liabilities.... 4,229,000 3,529,000 3,643,000 ------------ ------------ ------------ Mandatorily redeemable convertible preferred stock $0.001 par value: Shares authorized: 22,500,000 Shares issued and outstanding: 14,116,000 in 1997, 22,498,874 in 1998 and 1999 (unaudited) and none pro forma (unaudited)........... 14,052,000 38,005,000 38,137,000 ------------ ------------ ------------ Liquidation value: $41,360,000 Commitments (Note 6) Stockholders' Deficit: Common stock, $.001 par value: Shares authorized: 40,000,000 shares; Shares issued and outstanding: 4,573,240 in 1997, 5,094,757 in 1998, 5,143,700 in 1999 (unaudited) and 27,642,574 pro forma (unaudited).......... 5,000 5,000 5,000 $ 28,000 Additional paid-in capital................ 15,002,000 25,435,000 32,719,000 70,833,000 Deferred stock compensation........... (1,333,000) (4,623,000) (9,858,000) (9,858,000) Accumulated deficit..... (30,652,000) (48,717,000) (54,563,000) (54,563,000) ------------ ------------ ------------ ------------ Total stockholders' equity (deficit).... (16,978,000) (27,900,000) (31,697,000) 6,440,000 ------------ ------------ ------------ ------------ Total liabilities, mandatorily redeemable preferred stock and stockholders' equity (deficit)........... $ 1,303,000 $ 13,634,000 $ 10,083,000 $ 6,440,000 ============ ============ ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-3 BE INCORPORATED Consolidated Statements of Operations
Three Months Ended Year Ended December 31, March 31, --------------------------------------- ------------------------ 1996 1997 1998 1998 1999 ----------- ------------ ------------ ----------- ----------- (unaudited) Net revenues............ $ -- $ 86,000 $ 1,199,000 $ 64,000 $ 309,000 Cost of revenues........ -- 84,000 2,161,000 143,000 85,000 ----------- ------------ ------------ ----------- ----------- Gross profit (loss)..... -- 2,000 (962,000) (79,000) 224,000 Operating expenses: Research and development.......... 3,039,000 4,422,000 5,792,000 1,075,000 1,887,000 Sales and marketing... 2,711,000 4,032,000 4,496,000 856,000 1,754,000 General and administrative....... 1,292,000 1,694,000 2,310,000 451,000 865,000 Amortization of deferred stock compensation......... 955,000 867,000 3,881,000 537,000 1,665,000 ----------- ------------ ------------ ----------- ----------- Total operating expenses........... 7,997,000 11,015,000 16,479,000 2,919,000 6,171,000 ----------- ------------ ------------ ----------- ----------- Loss from operations.... (7,997,000) (11,013,000) (17,441,000) (2,998,000) (5,947,000) Interest expense........ (33,000) (75,000) (159,000) (55,000) (36,000) Other income and expenses, net.......... 253,000 655,000 739,000 129,000 137,000 ----------- ------------ ------------ ----------- ----------- Net loss................ (7,777,000) (10,433,000) (16,861,000) (2,924,000) (5,846,000) ----------- ------------ ------------ ----------- ----------- Dividend related to beneficial conversion feature of preferred stock.................. (1,204,000) Issuance of warrants to induce conversion of preferred stock........ (114,000) Accretion of mandatorily redeemable convertible preferred stock........ (11,000) (15,000) (358,000) (66,000) (133,000) ----------- ------------ ------------ ----------- ----------- Net loss attributable to common stockholders.... $(7,902,000) $(10,448,000) $(18,423,000) $(2,990,000) $(5,979,000) =========== ============ ============ =========== =========== Net loss per common share--basic and diluted................ $ (10.85) $ (4.87) $ (5.80) $ (1.09) $ (1.54) =========== ============ ============ =========== =========== Shares used in per common share calculation--basic and diluted................ 728,000 2,145,000 3,178,000 2,740,000 3,881,000 =========== ============ ============ =========== =========== Pro forma net loss per common share--basic and diluted................ $ (.69) $ (.22) ============ =========== Shares used in pro forma loss per common share calculation--basic and diluted................ 24,303,000 26,380,000 ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. F-4 BE INCORPORATED Consolidated Statements of Stockholders' Deficit
Preferred Stock Common Stock Additional Deferred ------------------- ----------------- Paid-in Stock Accumulated Shares Amount Shares Amount Capital Compensation Deficit Total ---------- ------- --------- ------ ----------- ------------ ------------ ------------ Balance, January 1, 1996................... 7,922,000 $ 8,000 30,768 $ -- $11,105,000 $ -- $(12,328,000) $ (1,215,000) Exercise of common stock warrants........ -- -- 1,371 -- 21,000 -- -- 21,000 Conversion of shares of Series A, A1 and B preferred stock to common stock, net of conversion costs of $13,000............... (7,922,000) (8,000) 26,468 -- (5,000) -- -- (13,000) Issuance of warrants to induce conversion of preferred stock....... -- -- -- -- 114,000 -- (114,000) -- Issuance of common stock to a developer for services rendered.............. -- -- 23,333 -- 21,000 -- -- 21,000 Exercise of stock options............... -- -- 4,488,100 5,000 444,000 -- -- 449,000 Deferred stock compensation related to grants of stock options............... -- -- -- -- 1,859,000 (1,859,000) -- -- Amortization of deferred stock compensation.......... -- -- -- -- -- 955,000 -- 955,000 Net loss............... -- -- -- -- -- -- (7,777,000) (7,777,000) Accretion of mandatorily redeemable convertible preferred stock................. -- -- -- -- (11,000) -- -- (11,000) ---------- ------- --------- ------ ----------- ----------- ------------ ------------ Balance, December 31, 1996................... -- -- 4,570,040 5,000 13,548,000 (904,000) (20,219,000) (7,570,000) Issuance of common stock to director .... -- -- 50,000 -- 177,000 -- -- 177,000 Exercise of stock options............... -- -- 185,000 -- 19,000 -- -- 19,000 Repurchase of common stock for cash........ -- -- (231,800) -- (23,000) -- -- (23,000) Deferred stock compensation related to grants of stock options............... -- -- -- -- 1,537,000 (1,537,000) -- -- Cancellation of options............... -- -- -- -- (241,000) 241,000 -- -- Amortization of deferred stock compensation.......... -- -- -- -- -- 867,000 -- 867,000 Net loss............... -- -- -- -- -- -- (10,433,000) (10,433,000) Accretion of mandatorily redeemable convertible preferred stock................. -- -- -- -- (15,000) -- -- (15,000) ---------- ------- --------- ------ ----------- ----------- ------------ ------------ Balance, December 31, 1997................... -- -- 4,573,240 5,000 15,002,000 (1,333,000) (30,652,000) (16,978,000) Repurchase of common stock................. -- -- (248,700) -- (25,000) -- -- (25,000) Exercise of stock options............... -- -- 770,217 205,000 -- -- 205,000 Sale of option to purchase preferred stock and warrants to purchase common stock................. -- -- -- 1,322,000 -- -- 1,322,000 Exercise of option to purchase preferred stock and warrants to purchase common stock................. -- -- -- (1,322,000) -- -- (1,322,000) Issuance of warrants to purchase common stock................. -- -- -- -- 2,149,000 -- -- 2,149,000 Deferred stock compensation related to grants of stock options............... -- -- -- -- 7,605,000 (7,605,000) -- -- Cancellation of options............... -- -- -- -- (434,000) 434,000 -- -- Amortization of deferred stock compensation.......... -- -- -- -- -- 3,881,000 -- 3,881,000 Net loss............... -- -- -- -- -- -- (16,861,000) (16,861,000) Beneficial conversion feature related to issuance of preferred stock................. -- -- -- -- 1,204,000 -- -- 1,204,000 Dividend related to beneficial conversion feature of preferred stock................. -- -- -- -- -- -- (1,204,000) (1,204,000) Accretion of mandatorily redeemable convertible preferred stock................. -- -- -- -- (358,000) -- -- (358,000) Other -- -- -- -- 87,000 -- -- 87,000 ---------- ------- --------- ------ ----------- ----------- ------------ ------------ Balance, December 31, 1998................... -- -- 5,094,757 5,000 25,435,000 (4,623,000) (48,717,000) (27,900,000) Repurchase of common stock................. -- -- (32,285) -- (3,000) -- -- (3,000) Exercise of stock options............... -- -- 81,228 -- 26,000 -- -- 26,000 Deferred stock compensation related to grants of stock options............... -- -- -- -- 6,900,000 (6,900,000) -- -- Amortization of deferred stock compensation.......... -- -- -- -- -- 1,665,000 -- 1,665,000 Compensation expense on grant of fully vested options............... -- -- -- -- 494,000 -- -- 494,000 Net loss............... -- -- -- -- -- -- (5,846,000) (5,846,000) Accretion of mandatorily redeemable convertible preferred stock................. -- -- -- -- (133,000) -- -- (133,000) ---------- ------- --------- ------ ----------- ----------- ------------ ------------ Balance, March 31, 1999 (unaudited)............ -- $ -- 5,143,700 $5,000 $32,719,000 $(9,858,000) $(54,563,000) $(31,697,000) ========== ======= ========= ====== =========== =========== ============ ============
The accompanying notes are an integral part of these consolidated financial statements. F-5 BE INCORPORATED Consolidated Statements of Cash Flows
Three Months Ended March Year Ended December 31, 31, --------------------------------------- ------------------------- 1996 1997 1998 1998 1999 ----------- ------------ ------------ ------------ ----------- (unaudited) Cash flows from operating activities: Net loss............... $(7,777,000) $(10,433,000) $(16,861,000) $ (2,924,000) $(5,846,000) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization......... 104,000 156,000 855,000 153,000 188,000 Licensed technology used in research and development.......... -- -- 1,852,000 -- Amortization of discount on technology license obligations.......... -- -- 130,000 26,000 36,000 Increase in allowances for sales return............... -- -- 10,000 -- 12,000 Compensation expense incurred on issuance of stock............. 19,000 172,000 -- -- 494,000 Amortization of deferred stock compensation......... 955,000 867,000 3,881,000 537,000 1,665,000 Changes in assets and liabilities (in 1998, net of effects of acquisition): Accounts receivable......... (298,000) 261,000 (450,000) (54,000) 123,000 Prepaid and other current assets..... (97,000) 85,000 (93,000) (88,000) (40,000) Other assets........ (7,000) 17,000 (142,000) (40,000) -- Accounts payable.... (326,000) 187,000 5,000 103,000 (38,000) Accrued expenses.... 417,000 72,000 573,000 184,000 (42,000) Deferred revenue.... -- 52,000 340,000 5,000 355,000 ----------- ------------ ------------ ------------ ----------- Net cash used in operating activities....... (7,010,000) (8,564,000) (9,900,000) (2,098,000) (3,093,000) ----------- ------------ ------------ ------------ ----------- Cash flow provided by (used in) investing activities: Acquisition of property and equipment......... (171,000) (208,000) (323,000) (88,000) (75,000) Acquisition of licensed technology............ -- -- (1,373,000) (166,000) (196,000) Purchases of short-term investments........... (9,018,000) (6,185,000) (35,213,000) (12,000,000) (1,043,000) Sales of short-term investments........... 4,150,000 10,853,000 12,399,000 1,392,000 2,017,000 Maturities of short term investments...... -- -- 14,760,000 -- -- Acquisition of StarCode (net of cash acquired)............. -- -- (562,000) -- -- ----------- ------------ ------------ ------------ ----------- Net cash provided by (used in) investing activities....... (5,039,000) 4,460,000 (10,312,000) (10,862,000) 703,000 ----------- ------------ ------------ ------------ ----------- Cash flows provided by financing activities: Proceeds from issuance of preferred stock, net................... 12,760,000 -- 20,156,000 18,957,000 -- Proceeds from issuance of common stock warrants.............. -- -- 1,248,000 -- -- Proceeds from option to purchase Series 2 preferred stock and common stock warrants.............. -- -- 1,322,000 1,322,000 -- Proceeds from issuance of common stock....... 470,000 24,000 206,000 -- 26,000 Repurchase of common stock................. -- (23,000) (25,000) (4,000) (3,000) Proceeds from issuance of notes payable...... -- 3,000,000 -- -- -- Proceeds from issuance of notes payable to officers.............. 1,000,000 -- -- -- -- Repayments of notes payable to officers... (719,000) -- -- -- -- ----------- ------------ ------------ ------------ ----------- Net cash provided by financing activities....... 13,511,000 3,001,000 22,907,000 20,275,000 23,000 ----------- ------------ ------------ ------------ ----------- Net increase (decrease) in cash and cash equivalents........... 1,462,000 (1,103,000) 2,695,000 7,315,000 (2,367,000) Cash and cash equivalents, beginning of period............. 340,000 1,802,000 699,000 699,000 3,394,000 ----------- ------------ ------------ ------------ ----------- Cash and cash equivalents, end of period................ $ 1,802,000 $ 699,000 $ 3,394,000 $ 8,014,000 $ 1,027,000 =========== ============ ============ ============ =========== Supplemental schedule of noncash financing activities: Conversion of Series A, Series A1, and Series B preferred stock to common stock, net of expenses totaling $13,000............... $10,390,000 $ -- $ -- $ -- $ -- =========== ============ ============ ============ =========== Conversion of notes payable and accrued interest to preferred stock................. $ 1,266,000 $ -- $ 3,104,000 $ -- $ -- =========== ============ ============ ============ =========== Issuance of preferred stock to bankers...... -- -- $ 345,000 $ 245,000 -- =========== ============ ============ ============ =========== Issuance of warrants to induce conversion of preferred stock....... $ 114,000 $ -- $ -- $ -- $ -- =========== ============ ============ ============ =========== Allocation of proceeds from option to purchase preferred stock and warrants.... $ -- $ -- $ 1,322,000 $ -- $ -- =========== ============ ============ ============ =========== Dividend related to beneficial conversion feature of preferred stock................. $ -- $ -- $ 1,204,000 $ -- $ -- =========== ============ ============ ============ =========== Accretion of mandatorily redeemable preferred stock....... $ 11,000 $ 15,000 $ 358,000 $ 66,000 $ 133,000 =========== ============ ============ ============ =========== Future obligations under noncancelable technology licenses... $ -- $ -- $ 696,000 $ 1,213,000 $ -- =========== ============ ============ ============ =========== Unearned stock based compensation related to stock option grants, net of cancellations......... $ 1,859,000 $ 1,296,000 $ 7,171,000 $ 4,340,000 $ 6,900,000 =========== ============ ============ ============ ===========
The accompanying notes are an integral part of these consolidated financial statements. F-6 BE INCORPORATED Notes to Consolidated Financial Statements NOTE 1--NATURE OF BUSINESS: Be Incorporated (the "Company") offers the Be Operating System (the "BeOS"), an operating system designed for digital media applications and Internet appliances. The Company markets and sells BeOS directly to end users and resellers and distributors. Prior to 1998, the Company was engaged primarily in research and development, raising capital and development of its markets and was in the development stage. NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: Basis of preparation These financial statements have been prepared on a basis of accounting assuming that the Company is a going concern, which contemplates the realization of assets and satisfaction of liabilities in the normal course of business. The Company has incurred losses and negative cash flows from operations in each year since inception and is dependent upon obtaining sufficient financing in order to fund operations for 1999. These matters raise substantial doubt about the Company's ability to continue as a going concern. Management is in the process of investigating alternative methods of raising the required financing for 1999 and thereafter. If management is unable to obtain such financing adjustments may be necessary to the recorded amounts of assets and liabilities. These financial statements do not reflect any such adjustments. Principles of consolidation These consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated. Foreign currency translation The functional currency of the Company's foreign subsidiary is the U.S. Dollar. Nonmonetary assets and liabilities are remeasured into U.S. Dollars at historical rates, monetary assets and liabilities are remeasured at exchange rates in effect at the end of the year and income statement accounts are remeasured at average rates for the period. Remeasurement gains and losses of the Company's foreign subsidiary are included in the results of operations and are not significant. Unaudited interim results The accompanying interim consolidated financial statements as of March 31, 1999, and for the three months ended March 31, 1998 and 1999, together with the related notes, are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to present fairly the Company's financial position, results of operations and its cash flows as of March 31, 1999 and for the three months ended March 31, 1998 and 1999. The results for the three months ended March 31, 1999 are not necessarily indicative of the results to be expected for the year ending December 31, 1999. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. Actual results could differ from those estimates. F-7 BE INCORPORATED Notes to Consolidated Financial Statements (continued) Financial instruments The Company considers all highly liquid investments with an original or remaining maturities of three months or less at the date of purchase to be cash equivalents. Cash and cash equivalents are deposited with two major banks in the United States. Deposits in these banks may exceed the amount of insurance provided on such deposits. The Company has not experienced any losses on its deposits of its cash and cash equivalents. Management has classified all of its short-term investments as available for sale. Realized gains and losses are calculated using the specific identification method. Realized gains and losses in 1996, 1997 and 1998 and unrealized holding gains and losses at December 31, 1997 and 1998 were not significant. The carrying amounts of certain of the Company's financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses, and notes payable approximate fair value due to their short maturities. The fair value of short term investments is set forth in note 4 of notes to the consolidated financial statements. Certain risks and concentrations The Company's revenue is derived entirely of sales of BeOS. At December 31, 1998, one customer accounted for 98% of the Company's accounts receivable. Subsequent to December 31, 1998, this amount was paid in full. At March 31, 1999 (unaudited), three customers accounted for 42%, 16% and 15% of accounts receivable, respectively. The demand and acceptance of the Company's product is dependent upon its ability to license key enabling technologies which allow computers to work with other digital media devices such as digital cameras, set-top boxes, and digital video types. If the Company is unable to license these enabling technologies at favorable terms or at all the Company may experience lower demand for its product. The Company depends on development tools provided by a limited number of third party vendors. Together with application developers, the Company relies primarily upon software development tools provided by two companies. If one or both of these companies fail to support or maintain these development tools, the Company will have to support the tools itself or transition to another vendor. Any maintenance or support of the tools by the Company or transition could be time consuming, could delay product release and upgrade schedule and could delay the development and availability of third party applications used on the Company's BeOS. Failure to procure the needed software development tools or any delay in availability of third party applications could negatively impact the Company's ability and the ability of third party application developers to release and support the BeOS and applications that run it or they could negatively and materially affect the acceptance and demand for the BeOS, our business and prospects. Property and equipment Property and equipment are stated at cost less accumulated depreciation. Depreciation is provided using the straight-line method over the estimated useful lives of the assets, generally three years. Upon disposal, the cost of the asset and related accumulated depreciation are removed from the accounts and any resulting gain or loss is included in the results of operations. Depreciation expense for 1996, 1997, and 1998 was $104,000, $156,000, and $202,000, respectively. Accounting for Long-Lived Assets The Company reviews property and equipment, purchased software and technology licenses and purchased Web site technology for impairment whenever events or changes in circumstances indicate that the carrying F-8 BE INCORPORATED Notes to Consolidated Financial Statements (continued) amount of an asset may not be recoverable. Recoverability is measured by comparison of its carrying amount to future net cash flows the assets are expected to generate. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the projected discounted future cash flows arising from the asset. Income taxes The Company accounts for its income taxes in accordance with the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. Advertising costs Advertising costs, included in sales and marketing expenses, are expensed as incurred and were $6,000, $14,000 and $38,000 in 1996, 1997 and 1998, respectively. Research and development costs Costs incurred in the research and development of new software products are expensed as incurred, including minimum payments made and due to third parties for technology incorporated into the Company's product, until technological feasibility is established. Development costs are capitalized beginning when a product's technological feasibility has been established and ending when the product is available for general release to customers. To date, products and enhancements have generally reached technological feasibility and have been released for sale at substantially the same time. Revenue recognition The Company's revenue is derived from licensing fees from product sales to end users either by direct-order on the Company's web site or sales by a distributor. The Company adopted the provisions of Statement of Position 97-2 or SOP 97-2, Software Revenue Recognition, as amended by Statement of Position 98-4, Deferral of the Effective Date of Certain Provisions of SOP 97-2, effective January 1, 1998. SOP 97-2 supersedes Statement of Position 91-1, Software Revenue Recognition, and delineates the accounting for software product and maintenance revenues. Under SOP 97-2, the Company recognizes product revenues from orders on the Company's web site upon shipment, provided a credit card authorization is received, the fee is fixed and determinable, collection of resulting receivables is probable and product returns are reasonably estimable. The Company uses a standard shrink wrap license for all of its sales. Under the license, the Company is obligated to provide limited telephone support to end users who purchase the Company's product and provides a 5-day money back guarantee. The Company accrues the costs of providing telephone support upon shipment of the product based on the historical cost of providing such support to its customers. In addition, upon shipment of its product, the Company records an allowance for estimated sales returns. Product revenue for sales to its distributors is recognized upon sell through to an end user provided a signed contract exists, the fee is fixed and determinable and collection is probable. The Company has F-9 BE INCORPORATED Notes to Consolidated Financial Statements (continued) recognized revenue from these distributors upon sale by the distributors to an end user because the Company does not have sufficient experience with the distributors to reasonably estimate returns. Under certain circumstances, the Company offers an upgrade to its product in conjunction with product sales at no additional charge. Generally, such rights are offered prior to new versions being released and give the customers who purchase products between established dates the right to such an upgrade. Revenue is allocated to an upgrade right based on the objective evidence of fair value or if not sold separately, the price determined by management. The Company recognizes upgrade revenue when the criteria for product revenue recognition from end users set forth above are met. At December 31, 1998 and March 31, 1999, deferred revenues consisted of revenue related to upgrades deliverable in the future and distributor sales not sold through to end users. Prior to the adoption of SOP 97-2, the Company recognized revenue from the sale of products upon shipment if remaining obligations were insignificant, collection of the resulting accounts receivable was probable and product returns were reasonably estimable. Revenue for 1997 was entirely from direct sale of products to end users. Stock-based compensation The Company uses the intrinsic value method of Accounting Principles Board Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for its employee stock options, and presents disclosure of pro forma information required under Financial Accounting Standards Board Statement No. 123 or SFAS 123, "Accounting for Stock-Based Compensation." Comprehensive income The Company has adopted the provisions of SFAS No. 130, or SFAS 130, "Reporting Comprehensive Income." SFAS 130, establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity during a period from non- owner sources. There was no difference between the Company's net loss and its total comprehensive loss for 1996, 1997 and 1998 and for the three months ended March 31, 1998 and 1999 (unaudited). F-10 BE INCORPORATED Notes to Consolidated Financial Statements (continued) Net loss per common share Basic net loss per common share is computed by dividing net loss available to common stockholders by the weighted average number of vested common shares outstanding for the period. Diluted net loss per common share is computed giving effect to all dilutive potential common shares, including options, warrants and preferred stock. Options, warrants and preferred stock were not included in the computation of diluted net loss per common share in 1996, 1997 and 1998 because the effect would be antidilutive. A reconciliation of the numerator and denominator used in the calculation of basic and diluted net loss per common share follows (in thousands, except per share data):
Three Months Ended March 31, ---------------- 1996 1997 1998 1998 1999 ------- -------- -------- ------- ------- (unaudited) Net loss per common share, basic and diluted: Net loss...................... $(7,777) $(10,433) $(16,861) $(2,924) $(5,846) Dividend related to beneficial conversion feature of preferred stock.............. (1,204) Issuance of warrants to induce conversion of preferred stock........................ (114) Accretion of mandatorily redeemable convertible preferred stock.............. (11) (15) (358) (66) (133) ------- -------- -------- ------- ------- Numerator for net loss per common share, basic and diluted.................. (7,902) (10,448) (18,423) (2,990) (5,979) Denominator for basic and diluted loss per common share: Weighted average common shares outstanding......... 728 2,145 3,178 2,740 3,881 ======= ======== ======== ======= ======= Net loss per common share basic and diluted............ $(10.85) $ (4.87) $ (5.80) $ (1.09) $ (1.54) ======= ======== ======== ======= ======= Antidilutive securities: Options to purchase common stock...................... 961 987 2,205 2,322 1,943 Common stock subject to repurchase................. 3,020 1,921 1,389 1,688 1,089 Preferred stock............. 14,116 14,116 22,499 14,116 22,499 Warrants.................... 1,220 1,220 2,870 2,862 2,870 ------- -------- -------- ------- ------- 19,317 18,244 28,963 20,988 28,401 ======= ======== ======== ======= =======
Recent accounting pronouncements In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued Statement of Position No. 98-1 or SOP 98-1, "Accounting for the Costs of Computer Software Developed or Obtained for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. The Company is currently evaluating the impact of SOP 98-1 on its financial statements and related disclosures. In December 1998, AcSEC released Statement of Position 98-9 or SOP 98-9, Modification of SOP 97-2, "Software Revenue Recognition." SOP 98-9 amends SOP 97-2 to require that an entity recognize revenue for multiple element arrangements by means of the "residual method" when (1) there is no vendor- specific objective evidence ("VSOE") of the fair values of all the undelivered elements that are not accounted for by F-11 BE INCORPORATED Notes to Consolidated Financial Statements (continued) means of long-term contract accounting, (2) VSOE of fair value does not exist for one or more of the delivered elements, and (3) all revenue recognition criteria of SOP 97-2 (other than the requirement for VSOE of the fair value of each delivered element) are satisfied. The provisions of SOP 98-9 that extend the deferral of certain paragraphs of SOP 97-2 became effective December 15, 1998. These paragraphs of SOP 97-2 and SOP 98-9 will be effective for transactions that are entered into in fiscal years beginning after March 15, 1999. Retroactive application is prohibited. The Company is currently evaluating the impact of the requirements of SOP 98-9 and the effects, if any, on its current revenue recognition policies. In April 1998, the AcSEC issued Statement of Position 98-5, or SOP 98-5, "Reporting on the Costs of Start-Up Activities." This standard requires companies to expense the costs of start-up activities and organization costs as incurred. In general, SOP 98-5 is effective for fiscal years beginning after December 15, 1998. The Company believes the adoption of SOP 98-5 will not have a material impact on its results of operations. In June 1998, the Financial Accounting Standards Board issued Statement of Financial Accounting Standards No. 133, or SFAS 133, Accounting for Derivative Instruments and Hedging Activities. SFAS 133 establishes new standards of accounting and reporting for derivative instruments and hedging activities. SFAS 133 requires that all derivatives be recognized at fair value in the statement of financial position, and that the corresponding gains or losses be reported either in the statement of operations or as a component of comprehensive income, depending on the type of hedging relationship that exists. SFAS 133 will be effective for fiscal years beginning after June 15, 1999. The Company does not currently hold derivative instruments or engage in hedging activities. NOTE 3--ACQUISITIONS: StarCode acquisition On April 30, 1998, the Company acquired StarCode Software, Inc. ("StarCode") for an aggregate purchase price of $567,000. StarCode owned and operated an electronic commerce web site which the Company and certain developers of application software for use with BeOS used to sell their products. The Company had previously contracted with StarCode to provide access to this web site and paid a fee based on the level of revenue generated by orders therefrom. The acquisition has been accounted for using the purchase method of accounting and the results of operations of StarCode have been included with those of the Company since the date of acquisition. The fair value of the assets acquired from StarCode and a summary of the consideration exchanged for these assets is as follows: Total purchase price.............................................. $567,000 ======== Assets acquired: Tangible assets, including cash, accounts receivable and property and equipment............................ $ 22,000 Purchased web site technology..................................... 545,000 -------- $567,000 ========
The amount allocated to purchased Web Site technology, for which technological feasibility had been established at the acquisition date, is being amortized on a straight-line basis over eighteen months. Accumulated amortization at December 31, 1998 was $242,000. F-12 BE INCORPORATED Notes to Consolidated Financial Statements (continued) Summarized below are the unaudited pro forma results of operations of the Company as though StarCode had been acquired at the beginning of 1997. Adjustments have been made for the estimated increases in amortization related to purchased web site technology and other appropriate pro forma adjustments.
1997 1998 ------------ ------------ Revenue......................................... $ 95,000 $ 1,215,000 Net loss........................................ $(11,013,000) $(17,064,000) Net loss per common share, basic and diluted.... $ (5.13) $ (5.37)
The above amounts are based upon certain assumptions and estimates which the Company believes are reasonable. The pro forma financial information presented above is not necessarily indicative of either the results of operations that would have occurred had the acquisition taken place at the beginning of fiscal 1997 or of future results of operations of the combined companies. NOTE 4--BALANCE SHEET ACCOUNTS:
December 31, --------------------------------------- 1997 1998 ----------------- --------------------- Fair Cost Value Cost Fair Value -------- -------- ---------- ---------- Short-term investments Federal government obligations...... $ -- $ -- $5,264,000 $5,264,000 Corporate debt obligations.......... 200,000 200,000 2,990,000 2,990,000 -------- -------- ---------- ---------- $200,000 $200,000 $8,254,000 $8,254,000 ======== ======== ========== ==========
December 31, --------------------- 1997 1998 --------- ---------- Property and equipment, net Computer equipment.................................... $ 456,000 $ 775,000 Furniture and fixtures................................ 128,000 168,000 --------- ---------- 584,000 943,000 Less: accumulated depreciation........................ (333,000) (540,000) --------- ---------- $ 251,000 $ 403,000 ========= ========== Accrued expenses License and royalty liabilities....................... $ -- $ 152,000 Product warranty reserve.............................. 154,000 77,000 Payroll and related................................... 223,000 531,000 Other................................................. 229,000 334,000 --------- ---------- $ 606,000 $1,094,000 ========= ==========
F-13 BE INCORPORATED Notes to Consolidated Financial Statements (continued) During 1998, the Company terminated 7 employees, incurring costs of $189,000. At December 31, 1998, there remained $125,000 of such accrued costs that were subsequently paid in January 1999.
December 31, ------------------- 1997 1998 ------- ----------- Other assets, net Technology licenses..................................... $ -- $ 2,069,000 Deposits................................................ 29,000 29,000 ------- ----------- 29,000 2,098,000 Less: accumulated amortization.......................... -- (1,622,000) ------- ----------- $29,000 $ 476,000 ======= ===========
During 1998 the Company entered into a licensing agreement for the delivery of a tool which compiled software for use in versions of the BeOS for two microprocessor architectures. The present value of the non cancelable payments due under this agreement of $1,406,000 were initially recorded as a technology license asset and were amortized over an estimated useful life of three years (see Note 6). However, in June 1998, based on the performance characteristics of this tool on one of the microprocessor architectures, management deemed that it was unsuitable for bundling with BeOS and made alternative arrangements with another company to develop a suitable replacement for that architecture. Also in June 1998, the manufacturer of systems based on the other microprocessor architecture announced that they would not release details of any of their future systems. As a result, the Company was unable to support any of the future platforms. Since no estimated future cash flows were expected from the licensed technology, a permanent impairment in the value of $1,211,000 was recorded in June 1998. This impairment charge has been included in cost of sales in the statement of operations. In addition, in 1998 the Company entered into other technology license agreements including non cancelable minimum payments. The present value of payments due under these agreements (see Note 6) is recorded as an asset and amortized over the lesser of the term of the agreement or three years, if technological feasibility was established at the date the agreement was signed or as research and development costs if technological feasibility had not been established and there was no alternative future use for the licensed technology. During 1998, costs capitalized and expensed as research and development under these agreements were $663,000 and $641,000, respectively. NOTE 5--NOTES PAYABLE: During 1995, the Company issued notes payable to two officers in exchange for $985,000 of cash with an additional $1 million issued as notes payable in exchange for cash in 1996. These uncollateralized notes payable bore interest at an annual rate of 10%, and were payable at various dates during fiscal year 1996. In April 1996, $1,266,000 of the notes payable were converted into Series 1 preferred stock (see Note 7) and the remaining $719,000 in notes was repaid. During 1997, the Company issued notes payable to certain shareholders in exchange for $3,000,000 of cash. These notes payable bore interest at an annual rate of 10%, and were payable in February 1998. These notes payable and related accrued interest were converted to Series 2 convertible preferred stock in February 1998 (see Note 7). F-14 BE INCORPORATED Notes to Consolidated Financial Statements (continued) NOTE 6--COMMITMENTS: The Company leases its facility under a non cancelable operating lease expiring February, 2003. Future annual minimum lease payments as of December 31, 1998 are as follows: 1999.............................................................. $ 912,000 2000.............................................................. 875,000 2001.............................................................. 887,000 2002.............................................................. 519,000 2003.............................................................. 74,000 ---------- $3,267,000 ==========
Total rent expense was $373,000, $400,000, and $825,000 for 1996, 1997 and 1998, respectively. In addition, the Company has entered into several technology licensing agreements which include non cancelable payments. These payments have been recorded at the net present value using a discount rate of 10% per annum. The future minimum payments under these agreement are as follows: 1999............................................................. $ 808,000 2000............................................................. 748,000 2001............................................................. 45,000 2002............................................................. 45,000 ---------- 1,646,000 Less discount.................................................... (179,000) ---------- 1,467,000 Less current portion............................................. (688,000) ---------- $ 779,000 ==========
NOTE 7--STOCKHOLDERS' EQUITY: Convertible Preferred Stock In April 1996, pursuant to the Company's recapitalization plan, the Company declared an automatic conversion of all its outstanding shares of Series A, Series A1 and Series B preferred stock into common stock and, immediately thereafter, the Company's outstanding common stock was subject to a reverse stock split of 1 for 300. All common and common equivalent shares in these financial statements have been adjusted to give retroactive effect to this reverse stock split. Mandatorily Redeemable Convertible Preferred Stock The mandatorily redeemable convertible preferred stock comprise the following series:
Number of Number of Common Shares Shares Shares Issued Reserved for Liquidation Authorized and Outstanding Conversion Value ---------- --------------- ------------- ----------- Series 1............... 14,116,000 14,116,000 14,116,000 $14,116,000 Series 2............... 8,384,000 8,382,874 8,382,874 27,244,000 ---------- ---------- ---------- ----------- 22,500,000 22,498,874 22,498,874 $41,360,000 ========== ========== ========== ===========
F-15 BE INCORPORATED Notes to Consolidated Financial Statements (continued) Changes in the mandatorily redeemable convertible preferred stock during 1996, 1997 and 1998 were as follows:
Amount ----------- Balance, January 1, 1996....................................... $ -- Issuance of Series 1......................................... 14,026,000 Accretion to redemption value................................ 11,000 ----------- Balance, December 31, 1996..................................... 14,037,000 Accretion to redemption value................................ 15,000 ----------- Balance, December 31, 1997..................................... 14,052,000 Issuance of Series 2: February 1998, net of issuance costs of $1,432,000......... 22,391,000 December 1998, net of issuance costs of $217,000 and allocation to warrants of $2,001,000...................... 1,204,000 Beneficial conversion feature................................ (1,204,000) Dividend related to beneficial conversion feature of preferred stock............................................. 1,204,000 Accretion to redemption value................................ 358,000 ----------- Balance, December 31, 1998..................................... $38,005,000 ===========
Issuance of Series 1 Mandatorily Redeemable Convertible Preferred Stock In April 1996, the Company issued 12,850,000 shares of its Series 1 mandatorily redeemable convertible preferred stock at $1.00 per share for gross cash proceeds of $12.9 million. Concurrent with the issuance in April of the Series 1 mandatorily redeemable convertible preferred stock, $1,266,000 of outstanding promissory notes were converted into an additional 1,266,000 shares of the Company's Series 1 mandatorily redeemable convertible preferred stock. Issuance of Series 2 Mandatorily Redeemable Convertible Preferred Stock In February 1998, the Company sold 6,706,318 shares of its Series 2 mandatorily redeemable convertible preferred stock to investors for total gross proceeds of $21,795,000. In addition, the Company issued 923,077 shares if its Series 2 mandatorily redeemable convertible preferred stock in exchange for the $3,000,000 of notes payable outstanding at December 31, 1997, and an additional 31,950 shares were issued for forgiveness for interest related to the notes payable. In connection with the sale of the Series 2 mandatorily redeemable convertible preferred stock, the Company issued the lead investor an option to purchase an additional 615,385 shares of Series 2 mandatorily redeemable convertible preferred stock and other warrants to purchase up to 1,538,462 shares of common stock, subject to certain terms and conditions. The right to purchase the Series 2 mandatorily redeemable convertible preferred stock and the warrants to purchase common stock were to expire on December 31, 1998. The lead investor exercised this option in December 1998 and the additional shares were issued. In addition, as the result of this exercise, the warrants issued to the lead investor become exercisable (see "Warrants" below). The Company received total cash consideration of $5 million from the lead investor of which $3 million was received in February 1998 and $2 million in December 1998. The $2.9 million ($3 million net of issuance costs of $0.1 million) has been allocated to preferred stock and the option to purchase the additional shares of preferred stock and the warrant for common stock (the F-16 BE INCORPORATED Notes to Consolidated Financial Statements (continued) "Option") based on the relative fair values of each of these instruments. The fair value of the option was estimated at $2,584,000 using the Black-Scholes model and the following assumptions; dividend yield of 0%, volatility of 60%, risk free interest rate of 5.51% and a term of eight months. The resulting allocation was as follows: Series 2 mandatorily redeemable convertible preferred stock..... $1,535,000 Option.......................................................... 1,322,000 ---------- $2,857,000 ==========
In December 1998, the proceeds from the issuance of preferred stock have been allocated to the preferred stock and warrants to purchase 1,538,462 shares of common stock based on the relative fair values of each of these instruments. The fair value of the warrants was estimated at $6,202,000 using the Black- Scholes model and the following assumptions; dividend yield of 0%, volatility of 60%, risk free interest rate of 4.76% and a term of five years. The proceeds comprised $1.9 ($2 million net of issuance costs of $0.1 million) million in cash consideration plus the fair value of the options to purchase the preferred stock and the common stock warrants discussed above and totaled $3,205,000. The resulting allocation was as follows: Series 2 mandatorily redeemable convertible preferred stock..... $1,204,000 Common stock warrants........................................... 2,001,000 ---------- $3,205,000 ==========
In connection with these issuance the Company issued 75,375 and 30,769 shares of Series 2 mandatorily redeemable convertible preferred stock in February 1998 and December 1998 to the bankers in lieu of investment bankers fees. The fair value of these shares has been recorded and included as issuance costs of the Series 2 mandatorily redeemable convertible preferred stock financing (see Warrants below). Terms of Mandatorily Redeemable Convertible Preferred Stock Both the Series 1 and Series 2 mandatorily redeemable convertible preferred stock ("Series 1" or "Series 2" preferred stock) are redeemable at the option of the holders at $1.00 and $3.25 per share, respectively, plus any declared but unpaid dividends. The Series 1 preferred stock can be redeemed at any date after the sixth anniversary of the original issue date upon a vote for redemption by the majority of the holders of the then outstanding shares voting together as a separate class. The Series 2 preferred stock is redeemable at any date after the seventh anniversary of the original issue date if two-thirds majority of the holders of the then outstanding shares voting together as a separate class pass a resolution requiring redemption. The amount at which the Series 2 preferred stock is recorded is less than its redemption value as a result of amounts allocated to the option to purchase Series 2 preferred stock and warrants to purchase common stock. In addition, the cash proceeds from the Series 2 preferred stock were reduced by investment banker fees paid in cash and the estimated value of warrants issued to the Investment Bankers (see Warrants below). The Series 1 preferred stock has also been reduced below redemption value by cash issuance costs. Accordingly, the preferred stock is being accreted to its redemption value each period by using the interest method. The amount of accretion recorded in each period increases the net loss applicable to the common stockholders. Each share of Series 1 and Series 2 preferred stock is convertible, at the option of the holder, into a number of fully paid shares of common stock as determined by dividing the respective Preferred Stock issue price by the conversion price in effect at the time. The initial conversion price of the Series 1 and Series 2 Preferred Stock is $1.00 and $3.25 per share, respectively, and is subject to adjustment in accordance with the F-17 BE INCORPORATED Notes to Consolidated Financial Statements (continued) antidilution provisions contained in the Company's Articles of Incorporation. Conversion is automatic (i) upon the closing of a firm commitment underwritten public offering in which the public offering price equals or exceeds $5.00 per share (adjusted to reflect subsequent stock dividends, stock splits or recapitalization) and the aggregate proceeds raised exceed $10,000,000 or (ii) written consent of the holders of at least two-thirds of the then outstanding shares of Preferred Stock. The Company has reserved shares of common stock in the event of conversion. In the event of any liquidation, dissolution or winding up of the Company, the holders of the Series 1 and Series 2 preferred stock are entitled to receive, prior and in preference to any distribution of any of the assets of the Company to the holders of common stock, an amount per share equal to the sum of $1.00 and $3.25 per share, respectively, of preferred stock (as adjusted for any stock dividends, combinations or splits) plus any declared but unpaid dividends. In the event that upon liquidation or dissolution, the assets and funds of the Company are insufficient to permit the payment to the holders of preferred stock of the full preferential amounts, then the entire assets and funds of the Company, legally available for distribution, are to be distributed ratably among the holders of the preferred stock in proportion to the full preferential amount each is otherwise entitled to receive. After payment has been made to the holders of Series 1 and Series 2 preferred stock, any remaining assets and funds are to be distributed equally among both the holders of the Series 1 and Series 2 preferred stock and common stock as if all shares of preferred stock had been converted into common stock; however, the distributions to the holders of the Series 1 and Series 2 preferred stock is limited to $5.00 per share. The holders of shares of the Series 1 and Series 2 preferred stock are entitled to receive dividends at the rate of $0.10 and $.0325, respectively, per share per annum, in preference to any payment of cash dividends on common stock. Such dividends are payable whenever declared by the Board of Directors out of assets legally available and are noncumulative. As of December 31, 1998, and March 31, 1999 (unaudited) no dividends have been declared. The holder of each share of Series 1 and Series 2 preferred stock is entitled to one vote for each share of common stock into which such share of Series 1 and Series 2 preferred stock is convertible. The holders of Series 1 and Series 2 preferred stock also have demand and piggyback registration rights. The Company has the right of first refusal to repurchase any outstanding shares Series 1 and Series 2 preferred stock in the event the holder of such shares receives and accepts an offer from a third party to purchase the shareholder's preferred stock. This right expires on the effective date of a registration statement as filed with the SEC. Warrants The Company has issued fully exercisable warrants to purchase common stock as follows:
Number of Shares Number Under the of Shares Issuance Date Expiration Date Warrants Reserved Exercise Price ------------- --------------- --------- --------- -------------- April 1996 March 2001 1,219,648 1,219,648 $1.00 per share December 1998 December 2003 1,538,462 1,538,462 $3.25 per share May and December 1998 May and December 2003 112,865 112,865 $3.58 per share --------- 2,870,975 =========
F-18 BE INCORPORATED Notes to Consolidated Financial Statements (continued) The April 1996 warrants were issued in connection with the conversion of the Series B preferred stock to common stock. The fair value of the warrants of $114,000 was estimated using the Black-Scholes model and the following assumptions; dividend yields of 0%, volatility of 60% risk free interest rate of 6.05% and a term of 5 years. The estimated value of the warrants was accounted for as a dividend to the Series B preferred stockholders and increased net loss attributable to common stockholders in 1996. The December 1998 warrants were issued in connection with the issuance of Series 2 mandatorily redeemable convertible preferred stock in December 1998 and valued as described above under "Issuance of Series 2 mandatorily redeemable convertible preferred stock". The May and December 1998 warrants were issued for investment banker fees related to the issuance of the Series 2 mandatorily redeemable convertible preferred stock. The fair value of the warrants of $148,000 was estimated using the Black-Scholes model and the following assumptions; dividends yield of 0%, volatility of 60% risk free interest rate of 4.76%-5.51% and a term of 5 years. The value of the warrant, a stock issuance cost, was offset against the proceeds from the Series 2 mandatorily redeemable convertible preferred stock. Stock Option Plan In 1992 the Company adopted a stock option plan (the "Plan") under which 5,000,000 shares of the Company's common stock had been reserved for issuance of stock options to employees, directors, or consultants under terms and provisions established by the Board of Directors. In 1997 and 1998, the Company reserved an additional 5,995,000 shares and 2,000,000 shares, respectively, for issuance under the Plan. Under the terms of the Plan, incentive options may be granted to employees, and nonstatutory options may be granted to employees, directors and consultants, at prices no less than 100% and 85%, respectively, of the fair market value of the Company's common stock at the date of grant, as determined by the Board of Directors. Options granted under the Plan are immediately exercisable; however, shares exercised under the Plan are subject to the Company's right of repurchase at the end of the holder's association with the Company. The Company's right of repurchase generally lapses as to 20% of the shares one year from the date of grant and 1/60th each month thereafter or as to 25% of the shares one year from the date of grant and 1/48th each month thereafter. The options expire ten years from the date of grant. On March 30, 1999, the Board of Directors terminated the Plan. No further options will be granted under this plan. F-19 BE INCORPORATED Notes to Consolidated Financial Statements (continued) Activity under the Plan is set forth below:
Options Outstanding --------------------------------- Average Weighted Available Price per Exercise for Grant Shares Share Price Amount ---------- ---------- ----------- --------- ------ Balance, January 1, 1996................... 1,198 3,534 $ 51.00 $ 180,000 $51.00 Options authorized.... 5,995,000 -- Options granted....... (5,519,000) 5,519,000 0.10 552,000 0.10 Options exercised..... -- (4,488,100) 0.10 (449,000) 0.10 Options terminated.... 73,534 (73,534) 0.10-51.00 (187,000) 2.54 ---------- ---------- --------- ------ Balance, December 31, 1996................... 550,732 960,900 0.10-51.00 96,000 0.10 Options granted....... (410,500) 410,500 0.10-0.20 48,000 0.12 Options exercised..... -- (185,000) 0.10-0.20 (19,000) 0.10 Options terminated.... 199,000 (199,000) 0.10-0.20 (21,000) 0.10 ---------- ---------- --------- ------ Balance, December 31, 1997................... 339,232 987,400 0.10-51.00 104,000 0.11 Options authorized.... 2,000,000 -- -- -- -- Options granted....... (2,436,500) 2,436,500 0.20-0.35 840,000 0.34 Options exercised..... -- (770,217) 0.10-0.35 (205,000) 0.27 Options terminated.... 448,756 (448,756) 0.10-0.35 (94,000) 0.21 ---------- ---------- --------- ------ Balance, December 31, 1998................... 351,488 2,204,927 0.10-0.35 645,000 $ 0.29 Options granted....... (39,000) 39,000 0.35 14,000 0.35 Options exercised..... (81,228) 0.10-0.35 (26,000) 0.32 Options terminated.... 219,352 (219,352) 0.35 (71,000) 0.33 ---------- ---------- --------- ------ Balances, March 31, 1999................... 531,840 1,943,347 $0.10-$0.35 $ 562,000 $ 0.29 ========== ========== ========= ======
At December 31, 1996, 1997 and 1998 all outstanding options were exercisable of which 771,892 shares, 631,600 shares, and 1,691,474 shares, at weighted average exercise prices of $0.10, $0.11, and $0.31, respectively, are subject to the Company's right of repurchase upon exercise. In addition, 3,020,086, 1,920,929 shares and 1,339,302 shares of the Company's outstanding common stock is subject to the Company's right of repurchase at weighted average prices of $0.10, $0.10 and $0.17, respectively. Pro forma stock compensation The Company has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Had compensation cost been determined based on the fair value at the grant date for the awards in 1996, 1997 and 1998 consistent with the provisions of SFAS No. 123, the Company's net loss for 1996, 1997 and 1998, respectively, would have been as follows (in thousands, except per share amounts):
1996 1997 1998 ------- -------- -------- Net loss attributable to common stockholders--as reported................... $(7,902) $(10,448) $(18,423) Net loss attributable to common stockholders--pro forma..................... $(8,002) $(10,488) $(18,442) Net loss per common share--basic and diluted as reported................................. $(10.85) $ (4.87) $ (5.80) Net loss per common share--basic and diluted pro forma................................... $(10.99) $ (4.89) $ (5.80)
Such pro forma disclosures may not be representative of future compensation cost because options vest over several years and additional grants are made each year. F-20 BE INCORPORATED Notes to Consolidated Financial Statements (continued) The fair value of each option grant is estimated on the date of grant using a type of Black-Scholes option pricing model with the following assumptions used for grants:
1996 1997 1998 ---------- ---------- ---------- Expected volatility........................ 0% 0% 0% Weighted average risk-free interest rate... 5.82-6.69% 5.85-6.63% 4.59-6.03% Expected life (from vesting date).......... 5 years 5 years 5 years Expected dividends......................... 0% 0% 0%
Based on the above assumptions, the aggregate fair value and weighted average fair value per share of options granted in 1996, 1997 and 1998 were $3,234,000, $1,535,000 and $7,766,000, and $0.59, $3.69 and $3.19, respectively. During 1996, 1997 and 1998, options to purchase 5,519,000, 410,500 and 2,436,500 shares of the Company's common stock, with weighted average exercise prices of $0.10, $0.12 and $0.34 per share and weighted average fair values of $0.59, $3.69 and $3.19 per share, were granted with exercise prices below the estimated market value at the date of grant, respectively. The options outstanding and currently exercisable by exercise price at December 31, 1998 are as follows:
Options Outstanding Options Exercisable -------------------------------- -------------------- Weighted Average Remaining Weighted Weighted Contractual Average Average Number Life Exercise Number Exercise Exercise Prices Outstanding (years) Price Exercisable Price --------------- ----------- ----------- -------- ----------- -------- $0.10-0.20............ 538,400 7.9 $0.11 538,400 $0.11 $0.35................. 1,666,527 9.2 $0.35 1,666,527 $0.35 --------- --- --------- 2,204,927 9.0 2,204,927 ========= === =========
1999 Equity Incentive Plan On March 30, 1999 the Board of Directors adopted the Equity Incentive Plan (the "Incentive Plan") under which a total of up to 8,000,000 shares of common stock have been authorized for issuance. The Incentive Plan provides for the grant of incentive stock options, nonstatutory stock options, restricted stock purchase rights and stock bonuses to employees, consultants and directors. Incentive stock options may be granted only to employees. The exercise price of incentive stock options granted under the Incentive Plan must be at least equal to the fair market value of the Company common stock on the date of grant. The exercise price of nonstatutory stock options is set by the administrator of the Incentive Plan, but can be no less than 85% of the fair market value. The maximum term of options granted under the Incentive Plan is ten years. Options granted under the terms of the Incentive Plan vest over four years. At March 31, 1999, options to purchase an aggregate of 3,367,000 shares were outstanding at an exercise price of $5.00 per share. These options were granted on March 30, 1999 when the deemed fair value of the common stock was $7.00 per share. At March 31, 1999, 2,689,653 shares are currently available for future grant under stock options, restricted stock purchase rights and stock bonuses. Of the 8,000,000 shares of common stock reserved, however, 1,943,347 shares of common stock only become available for future grant under stock options and stock purchase rights to the extent that options granted and still outstanding under the Plan as of March 30, 1999, terminate unexercised. F-21 BE INCORPORATED Notes to Consolidated Financial Statements (continued) 1999 Non-Employee Directors' Stock Option Plan On March 30, 1999 the Board of Directors also adopted the Non-Employee Directors' Stock Option Plan (the "Directors' Plan"), and have reserved a total of 1,500,000 shares of common stock for issuance thereunder. The exercise price of options under the Directors' Plan will be equal to the fair market value of the common stock on the date of grant. The maximum term of the options granted under the Directors' Plan is ten years. Each initial grant under the Directors' Plan will vest at 1/4th of the shares subject to the option one year after the date of grant and 1/48th of the shares each month thereafter. The rate of vesting of each subsequent grant will be 1/48th of the shares on a monthly schedule after the date of grant. The Board may amend (subject to stockholder approval as necessary) or terminate the Directors' Plan at any time. As of March 31, 1999, options to purchase an aggregate of 600,000 shares were outstanding at an exercise price of $5.00 per share. These options were granted on March 30, 1999 when the deemed fair value of the common stock was $7.00 per share. At March 31, 1999, 900,000 shares are currently available for future grants. Deferred stock compensation During 1996, 1997 and 1998, the Company issued options to certain employees under the Plan with exercise prices below the deemed fair market value of the Company's common stock at the date of grant. In accordance with the requirements of APB 25, the Company has recorded deferred compensation for the difference between the exercise price of the stock options and the fair market value of the Company's stock at the date of grant. This deferred compensation is amortized to expense over the period during which the Company's right to repurchase the stock lapses or the options become exercisable, generally four or five years. At December 31, 1998, the Company had recorded deferred compensation related to these options in an amount of $10,326,000 (net of cancellations), of which $955,000, $867,000 and $3,881,000 had been amortized to expense during 1996, 1997 and 1998. Future compensation expense from options granted through December 31, 1998 is estimated to be $2,964,000, $1,167,000, $448,000 and $44,000 for 1999, 2000, 2001, and 2002, respectively. In the three month period ended March 31, 1999, the Company issued options to purchase 39,000 shares under the Plan, 3,367,000 options under the 1999 Incentive Plan and 600,000 options under the Directors' Plan. The Company recorded deferred compensation related to these options and the options granted through December 31, 1998 in the total amount of $17,226,000 (unaudited). Future compensation expense from these options is estimated to be $4,819,000, $3,286,000, $1,376,000, $369,0000 for the rest of 1999, 2000, 2001, and 2002 (unaudited), respectively. F-22 BE INCORPORATED Notes to Consolidated Financial Statements (continued) NOTE 8--INCOME TAXES: The components of the net deferred tax asset are as follows:
December 31, ------------------------- 1997 1998 ----------- ------------ Net operating loss carryforwards.................. $ 5,680,000 $ 10,993,000 Tax credit carryforwards.......................... 414,000 879,000 Property and equipment and intangibles............ -- 40,000 Other............................................. 4,000 168,000 ----------- ------------ 6,098,000 12,080,000 Less: valuation allowance......................... (6,098,000) (12,080,000) ----------- ------------ Net deferred tax asset............................ $ -- $ -- =========== ============
Due to uncertainty surrounding the realization of the favorable tax attributes in future tax returns, the Company has placed a valuation allowance against its net deferred tax assets. The principal items accounting for the difference between income taxes benefit at the U.S. statutory rate and the benefit from income taxes reflected in the statement of operations are as follows:
1996 1997 1998 ---------- ---------- ---------- Federal benefit at statutory rate........ $2,722,000 $3,652,000 $5,901,000 Nondeductible expenses................... (419,000) (304,000) (1,419,000) Net operating losses and benefits........ (2,303,000) (3,348,000) (4,482,000) ---------- ---------- ---------- $ -- $ -- $ -- ========== ========== ==========
At December 31, 1998, the Company had approximately $28,370,000 of net operating loss carryforwards and $580,000 of research and development credits to offset future federal income taxes. The Company also had $23,060,000 of net operating loss carryforwards and $299,000 of research and development credits to offset future state income taxes. These carryforwards expire in the years 2000 through 2018 if not utilized. Due to changes in ownership, the Company's net operating loss and credit carryforwards may become subject to certain annual limitations. NOTE 9--401(k) PROFIT SHARING PLAN: The Company has a 401(k) Profit Sharing Plan which covers all employees. Under the Plan, employees are permitted to contribute up to 15% of gross compensation not to exceed the annual limitation for any plan year ($10,000 in 1998). Discretionary contributions may be made by the Company. No contributions were made by the Company during 1996, 1997 and 1998. NOTE 10--MARKETING TO DEVELOPERS: During 1996 and 1997, the Company manufactured and sold a computer, which used its operating system, to software developers for amounts that approximated the Company's direct material and labor cost. The costs of the product and the revenues are included in sales and marketing expense, as the units were shipped so that application software would be developed and available when the Company's computer operating systems were shipped to end users. Revenues from the sale of these computer systems included in sales and marketing expenses totaled $1,844,000 and $288,000 in 1996 and 1997, respectively. F-23 BE INCORPORATED Notes to Consolidated Financial Statements (continued) NOTE 11--GEOGRAPHIC INFORMATION: The Company has adopted the Financial Accounting Standards Board's Statements of Financial Accounting Standards No. 131, or SFAS 131, "Disclosures about Segments of an Enterprise and Related Information," effective for fiscal years beginning after December 31, 1997. SFAS 131 supersedes Statement of Financial Accounting Standards No. 14 or SFAS 14, "Financial Reporting for Segments of a Business Enterprise." SFAS 131 changes current practice under SFAS 14 by establishing a new framework on which to base segment reporting and also requires interim reporting of segment information. Management uses one measurement of profitability for its business. The Company markets its products and related services to customers in the United States, Europe and Asia. All long lived assets are maintained in the United States. Revenue information by geographic area are as follows:
Revenues -------- 1997 United States..................................................... $ 86 Europe............................................................ Asia.............................................................. -- ------ Total........................................................... $ 86 ====== 1998 United States..................................................... $ 565 Europe............................................................ 194 Asia.............................................................. 440 ------ Total........................................................... $1,199 ======
NOTE 12--UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA STOCKHOLDERS' EQUITY (DEFICIT): Pro forma basic net loss per common share has been computed as described in Note 2 and also gives effect to common equivalent shares from preferred stock that will automatically convert upon the closing of the Company's initial public offering (using the as-if-converted method) for 1998 and the three months ended March 31, 1999. F-24 BE INCORPORATED Notes to Consolidated Financial Statements (continued) A reconciliation of the numerator and denominator used in the calculation of pro forma basic and diluted net loss per common share follows (in thousands except per share data):
Three Months Ended March 31, 1998 1999 ------------ ------------ Pro forma net loss per common share, basic and diluted: Net loss attributable to common stockholder... $(18,423,000) $(5,979,000) Less dividend related to beneficial conversion feature of preferred stock................... 1,204,000 Less accretion of mandatorily redeemable convertible preferred stock.................. 358,000 133,000 ------------ ----------- Net loss.................................... $(16,861,000) $(5,846,000) ============ =========== Shares used in computing net loss per common share, basic and diluted....................... 3,178,000 3,881,000 Adjustments to reflect the effect of the assumed conversion of the preferred stock.............. 21,125,000 22,499,000 ------------ ----------- Shares used in computing pro forma net loss per common share, basic and diluted................ 24,303,000 26,380,000 ------------ ----------- Pro forma net loss per common share, basic and diluted........................................ $ (.69) $ (.22) ------------ -----------
If the offering contemplated by this Prospectus is consummated, all of the mandatorily redeemable convertible preferred stock outstanding, as of the closing date will automatically be converted into an aggregate of approximately 22,498,874 shares of common stock based on the shares of convertible preferred stock outstanding at March 31, 1999. Unaudited pro forma stockholders' equity at March 31, 1999, as adjusted for the conversion of preferred stock, is disclosed on the balance sheet. NOTE 13--SUBSEQUENT EVENTS On May 4, 1999, the Company authorized the reincorporation of the Company as a Delaware corporation by effecting a merger of the Company with and into Be Incorporated, a Delaware corporation, in which each outstanding share of the Company's common stock and preferred stock shall be converted into one share of Be Incorporated's common stock or preferred stock, as appropriate. The Company also authorized the filing of an amended and restated certificate of incorporation for Be Incorporated to add certain anti-takeover provisions, to remove the Series 1 and Series 2 preferred stock and authorize 2,000,000 shares of undesignated preferred stock. In addition, on May 4, 1999, the Company adopted the Employee Stock Purchase Plan under which 1,500,000 shares have been reserved for issuance and approved the issuance and sale in an underwritten public offering of up to 6,900,000 shares of the Company's common stock. F-25 BE INCORPORATED Pro Forma Combined Condensed Consolidated Financial Information Effective April 30, 1998, Be Incorporated ("Be") acquired all the outstanding shares of StarCode Software, Inc. ("StarCode"). The acquisition was accounted for using the purchase method of accounting and accordingly, the purchase price was allocated to the tangible and intangible assets acquired and liabilities assumed on the basis of their fair values on the acquisition date. The purchase price of approximately $567,000 consisted entirely of cash payments. Of the total purchase price, $545,000 has been allocated to purchased website technology which is being amortized over its estimated useful life of eighteen months. The remainder of the purchase price was allocated to tangible assets acquired and liabilities assumed. The following unaudited pro forma financial statement gives effect to the acquisition of substantially all of the assets and liabilities of StarCode by Be as if such acquisition had taken place as of January 1, 1998. The accompanying unaudited pro forma combined condensed consolidated statement of operations for the year ended December 31, 1998 combines the historical consolidated statement of operations of the Company for the year ended December 31, 1998 and the historical statement of operations of StarCode for the four months ended April 30, 1998 as if the acquisition had occurred on January 1, 1998. The results of operations of StarCode are only included for the four months ended April 30, 1998 as Be's historical results of operations for the year ended December 31, 1998 include the results of StarCode since the date of acquisition on April 30, 1998. The unaudited pro forma combined condensed consolidated statement of operations gives effect to the acquisition using the purchase method of accounting based upon allocation of the purchase price of StarCode, and the adjustments described in the notes attached hereto. The pro forma combined information is not necessarily indicative of future operations or the actual results that would have occurred had the acquisition been consummated at the beginning of the periods presented. The pro forma combined information and related adjustments are based upon available information and upon certain assumptions, which the Company believes, are reasonable. The pro forma combined condensed consolidated statement of operations should be read in conjunction with the Company's and StarCode's historical financial statements and notes thereto contained elsewhere herein. The adjustment applied to Be's historical financial statements and those of StarCode to arrive at the pro forma consolidated financial information was to record the amortization of the acquired completed technology totaling $545,000 over its estimated useful life of eighteen months. F-26 BE INCORPORATED Pro Forma Combined Condensed Consolidated Statement of Operations (unaudited)
Year Ended December 31, 1998 ---------------------------------------- Be StarCode Adjustments Pro Forma -------- -------- ----------- --------- Net revenue........................... $ 1,199 $ 16 $ -- $ 1,215 Cost of revenues...................... 2,161 1 -- 2,162 -------- ----- ----- -------- Gross profit.......................... (962) 15 -- (947) Operating expenses: Sales and marketing................. 5,792 29 -- 5,821 Research and development............ 4,496 16 120 4,632 General and administrative.......... 2,310 54 -- 2,364 Amortization of deferred stock compensation....................... 3,881 -- -- 3,881 -------- ----- ----- -------- Total operating expenses.......... 16,479 99 120 16,698 -------- ----- ----- -------- Loss from operations.................. (17,441) (84) (120) (17,645) Interest and other income, net........ 580 1 -- 581 -------- ----- ----- -------- Net loss.............................. $(16,861) $ (83) $(120) $(17,064) -------- ----- ----- -------- Pro forma net loss per share Basic and diluted................... $ (5.31) $(.21) $ -- $ (5.37) -------- ----- ----- -------- Weighted average shares--basic and diluted............................ 3,178 400 -- 3,178 ======== ===== ===== ========
F-27 Report of Independent Accountants April 9, 1999 To the Board of Directors and Stockholders of Be Incorporated In our opinion, the accompanying balance sheets and the related statements of operations, of shareholders' deficit and of cash flows present fairly, in all material respects, the financial position of StarCode Software, Inc. (a company in the development stage) at December 31, 1996 and 1997, and the results of its operations and its cash flows for the period from September 14, 1996 (date of inception) to December 31, 1996, the year ended December 31, 1997 and the cumulative period September 14, 1996 (date of inception) to December 31, 1997 in conformity with generally accepted accounting principles. These financial statements are the responsibility of the Company's management; our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits of these statements in accordance with generally accepted auditing standards which require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for the opinion expressed above. PricewaterhouseCoopers LLP San Jose, California F-28 STARCODE SOFTWARE, INC. (a company in the development stage) Balance Sheets
December 31, ------------------- March 31, 1996 1997 1998 -------- --------- ----------- (unaudited) Assets Current assets: Cash....................................... $ 38,380 $ 6,288 $ 4,775 Accounts receivable........................ -- 109 -- Prepaid expenses and other current assets.. 200 1,524 3,618 -------- --------- --------- Total current assets.................... 38,580 7,921 8,393 Property and equipment, net.................. -- 27,965 30,751 Other assets................................. 824 10,475 7,667 -------- --------- --------- Total assets............................ $ 39,404 $ 46,361 $ 46,811 ======== ========= ========= Liabilities and shareholders' deficit Current liabilities: Accounts payable........................... $ 360 $ 8,993 $ 12,761 Accrued expenses........................... -- 5,146 8,697 Notes payable to shareholders.............. -- 36,000 61,000 Current portion of capital lease obligations............................... -- 5,132 8,998 Advance from shareholders.................. 57,500 -- -- -------- --------- --------- Total current liabilities............... 57,860 55,271 91,456 Other liabilities............................ -- 2,864 2,417 Capital lease obligations, net of current portion..................................... -- 4,001 5,346 -------- --------- --------- Total liabilities....................... 57,860 62,136 99,219 -------- --------- --------- Commitments (Note 5) Shareholders' deficit: Convertible preferred stock Authorized: 1,000,000 shares in 1996, 543,000 shares in 1997 and 636,858 shares in 1998 (unaudited) Series A par value, $0.0735; Issued and outstanding: 340,000 shares in 1997 and 1998 (unaudited).......................... -- 24,990 24,990 Liquidation value: $24,990 Series B par value, $0.9671; Issued and outstanding: 103,400 shares in 1997 and 1998 (unaudited).......................... -- 99,510 99,510 Liquidation value: $99,998 Series C par value, $1.00; Issued and outstanding: 100,000 shares in 1997 and 1998 (unaudited).......................... -- 97,327 97,327 Liquidation value: $100,000 Series D par value, $1.07; Issued and outstanding: 46,728 shares in 1998 (unaudited)............................... -- -- 49,998 Liquidation value: $49,998 Common Stock $0.005 par value: Authorized: 9,000,000 shares in 1996; 1,456,600 shares in 1997 and 2,000,000 shares in 1998 (unaudited) Issued and outstanding: 400,000 shares in 1996, 1997 and 1998 (unaudited)........... 200 200 200 Deficit accumulated during the development stage..................................... (18,656) (237,802) (324,433) -------- --------- --------- Total shareholders' deficit............. (18,456) (15,775) (52,408) -------- --------- --------- Total liabilities and shareholders' deficit................................ $ 39,404 $ 46,361 $ 46,811 ======== ========= =========
The accompanying notes are an integral part of these financial statements. F-29 STARCODE SOFTWARE, INC. (a company in the development stage) Statements of Operations
Cumulative Cumulative Period from Period from Period from September 14, September 14, September 14, 1996 (date of 1996 (date of Three Months Three Months 1996 (date of inception) to Year Ended Inception) to Ended Ended inception) December 31, December 31, December 31, March 31, March 31, to March 31, 1996 1997 1997 1997 1998 1998 ------------- ------------ ------------- ------------ ------------ ------------- (unaudited) (unaudited) (unaudited) Revenues: Web site fees........... $ -- $ 1,989 $ 1,989 $ -- $ 1,391 $ 3,380 Products................ -- 6,528 6,528 1,353 -- 6,528 -------- --------- --------- -------- -------- --------- Total revenues........ -- 8,517 8,517 1,353 1,391 9,908 -------- --------- --------- -------- -------- --------- Cost of revenues........ -- 283 283 -- 298 581 -------- --------- --------- -------- -------- --------- Gross profit............ -- 8,234 8,234 1,353 1,093 9,327 Operating expenses: General and administrative......... 7,802 83,386 91,188 9,700 46,109 137,297 Product development..... 5,988 100,707 106,695 17,241 25,406 132,101 Sales and marketing..... 4,866 43,529 48,395 7,618 13,718 62,113 -------- --------- --------- -------- -------- --------- Total operating expenses............. 18,656 227,622 246,278 34,559 85,233 331,511 -------- --------- --------- -------- -------- --------- Loss from operations.... (18,656) (219,388) (238,044) (33,206) (84,140) (322,184) Other income............ -- 991 991 584 1,575 Interest expense........ -- (749) (749) -- (3,075) (3,824) -------- --------- --------- -------- -------- --------- Net loss................ $(18,656) $(219,146) $(237,802) $(33,206) $(86,631) $(324,433) ======== ========= ========= ======== ======== ========= Net loss per share-- basic and diluted...... $ (0.05) $ (0.55) $ (0.59) $ (0.08) $ (0.22) $ (0.81) ======== ========= ========= ======== ======== ========= Shares used in per share calculation--basic and diluted................ 400,000 400,000 400,000 400,000 400,000 400,000 ======== ========= ========= ======== ======== =========
The accompanying notes are an integral part of these financial statements. F-30 STARCODE SOFTWARE, INC. (a company in the development stage) Statements of Shareholders' Deficit
Common Stock Preferred Stock -------------- ---------------- Accumulated Shares Amount Shares Amount Deficit Total ------- ------ ------- -------- ----------- -------- Issuance of common stock to founders in September 1996 at $0.0005 per share...... 400,000 $200 -- $ -- $ -- $ 200 Net loss................ -- -- -- -- (18,656) (18,656) ------- ---- ------- -------- --------- -------- Balance at December 31, 1996................... 400,000 200 -- -- (18,656) (18,456) Conversion of advance from shareholder into Series A convertible preferred stock in March 1997 at $0.0735 per share.............. -- -- 340,000 24,990 -- 24,990 Issuance of Series B convertible preferred stock for cash and conversion of advance from shareholder in June 1997 at $0.9671 per share.............. -- -- 103,400 99,510 -- 99,510 Issuance of Series C convertible preferred stock for cash in November 1997 at $1.00 per share.............. -- -- 100,000 97,327 97,327 Net loss................ -- -- -- -- (219,146) (219,146) ------- ---- ------- -------- --------- -------- Balance at December 31, 1997................... 400,000 200 543,400 221,827 (237,802) (15,775) Issuance of Series D convertible preferred stock for cash in February 1998 at $1.07 per share (unaudited).. -- -- 46,728 49,998 49,998 Net loss (unaudited).... -- -- -- -- (86,631) (86,631) ------- ---- ------- -------- --------- -------- Balance at March 31, 1998 (unaudited)....... 400,000 $200 590,128 $271,825 $(324,433) $(52,408) ======= ==== ======= ======== ========= ========
The accompanying notes are an integral part of these financial statements. F-31 STARCODE SOFTWARE, INC. Pro Forma Consolidated Financial Information Statements of Cash Flows
Cumulative Cumulative Period from Period from Period from September 14, September 14, Three Three September 14, 1996 (date of 1996 (date of Months Months 1996 (date of inception) to Year Ended inception) to Ended Ended inception) to December 31, December 31, December 31, March 31, March 31, March 31, 1996 1997 1997 1997 1998 1998 ------------- ------------ ------------- ----------- ---------- ------------- (unaudited) (unaudited) (unaudited) Cash flows from operating activities: Net loss............... $(18,656) $(219,146) $(237,802) $(33,206) $(86,631) $(324,433) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation and amortization......... -- 5,619 5,619 -- 2,885 8,504 Loss on disposal of property and equipment............ -- -- -- -- 1,068 1,068 Changes in assets and liabilities: Accounts receivable......... -- (109) (109) -- 109 -- Prepaids and other current assets..... (200) (1,324) (1,524) (1,388) (2,094) (3,618) Other assets........ (824) (9,651) (10,475) -- 2,808 (7,667) Accounts payable.... 360 8,633 8,993 1,100 3,768 12,761 Accrued expenses.... -- (1,188) (1,188) -- 3,104 1,916 -------- --------- --------- -------- -------- --------- Net cash used in operating activities....... (19,320) (217,166) (236,486) (33,494) (74,983) (311,469) -------- --------- --------- -------- -------- --------- Cash flows from investing activities: Purchase of property and equipment......... -- (13,450) (13,450) (4,621) -- (13,450) -------- --------- --------- -------- -------- --------- Cash flows from financing activities: Proceeds from notes payable to shareholders.......... -- 36,000 36,000 -- 25,000 61,000 Advances from shareholders.......... 57,500 2,000 59,500 2,000 -- 59,500 Proceeds from issuance of common stock....... 200 -- 200 -- -- 200 Proceeds from issuance of preferred stock.... -- 162,327 162,327 -- 49,998 212,325 Payments on capital lease obligations..... -- (1,803) (1,803) -- (2,526) (4,329) Proceeds from sale of property and equipment............. -- -- -- -- 998 998 -------- --------- --------- -------- -------- --------- Net cash provided by financing activities....... 57,700 198,524 256,224 2,000 73,470 329,694 -------- --------- --------- -------- -------- --------- Net increase (decrease) in cash............... 38,380 (32,092) 6,288 (36,115) (1,513) 4,775 Cash at beginning of period................ -- 38,380 -- 38,380 6,288 -- -------- --------- --------- -------- -------- --------- Cash at end of period.. $ 38,380 $ 6,288 $ 6,288 $ 2,265 $ 4,775 $ 4,775 ======== ========= ========= ======== ======== ========= Supplemental schedule of noncash activities: Conversion of advance from shareholders into Series A and B Preferred Stock....... $ -- $ 59,500 $ 59,500 $ 57,500 $ -- $ 59,500 Cash payments for interest.............. $ -- $ 749 $ 749 $ -- $ 3,075 $ 3,824 Assets acquired under capital lease obligations........... $ -- $ 10,936 $ 10,936 $ -- $ 7,737 $ 18,673
The accompanying notes are an integral part of these financial statements. F-32 STARCODE SOFTWARE, INC. (A COMPANY IN THE DEVELOPMENT STAGE) Notes to Financial Statements NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES: The Company StarCode Software, Inc. ("StarCode"), was incorporated in California in 1996. StarCode provides a forum where Internet users can buy and developers can sell software applications for the Be Operating System. StarCode is in the development stage and since inception has devoted substantially all of its efforts to developing its product and raising capital. Use of estimates The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Fair value of financial instruments StarCode's financial instruments, including cash, accounts receivable and accounts payable are carried at cost, which approximates their fair value because of the short-term maturity of these instruments. Property and equipment Property and equipment are stated at historical cost. Depreciation is computed using the straight-line method over the estimated useful life of the assets of three years. Income taxes StarCode accounts for its income taxes in accordance with the liability method. Under this method, deferred tax assets and liabilities are determined based on the difference between the financial statement and tax bases of assets and liabilities using enacted tax rates in effect for the year in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. Revenue recognition StarCode's revenues are derived from product license fees and Web Site distribution fees. Revenue from product license fees are recognized upon shipment to the customer if remaining obligations are insignificant, collections of the resulting accounts receivable are probable and product returns are reasonably estimable. Revenue from Web Site distribution fees is recognized upon shipment of the related product. Unaudited interim results The accompanying interim financial statements as of March 31, 1998, and for the three months ended March 31, 1997 and 1998 and for the period from September 14, 1996 (date of inception) to March 31, 1998 are unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal F-33 STARCODE SOFTWARE, INC. (A COMPANY IN THE DEVELOPMENT STAGE) Notes to Financial Statements (continued) recurring adjustments, necessary to present fairly the StarCode's financial position, results of operations and its cash flows as of March 31, 1998 and for the three months ended March 31, 1997 and 1998 and for the period from September 14, 1996 (date of inception) to March 31, 1998. The financial data and other information disclosed in these notes to financial statements related to these periods are unaudited. The results for the three months ended March 31, 1998 are not necessarily indicative of the results to be expected for the year ending December 31, 1998. Comprehensive income Effective January 1, 1998, StarCode adopted the provisions of Statement of Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130 establishes standards for reporting comprehensive income and its components in financial statements. Comprehensive income, as defined, includes all changes in equity (net assets) during a period from nonowner sources. Through December 31, 1997 and March 31, 1998 (unaudited), there was no difference between StarCode's net loss and comprehensive loss. Net loss per share Basic net loss per share is computed by dividing net loss available to common shareholders by the weighted average number of common shares outstanding for the period. Diluted net loss per share is computed giving effect to all dilutive potential common shares, including options, warrants and preferred stock. Options, warrants and preferred stock were not included in the computation of diluted net loss per share in 1996, 1997 and 1998 or the three months ended March 31, 1997 and 1998 because the effect would be antidilutive. A reconciliation of the numerator and denominator used in the calculation of historical basic and diluted net loss per share follows:
Cumulative Cumulative Period from Period from Period from September 14, September 14, Three Three September 14, 1996 (date of Year 1996 (date of Months Months 1996 (date of inception) to Ended inception) to Ended Ended inception) to December 31, December 31, December 31, March 31, March 31, March 31, 1996 1997 1997 1997 1998 1998 ------------- ------------ ------------- ----------- ---------- ------------- (unaudited) (unaudited) (unaudited) Numerator for net loss, basic and diluted: Net loss.............. $18,656 $219,146 $237,802 $33,206 $86,631 $324,433 Denominator for basic and diluted loss per share: Weighted average common shares outstanding.......... 400,000 400,000 400,000 400,000 400,000 400,000 ------- -------- -------- ------- ------- -------- Net loss per share basic and diluted............ $ (0.05) $ (0.55) $ (0.59) $ (0.08) $ (0.22) $ (0.81) ======= ======== ======== ======= ======= ======== Antidilutive securities: Options to purchase common stock......... 12,000 15,400 15,400 12,000 15,400 15,400 Preferred stock....... -- 543,400 543,400 340,000 590,128 590,128 ------- -------- -------- ------- ------- -------- 12,000 558,800 558,800 352,000 605,528 605,528 ======= ======== ======== ======= ======= ========
F-34 STARCODE SOFTWARE, INC. (A COMPANY IN THE DEVELOPMENT STAGE) Notes to Financial Statements (continued) Recent accounting pronouncements In June 1997, the Financial Accounting Standards Board issued SFAS No. 131, or SFAS 131, "Disclosures about Segments of an Enterprise and Related Information." This statement establishes standards for the way companies report information about operating segments in annual financial statements. It also establishes standards for related disclosures about products and services, geographic areas and major customers. The disclosures prescribed by SFAS 131 will be effective for the year ending December 31, 1998. StarCode has determined that it does not have any separately reportable business segments as of March 31, 1998. In March 1998, the American Institute of Certified Public Accountants issued Statement of Position ("SOP") No. 98-1, "Accounting for the costs of Computer Software Developed or Obtained for Internal Use," which provides guidance on accounting for the cost of computer software developed or obtained for internal use. SOP No. 98-1 is effective for financial statements for fiscal years beginning after December 15, 1998. StarCode does not expect that the adoption of SOP No. 98-1 will have a material impact on its consolidated financial statements. NOTE 2--BALANCE SHEET COMPONENTS:
December 31, ------------ 1996 1997 ---- ------- Property and equipment, net: Computer equipment............................................. $ -- $33,584 Less: Accumulated depreciation and amortization................ -- (5,619) ---- ------- $ -- $27,965 ==== =======
The depreciation expense for 1997 and for the period from September 14, 1996 (date of inception) to December 31, 1997 was $5,619. At December 31, 1997, computer equipment acquired under capital leases and the related accumulated amortization was $10,936 and $152, respectively. NOTE 3--INCOME TAXES: The principal items accounting for the difference between income taxes benefit at the U.S. statutory rate and the benefit from income taxes reflected in the statement of operations are as follows:
December 31, ----------------- 1996 1997 ------- -------- Federal benefit at statutory rate......................... $ 6,300 $ 74,500 Nondeductible expenses.................................... (700) ------- -------- Net operating loss carryforwards.......................... (6,300) (73,800) ------- -------- $ -- $ -- ======= ========
F-35 STARCODE SOFTWARE, INC. (A COMPANY IN THE DEVELOPMENT STAGE) Notes to Financial Statements (continued) The components of the net deferred tax asset are as follows:
December 31, ----------------- 1996 1997 ------- -------- Net operating loss carryforwards.......................... $ 7,400 $ 89,800 Tax credit carryforwards.................................. 600 10,400 Fixed assets and intangibles.............................. (2,100) Other..................................................... -- 1,000 ------- -------- 8,000 99,100 Less: valuation allowance................................. (8,000) (99,100) ------- -------- Net deferred tax asset.................................... $ -- $ -- ======= ========
Due to uncertainty surrounding the realization of the favorable tax attributes in future tax returns, the Company has placed a valuation allowance against its net deferred tax assets. The valuation allowance increased by $91,100 from December 31, 1996 to December 31, 1997. At December 31, 1997, the Company had approximately $211,400 of net operating loss carryforwards and $6,500 of research and development credits to offset future federal income taxes. The Company also had $210,600 of net operating loss carryforwards and $3,300 of research and development credits to offset future state income taxes. These carryforwards expire in the years 1999 through 2017 if not utilized. Due to changes in ownership, the use of the Company's net operating loss and credit carryforwards are subject to certain annual limitations. NOTE 4--BORROWINGS: Notes payable At December 31, 1997 and March 31, 1998, notes payable consists of amounts payable to shareholders of StarCode totaling $36,000 and $61,000 (unaudited). The notes, which are unsecured, are payable upon demand and bear interest at 1.5% per month. The weighted average interest rate on these borrowings for 1997 was 15%. NOTE 5--COMMITMENTS: The Company acquired certain computer equipment under capital leases. The obligations under such leases at December 31, 1997 are as follows: 1998................................................................ $ 5,814 1999................................................................ 4,164 ------- 9,978 Less portion representing interest at 10%........................... (845) ------- 9,133 Less current portion................................................ (5,132) ------- $ 4,001 =======
F-36 STARCODE SOFTWARE, INC. (A COMPANY IN THE DEVELOPMENT STAGE) Notes to Financial Statements (continued) Operating lease The Company leases its facility under operating lease agreements. The future minimum lease payments under noncancelable operating leases are as follows:
Year Ending December 31, ------------ 1998............................................................. $22,464 1999............................................................. 3,744 ------- $26,208 =======
Facility rent expense for 1997 and the period from September 14, 1996 (date of inception) to December 31, 1997 was $13,979. NOTE 6--STOCKHOLDERS' EQUITY: Convertible Preferred Stock: Dividends The holders of Series A, B C and D preferred stock are entitled to preferential noncumulative dividends at the rate of $0.0735, $0.9671, $1.00 and $1.07 per share, respectively, if and when declared by the Board of Directors. No dividends have been declared as of December 31, 1996 or 1997 and March 31, 1998 (unaudited). Liquidation In the event of any liquidation, dissolution or winding up of StarCode, either voluntary or involuntary, the holders of Series A, B, C and D convertible preferred stock are entitled to receive, prior and in preference to any distribution of any of the assets or surplus funds of StarCode to the holders of shares of common stock, an amount equal to $0.0735, $0.9671, $1.00 and $1.07 per share plus any unpaid dividends (whether or not declared). If upon the occurrence of such event, the assets and funds distributed among the holders of the convertible preferred stock are insufficient to permit the payment to such holders of the full aforesaid preferential amounts, then, the entire assets and funds of StarCode legally available for distribution are to be distributed ratably among the holders of the Series A, B, C and D convertible preferred stock in proportion to the full preferential amount each such holder is otherwise entitled to receive. Voting rights The holders of convertible preferred stock are entitled to one vote for each share of common stock into which such share of Convertible Preferred Stock is convertible. Conversion Each share of Series A, B, C and D convertible preferred stock is convertible, at the option of the holder, at any time into common stock on a one-to-one basis, subject to the antidilution adjustments contained in StarCode's Articles of Incorporation. Each share of convertible preferred stock shall automatically be converted into common stock upon the effective date of a public offering of the StarCode's common stock with aggregate proceeds of more than $7.5 million and an offering price of not less than $5.00 per share. F-37 STARCODE SOFTWARE, INC. (A COMPANY IN THE DEVELOPMENT STAGE) Notes to Financial Statements (continued) Common stock Each share of common stock is entitled to one vote. The holders of common stock are also entitled to receive dividends whenever funds are legally available and when declared by the Board of Directors, subject to the prior rights of holders of then outstanding convertible preferred stock. As of December 31, 1997 and March 31, 1998 (unaudited), no dividends have been declared. Stock option plan In September 1996, StarCode authorized the 1996 Stock Option Plan (the "Plan") under which the Board of Directors may issue incentive stock options and nonqualified stock options. As of December 31, 1997, StarCode has reserved 30,000 shares of common stock for issuance under the Plan. Options are to be granted at an exercise price not less than fair market value for incentive options or 85% of fair market value for nonqualified stock options. For employees holding more than 10% of the voting rights of all classes of stock, the exercise prices for incentive and nonstatutory stock options will be not less than 110% of fair market value. Options granted under the Plan are immediately exercisable; however, shares exercised under the Plan are subject to StarCode's right of repurchase. StarCode's right of repurchase generally lapses as to 25% of the shares one year from the date of grant and monthly thereafter, over three years, or as to 33% of the shares one year from the date of grant and monthly thereafter, over two years. The Plan requires that options be exercised no later than ten years from the date of the grant. In the case of an incentive stock option granted to an optionee who, at the time the option is granted, holds more than 10% of the voting rights of all classes of stock, the term of the option shall be no longer than five years from the date of the grant. Activity under the Plan is as follows:
Outstanding Options ----------------------------------------------- Shares Weighted Available Number of Exercise Aggregate Average for Grant Shares Price Price Exercise Price --------- --------- ------------ --------- -------------- Shares reserved at plan inception.............. 30,000 -- $ -- $-- $ -- Options granted......... (12,000) 12,000 0.011 132 0.011 Options exercised....... -- -- -- -- -- Options canceled........ -- -- -- -- -- ------- ------ ---- Balances, December 31, 1996................... 18,000 12,000 0.011 132 0.011 Options granted......... (3,400) 3,400 0.100 340 0.100 Options exercised....... -- -- -- -- -- Options canceled........ -- -- -- -- -- ------- ------ ------------ ---- ------ Balances, December 31, 1997................... 14,600 15,400 $0.011-0.100 $472 $0.031 ======= ====== ==== ======
F-38 STARCODE SOFTWARE, INC. (A COMPANY IN THE DEVELOPMENT STAGE) Notes to Financial Statements (continued) The following table summarizes information with respect to stock options outstanding at December 31, 1997:
Options Outstanding ------------------------ Weighted Options Average Exercisable Remaining ----------- Number Contractual Number Exercise Prices Outstanding Life (Years) Exercisable --------------- ----------- ------------ ----------- $0.011.................................. 12,000 8.8 12,000 $0.100.................................. 3,400 9.6 3,400 ------ ------ 15,400 9.0 15,400 ====== ======
There was no activity on the Plan during the period December 31, 1997 to March 31, 1998. At December 31, 1996 and 1997 all outstanding options were exercisable of which 12,000 shares and 10,400 shares at weighted average exercise prices of $0.11 and $0.04, respectively, are subject to StarCode's right of repurchase upon exercise. Pro forma stock-based compensation StarCode has adopted the disclosure-only provisions of Statement of Financial Accounting Standards No.123, "Accounting for Stock-Based Compensation" ("SFAS No. 123"). Had compensation cost been determined based on the fair value at the grant date for the awards in 1996, 1997 and the three months ended March 31, 1998 consistent with the provisions of SFAS No.123, StarCode's net loss for 1996, 1997 and the three months ended March 31, 1998, respectively, would have been as follows:
Cumulative Period from Period from September 14, September 14, 1996 (date of 1996 (date of inception) to Year Ended inception) to December 31, December 31, December 31, 1996 1997 1997 ------------- ------------ ------------- Net loss--as reported............. $(18,656) $(219,146) $(237,802) Net loss--pro forma............... $(18,658) $(219,413) $(238,071) Net loss per share--basic and diluted as reported.............. $ (0.05) $ (0.55) $ (0.59) Net loss per share--basic and diluted pro forma................ $ (0.05) $ (0.55) $ (0.60)
In accordance with the provisions of SFAS No. 123, the minimum value of each options is estimated using the following assumptions: dividend yield of 0%, volatility of 0%, risk-free interest rates between 5.92% to 6.35% at the date of grant and an expected life of four and five years, for grants during 1996 and 1997, respectively. Based on the above assumptions, the aggregate minimum value of options granted in 1996 and 1997 was $29 and $3,148, respectively, and the weighted average minimum value per share of options was $.002 and $.926, respectively. NOTE 7--ACQUISITION BY BE INCORPORATED: On April 30, 1998, Be Incorporated acquired all of StarCode's then outstanding shares of Common Stock, at which time StarCode became a wholly owned subsidiary of Be Incorporated. F-39 [BE LOGO AND ARTWORK] PART II Information Not Required In Prospectus Item 13. Other Expenses of Issuance and Distribution The following table sets forth the costs and expenses, other than underwriting discounts and commissions, payable by the Registrant in connection with the distribution of the common stock being registered. All amounts are estimated, except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq National Market Filing Fee: SEC Registration Fee................................................... NASD Filing Fee........................................................ Nasdaq National Market Filing Fee...................................... Blue Sky Fees and Expenses............................................. Accounting Fees........................................................ Legal Fees and Expenses................................................ Transfer Agent and Registrar Fees...................................... Printing and Engraving................................................. Miscellaneous.......................................................... ---- Total.............................................................. $* ====
- -------- *To be supplied by amendment. Item 14. Indemnification of Directors and Officers The Registrant's Amended and Restated Certificate of Incorporation, filed as Exhibit 3.1 to the Registration Statement, provides that directors of the Registrant shall not be personally liable to the Registrant or its stockholders for monetary damages for breach of fiduciary duty as a director, to the fullest extent permitted by the Delaware General Corporation Law. The Registrant's bylaws, filed as Exhibit 3.2 to the Registration Statement, provide for indemnification of officers and directors to the full extent and in the manner permitted by Delaware law. Section 145 of the Delaware General Corporation Law makes provision for such indemnification in terms sufficiently broad to cover officers and directors under certain circumstances for liabilities arising under the Securities Act of 1933, as amended (the "Securities Act"). The Registrant intends to enter into indemnification agreements with each director and certain officers which provide indemnification under certain circumstances for acts and omissions which may not be covered by any directors' and officers' liability insurance. The form of Underwriting Agreement, filed as Exhibit 1.1 to the Registration Statement, provides for indemnification of the Registrant and its controlling persons against certain liabilities under the Securities Act. Item 15. Recent Sales of Unregistered Securities (a) Since January 1, 1996, the Company has issued and sold (without payment or any selling commissions to any person) the following registered securities: (1) Prior to completion of this offering, the Registrant intends to effect stock spilt of its outstanding common stock in which every one outstanding share of common stock will be split into shares of common stock. (2) Since January 1, 1996, the Registrant issued 50,000 shares of common stock (net of repurchases) to one director at a weighted average purchase price of $0.10 per share. (3) Since January 1, 1996 and through March 31, 1999, the Registrant has granted stock options to purchase 11,435,126 shares of common stock (net of cancellations/expirations) to a total of 145 employees, II-1 consultants and non-employee directors at a weighted average exercise price of $1.85 per share pursuant to the Company's stock plans. (4) On April 12, 1996, the Registrant issued and sold shares of Series 1 Convertible Preferred Stock convertible to an aggregate of 14,116,000 shares of common stock to a total of 45 private investors for an aggregate purchase price of $14,116,000. (5) On February 4, 1998 and December 23, 1998, the Registrant issued and sold shares of Series 2 Convertible Preferred Stock convertible to an aggregate of 8,276,730 shares of common stock to a total of 34 private investors for an aggregate purchase price of $26,899,372.50. (6) As of March 31, 1999, 5,524,779 shares of common stock had been issued upon exercise of options and 1,943,347 shares of common stock were issuable upon exercise of outstanding options under the Registrant's 1992 Stock Option Plan. (7) On April 12, 1996, the Registrant issued warrants to purchase an aggregate of 1,219,648 shares of common stock to 28 private investors for an aggregate exercise price of $1.00. (8) On May 31, 1998 and December 23, 1998, the Company issued warrants to purchase an aggregate of 112,875 shares of common stock to Cowen & Company for an aggregate exercise price of $3.58 as payment of investor banking fees. (9) On July 20, 1998 and December 23, 1998, the Company issued shares of Series 2 Convertible Preferred Stock convertible into an aggregate of 106,144 shares of common stock to Cowen & Company as payment of investor banking fees. (10) On December 23, 1998, the Registrant issued warrants to purchase an aggregate of 1,538,462 shares of common stock to Intel Corporation for an aggregate exercise price of $3.25. The issuance described in Item 15(a)(1) was or will be exempt from registration under Section 2(3) of the Securities Act on the basis that such transaction did not involve a "sale" of securities. The sales and issuances of securities in the transactions described in paragraphs (2), (3) and (6) above were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2), Regulation S or Rule 701 promulgated thereunder, as transactions by an issuer not involving any public offering, in that the purchasers in each case represented their intention to acquire the securities for investment only and not with a view to the distribution thereof, received either adequate information about the Registrant or had access, through employment or other relationship, to such information, and the securities were offered and sold, either pursuant to a written compensatory benefit plan or pursuant to a written contract relating to compensation as provided by Rule 701. Appropriate legends are affixed to the stock certificates issued in such transactions. The sales and issuances of securities in transactions described in paragraphs (4), (5) and (6) through (10) above were deemed to be exempt from registration under the Securities Act by virtue of Section 4(2), Regulation D or Regulation S promulgated thereunder as transactions by an issuer not involving any public offering. The purchasers in each case represented their intention to acquire the securities for investment only and not with a view to the distribution thereof. Appropriate legends are affixed to the stock certificates issued in such transactions. Similar legends were imposed in connection with any subsequent sales of any such securities. All recipients received either adequate information about the Registrant or had access, through employment or other relationships, to such information. There were no underwritten offerings employed in connection with any of the transactions set forth in Item 15(a). Item 16. Exhibits and Financial Statement Schedules (a) Exhibits 1.1* Form of Underwriting Agreement 3.1 Form of Amended and Restated Certificate of Incorporation to be filed upon the closing of the offering made pursuant to this Registration Statement. 3.2 Bylaws
II-2 4.1* Form of Common Stock Certificate 4.2 Form of Warrant to purchase an aggregate of up to 1,219,648 shares of common stock issued in connection with the Series 1 Convertible Preferred Stock financing. 4.4* Warrant to purchase up to 103,177 shares of common stock, dated May 31, 1998, issued by Be Incorporated to Cowen & Company. 4.5* Warrant to purchase up to 9,688 shares of common stock, dated December 23, 1999, issued by Be Incorporated to Cowen & Company. 4.6 Warrant to purchase up to 1,538,462 shares of common stock, dated December 23, 1998, issued by Be Incorporated to Intel Corporation. 4.7 Amended and Restated Investor's Rights Agreement, dated February 4, 1998. 5.1* Opinion of Cooley Godward LLP 10.1 Form of Indemnity Agreement by and between Be Incorporated and its directors and officers 10.2.1 1992 Stock Option Plan 10.2.2 Form of 1992 Stock Option Agreement 10.3.1 1999 Equity Incentive Plan 10.3.2 Form of 1999 Equity Incentive Plan Stock Option Agreement 10.3.3 Form of 1999 Stock Option Grant Notice 10.4.1 Employee Stock Purchase Plan 10.4.2 Form of Employee Stock Purchase Plan Offering 10.5.1 1999 Non-Employee Directors' Stock Option Plan 10.5.2 Form of Nonstatutory Stock Option 10.6.1 Office Lease, dated June 24, 1994, by and between Menlo Station Development and Be Incorporated. 10.6.2 Amendment to Office Lease, dated April 10, 1997, by and between Menlo Station Development and Be Incorporated. 10.7 Employment Agreement, dated June 22, 1998, by and between Be Incorporated and Wesley S. Saia. 10.8 Employment Agreement, dated March 12, 1999, by and between Be Incorporated and Roy Graham. 10.9 Employment Agreement, dated October 9, 1998, by and between Be Incorporated and Jean R. Calmon. 10.10 Stock Purchase Agreement, dated May 1, 1998, by and among StarCode Software, Inc., the Stockholders of StarCode Software, Inc., and Be Incorporated. 21.1 List of Subsidiaries 23.1 Consent of PricewaterhouseCoopers LLP, independent accountants 23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1) 24.1 Power of Attorney (see signature pages) 27.1 Financial Data Schedule
- -------- * To be filed by amendment (b) Financial Statement Schedules Schedule II--Valuation and Qualifying Accounts Other schedules are omitted because they are not applicable, or because the information is included in the Financial Statements or the Notes thereto. Item 17. Undertakings A. The Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser. B. Insofar as indemnification for liabilities arising under the Securities Act may be permitted to directors, officers, and controlling persons of the Registrant pursuant to the provisions described in Item 14 above, or otherwise, the Registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Securities Act and is, therefore, unenforceable. In II-3 the event that a claim for indemnification against such liabilities (other than the payment by the Registrant of expenses incurred or paid by a director, officer or controlling person of the Registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the Registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question of whether such indemnification by it is against public policy as expressed in the Securities Act and will be governed by the final adjudication of such issue. C. The Registrant hereby undertakes that: (1) For purposes of determining any liability under the Securities Act, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(I) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective. (2) For purposes of determining any liability under the Securities Act, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof. II-4 Signatures Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Palo Alto, State of California, on May 6, 1999. Be Incorporated By: /s/ Jean-Louis F. Gassee ---------------------------------- Name: Jean-Louis F. Gassee Title: President, Chief Executive Officer and Director POWER OF ATTORNEY KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below constitutes and appoints Jean-Louis F. Gassee and Wesley S. Saia, and each of them, his attorneys-in-fact, each with the power of substitution, for him and in his name, place and stead, in any and all capacities, to sign any and all amendments (including post-effective amendments) to this registration statement, and to sign any registration statement for the same offering covered by this registration statement that is to be effective upon filing pursuant to Rule 462(b) promulgated under the Securities Act of 1933, and all post- effective amendments thereto, and to file the same, with all exhibits thereto in all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that such attorneys-in-fact and agents or any of them, or his or their substitute or substitutes, may lawfully do or cause to be done by virtue hereof. Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated.
Signature Title(s) Date --------- ------- ---- /s/ Jean-Louis F. Gassee President, Chief Executive May 6, 1999 ____________________________________ Officer and Director (Principal Jean-Louis F. Gassee Executive Officer) /s/ Wesley S. Saia Vice President and Chief May 6, 1999 ____________________________________ Financial Officer Wesley S. Saia /s/ Christian E. Marchandise Director May 6, 1999 ____________________________________ Christian E. Marchandise /s/ Barry M. Weinman Director May 6, 1999 ____________________________________ Barry M. Weinman /s/ Garrett P. Gruener Director May 6, 1999 ____________________________________ Garrett P. Gruener /s/ Stewart Alsop Director May 6, 1999 ____________________________________ Stewart Alsop
II-5 Report of Independent Accountants on Financial Statement Schedule To the board of Directors of Be, Incorporated; Our audits of the consolidated financial statements referred to in our report dated April 2, 1999 appearing on page F-2 of this Form S-1 also included an audit of the financial statement schedule listed under item 16(B) of this Form S-1. In our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements. /s/ PricewaterhouseCoopers LLP San Jose, California April 2, 1999 1 SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS (in thousands)
Additions Balance at Charged to Balance at Beginning Costs and Ending of Period Expenses Deductions of Period Year Ended December 31, 1996 Allowance for sales returns....... $ -- $ -- $ -- $ -- Year Ended December 31, 1997 Allowance for sales return........ $ -- $ -- $ -- $ -- Year Ended December 31, 1998 Allowance for sales returns....... $ -- $ 17 $ 7 $ 10
2 Index to Exhibits
Number Description ------ ---------------------------------------------------------------------- 1.1* Form of Underwriting Agreement 3.1 Form of Amended and Restated Certificate of Incorporation to be filed upon the closing of the offering made pursuant to this Registration Statement. 3.2 Bylaws 4.1* Form of Common Stock Certificate 4.2 Form of Warrant to purchase an aggregate of up to 1,219,648 shares of common stock issued in connection with the Series 1 Convertible Preferred Stock financing. 4.4* Warrant to purchase up to 103,177 shares of common stock, dated May 31, 1998, issued by Be Incorporated to Cowen & Company. 4.5* Warrant to purchase up to 9,688 shares of common stock, dated December 23, 1999, issued by Be Incorporated to Cowen & Company. 4.6 Warrant to purchase up to 1,538,462 shares of common stock, dated December 23, 1998, issued by Be Incorporated to Intel Corporation. 4.7 Amended and Restated Investor's Rights Agreement, dated February 4, 1998. 5.1* Opinion of Cooley Godward LLP 10.1 Form of Indemnity Agreement by and between Be Incorporated and its directors and officers 10.2.1 1992 Stock Option Plan 10.2.2 Form of 1992 Stock Option Agreement 10.3.1 1999 Equity Incentive Plan 10.3.2 Form of 1999 Equity Incentive Plan Stock Option Agreement 10.3.3 Form of 1999 Stock Option Grant Notice 10.4.1 Employee Stock Purchase Plan 10.4.2 Form of Employee Stock Purchase Plan Offering 10.5.1 1999 Non-Employee Directors' Stock Option Plan 10.5.2 Form of Nonstatutory Stock Option 10.6.1 Office Lease, dated June 24, 1994, by and between Menlo Station Development and Be Incorporated. 10.6.2 Amendment to Office Lease, dated April 10, 1997, by and between Menlo Station Development and Be Incorporated. 10.7 Employment Agreement, dated June 22, 1998, by and between Be Incorporated and Wesley S. Saia. 10.8 Employment Agreement, dated March 12, 1999, by and between Be Incorporated and Roy Graham. 10.9 Employment Agreement, dated October 9, 1998, by and between Be Incorporated and Jean R. Calmon. 10.10 Stock Purchase Agreement, dated May 1, 1998, by and among StarCode Software, Inc., the Stockholders of StarCode Software, Inc., and Be Incorporated. 21.1 List of Subsidiaries 23.1 Consent of PricewaterhouseCoopers LLP, independent accountants 23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1) 24.1 Power of Attorney (see signature pages) 27.1 Financial Data Schedule
- -------- * To be filed by amendment EX-3.1 2 AMENDED & RESTATED CERT. OF INCORPORATION EXHIBIT 3.1 AMENDED AND RESTATED CERTIFICATE OF INCORPORATION OF BE INCORPORATED I. The name of this corporation is BE INCORPORATED (the "Corporation"). II. The address, including street, number, city, and county, of the registered office of the Corporation in the State of Delaware is 30 Rudnick Lane, City of Dover, 19901, County of Kent; and the name of the registered agent of the corporation in the State of Delaware at such address is CorpAmerica, Inc. III. The purpose of this Corporation is to engage in any lawful act or activity for which a corporation may be organized under the General Corporation Law of the State of Delaware. IV. This Corporation is authorized to issue two classes of stock to be designated, respectively, "Common Stock" and "Preferred Stock." The total number of shares which the corporation is authorized to issue is eighty million (80,000,000) shares. Seventy-eight million (78,000,000) shares shall be Common Stock, each having a par value of one tenth of one cent ($.001). Two million (2,000,000) shares shall be Preferred Stock, each having a par value of one tenth of one cent ($.001). Upon the filing of this Amendment to the Restated Certificate of Incorporation, every ___ (_) outstanding shares of Common Stock shall be combined into __ (_) shares of Common Stock, and every ____ (_) outstanding shares of each series of Convertible Preferred Stock shall be combined into ____ (_) shares of such series of Convertible Preferred Stock ("Reverse Stock Split"). No fractional shares shall issue, and cash at fair market value shall be paid in lieu of fractional shares. The Preferred Stock may be issued from time to time in one or more series. The Board of Directors is hereby authorized, by filing a certificate (a "Preferred Stock Designation") pursuant to the Delaware General Corporation Law, to fix or alter from time to time the designation, powers, preferences and rights of the shares of each such series and the qualifications, limitations or restrictions of any wholly unissued series of Preferred Stock, and to establish from time to time the number of shares constituting any such series or any of them; and to increase or decrease the number of shares of any series subsequent to the issuance of shares of that series, but not below the number of shares of such series then outstanding. In case the number of shares 1 of any series shall be decreased in accordance with the foregoing sentence, the shares constituting such decrease shall resume the status that they had prior to the adoption of the resolution originally fixing the number of shares of such series. V. A. For the management of the business and for the conduct of the affairs of the Corporation, and in further definition, limitation and regulation of the powers of the Corporation, of its directors and of its stockholders or any class thereof, as the case may be, it is further provided that: (1) The management of the business and the conduct of the affairs of the Corporation shall be vested in its Board of Directors. The number of directors which shall constitute the whole Board of Directors shall be fixed exclusively by one or more resolutions adopted by the Board of Directors. (2) Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, and to any restrictions or limitations of applicable law, following the closing of the initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended, covering the offer and sale of Common Stock to the public (the "Initial Public Offering"), the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the Closing of the Initial Public Offering, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the Closing of the Initial Public Offering, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. Notwithstanding the foregoing provisions of this Article, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. (3) Subject to the rights of the holders of any series of Preferred Stock, the Board of Directors or any individual director may be removed from office at any time with cause by the affirmative vote of the holders of a majority of the voting power of all the then-outstanding shares of voting stock of the Corporation, entitled to vote at an election of directors (the "Voting Stock"). 2 (4) Subject to the rights of the holders of any series of Preferred Stock, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors, shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by the stockholders, except as otherwise provided by law, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors, and not by the stockholders. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. B. (1) Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the Voting Stock. The Board of Directors shall also have the power to adopt, amend, or repeal Bylaws. (2) The directors of the Corporation need not be elected by written ballot unless the Bylaws so provide. (3) There shall be no cumulative voting by the stockholder's of this Corporation. (4) No action shall be taken by the stockholders of the Corporation except at an annual or special meeting of stockholders called in accordance with the Bylaws and following the closing of the Initial Public Offering no action shall be taken by the stockholders by written consent. (5) Advance notice of stockholder nominations for the election of directors and of business to be brought by stockholders before any meeting of the stockholders of the Corporation shall be given in the manner provided in the Bylaws of the Corporation. VI. A. A director of the Corporation shall not be personally liable to the Corporation or its stockholders for monetary damages for any breach of fiduciary duty as a director, except for liability (i) for any breach of the director's duty of loyalty to the Corporation or its stockholders, (ii) for acts or omissions not in good faith or which involve intentional misconduct or a knowing violation of law, (iii) under Section 174 of the Delaware General Corporation Law, or (iv) for any transaction from which the director derived an improper personal benefit. If the Delaware General Corporation Law is amended after approval by the stockholders of this Article to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended. 3 B. Any repeal or modification of this Article VI shall be prospective and shall not affect the rights under this Article VI in effect at the time of the alleged occurrence of any act or omission to act giving rise to liability or indemnification. VII. A. The Corporation reserves the right to amend, alter, change or repeal any provision contained in this Certificate of Incorporation, in the manner now or hereafter prescribed by statute, except as provided in paragraph B. of this Article VII, and all rights conferred upon the stockholders herein are granted subject to this reservation. B. Notwithstanding any other provisions of this Certificate of Incorporation or any provision of law which might otherwise permit a lesser vote or no vote, but in addition to any affirmative vote of the holders of any particular class or series of the voting stock required by law, or this Certificate of Incorporation, the affirmative vote of the holders of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the voting stock, voting together as a single class, shall be required to alter, amend or repeal Articles V, VI and VII. 4 EX-3.2 3 BYLAWS EXHIBIT 3.2 BYLAWS OF BE INCORPORATED (A DELAWARE CORPORATION) TABLE OF CONTENTS
PAGE ARTICLE I OFFICES......................................................................... 1 Section 1. Registered Office............................................................. 1 Section 2. Other Offices................................................................. 1 ARTICLE II CORPORATE SEAL.................................................................. 1 Section 3. Corporate Seal................................................................ 1 ARTICLE III STOCKHOLDERS' MEETINGS.......................................................... 1 Section 4. Place Of Meetings............................................................. 1 Section 5. Annual Meetings............................................................... 1 Section 6. Special Meetings.............................................................. 4 Section 7. Notice Of Meetings............................................................ 5 Section 8. Quorum........................................................................ 5 Section 9. Adjournment And Notice Of Adjourned Meetings.................................. 5 Section 10. Voting Rights................................................................. 6 Section 11. Joint Owners Of Stock......................................................... 6 Section 12. List Of Stockholders.......................................................... 6 Section 13. Action Without Meeting........................................................ 6 Section 14. Organization.................................................................. 7 ARTICLE IV DIRECTORS....................................................................... 8 Section 15. Number And Term Of Office..................................................... 8 Section 16. Powers........................................................................ 8 Section 17. Classes of Directors.......................................................... 8 Section 18. Vacancies..................................................................... 9 Section 19. Resignation................................................................... 10 Section 20. Removal....................................................................... 10 Section 21. Meetings...................................................................... 11 Section 22. Quorum And Voting............................................................. 12 Section 23. Action Without Meeting........................................................ 12 Section 24. Fees And Compensation......................................................... 12 Section 25. Committees.................................................................... 12
i. TABLE OF CONTENTS (CONTINUED)
PAGE Section 26. Organization.................................................................. 13 ARTICLE V OFFICERS........................................................................ 14 Section 27. Officers Designated........................................................... 14 Section 28. Tenure And Duties Of Officers................................................. 14 Section 29. Delegation Of Authority....................................................... 15 Section 30. Resignations.................................................................. 15 Section 31. Removal....................................................................... 16 ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION..................................................................... 16 Section 32. Execution Of Corporate Instruments............................................ 16 Section 33. Voting Of Securities Owned By The Corporation................................. 16 ARTICLE VII SHARES OF STOCK................................................................. 16 Section 34. Form And Execution Of Certificates............................................ 16 Section 35. Lost Certificates............................................................. 17 Section 36. Transfers..................................................................... 17 Section 37. Fixing Record Dates........................................................... 17 Section 38. Registered Stockholders....................................................... 19 ARTICLE VIII OTHER SECURITIES OF THE CORPORATION............................................. 19 Section 39. Execution Of Other Securities................................................. 19 ARTICLE IX DIVIDENDS....................................................................... 19 Section 40. Declaration Of Dividends...................................................... 19 Section 41. Dividend Reserve.............................................................. 19 ARTICLE X FISCAL YEAR..................................................................... 20 Section 42. Fiscal Year................................................................... 20 ARTICLE XI INDEMNIFICATION................................................................. 20 Section 43. Indemnification Of Directors, Officers, Employees And Other Agents............ 20 ARTICLE XII NOTICES......................................................................... 23 Section 44. Notices....................................................................... 23
ii. TABLE OF CONTENTS (CONTINUED)
PAGE ARTICLE XIII AMENDMENTS..................................................................... 25 Section 45. Amendments................................................................... 25 ARTICLE XIV LOANS TO OFFICERS.............................................................. 25 Section 46. Loans To Officers............................................................ 25
iii. BYLAWS OF BE INCORPORATED (A DELAWARE CORPORATION) ARTICLE I OFFICES SECTION 1. REGISTERED OFFICE. The registered office of the corporation in the State of Delaware shall be in the City of Dover, County of Kent. SECTION 2. OTHER OFFICES. The corporation shall also have and maintain an office or principal place of business at such place as may be fixed by the Board of Directors, and may also have offices at such other places, both within and without the State of Delaware as the Board of Directors may from time to time determine or the business of the corporation may require. ARTICLE II CORPORATE SEAL SECTION 3. CORPORATE SEAL. The corporate seal shall consist of a die bearing the name of the corporation and the inscription, "Corporate Seal- Delaware." Said seal may be used by causing it or a facsimile thereof to be impressed or affixed or reproduced or otherwise. ARTICLE III STOCKHOLDERS' MEETINGS SECTION 4. PLACE OF MEETINGS. Meetings of the stockholders of the corporation shall be held at such place, either within or without the State of Delaware, as may be designated from time to time by the Board of Directors, or, if not so designated, then at the office of the corporation required to be maintained pursuant to Section 2 hereof. SECTION 5. ANNUAL MEETINGS. (A) The annual meeting of the stockholders of the corporation, for the purpose of election of directors and for such other business as may lawfully come before it, shall be held on such date and at such time as may be designated from time to time by the Board of Directors. Nominations of persons for election to the Board of Directors of the corporation and the proposal of business to be considered by the stockholders may be made at an annual meeting of stockholders: (i) pursuant to the corporation's notice of meeting of stockholders; (ii) by or at the direction of the Board of Directors; or (iii) by any stockholder of the corporation who was a 1. stockholder of record at the time of giving of notice provided for in the following paragraph, who is entitled to vote at the meeting and who complied with the notice procedures set forth in Section 5. (B) At an annual meeting of the stockholders, only such business shall be conducted as shall have been properly brought before the meeting. For nominations or other business to be properly brought before an annual meeting by a stockholder pursuant to clause (c) of Section 5(a) of these Bylaws, (i) the stockholder must have given timely notice thereof in writing to the Secretary of the corporation, (ii) such other business must be a proper matter for stockholder action under the Delaware General Corporation Law ("DGCL"), (iii) if the stockholder, or the beneficial owner on whose behalf any such proposal or nomination is made, has provided the corporation with a Solicitation Notice (as defined in this Section 5(b)), such stockholder or beneficial owner must, in the case of a proposal, have delivered a proxy statement and form of proxy to holders of at least the percentage of the corporation's voting shares required under applicable law to carry any such proposal, or, in the case of a nomination or nominations, have delivered a proxy statement and form of proxy to holders of a percentage of the corporation's voting shares reasonably believed by such stockholder or beneficial owner to be sufficient to elect the nominee or nominees proposed to be nominated by such stockholder, and must, in either case, have included in such materials the Solicitation Notice, and (iv) if no Solicitation Notice relating thereto has been timely provided pursuant to this section, the stockholder or beneficial owner proposing such business or nomination must not have solicited a number of proxies sufficient to have required the delivery of such a Solicitation Notice under this Section 5. To be timely, a stockholder's notice shall be delivered to the Secretary at the principal executive offices of the Corporation not later than the close of business on the ninetieth (90/th/) day nor earlier than the close of business on the one hundred twentieth (120/th/) day prior to the first anniversary of the preceding year's annual meeting; provided, however, that in the event that the date of the annual meeting is advanced more than thirty (30) days prior to or delayed by more than thirty (30) days after the anniversary of the preceding year's annual meeting, notice by the stockholder to be timely must be so delivered not earlier than the close of business on the one hundred twentieth (120/th/) day prior to such annual meeting and not later than the close of business on the later of the ninetieth (90/th/) day prior to such annual meeting or the tenth (10/th/) day following the day on which public announcement of the date of such meeting is first made. In no event shall the public announcement of an adjournment of an annual meeting commence a new time period for the giving of a stockholder's notice as described above. Such stockholder's notice shall set forth: (A) as to each person whom the stockholder proposed to nominate for election or reelection as a director all information relating to such person that is required to be disclosed in solicitations of proxies for election of directors in an election contest, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (the "1934 Act") and Rule 14a-11 thereunder (including such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); (B) as to any other business that the stockholder proposes to bring before the meeting, a brief description of the business desired to be brought before the meeting, the reasons for conducting such business at the meeting and any material interest in such business of such stockholder and the beneficial owner, if any, on whose behalf the proposal is made; and (C) as to the stockholder 2. giving the notice and the beneficial owner, if any, on whose behalf the nomination or proposal is made (i) the name and address of such stockholder, as they appear on the corporation's books, and of such beneficial owner, (ii) the class and number of shares of the corporation which are owned beneficially and of record by such stockholder and such beneficial owner, and (iii) whether either such stockholder or beneficial owner intends to deliver a proxy statement and form of proxy to holders of, in the case of the proposal, at least the percentage of the corporation's voting shares required under applicable law to carry the proposal or, in the case of a nomination or nominations, a sufficient number of holders of the corporation's voting shares to elect such nominee or nominees (an affirmative statement of such intent, a "Solicitation Notice"). (C) Notwithstanding anything in the second sentence of Section 5(b) of these Bylaws to the contrary, in the event that the number of directors to be elected to the Board of Directors of the Corporation is increased and there is no public announcement naming all of the nominees for director or specifying the size of the increased Board of Directors made by the corporation at least one hundred (100) days prior to the first anniversary of the preceding year's annual meeting, a stockholder's notice required by this Section 5 shall also be considered timely, but only with respect to nominees for any new positions created by such increase, if it shall be delivered to the Secretary at the principal executive offices of the corporation not later than the close of business on the tenth (10/th/) day following the day on which such public announcement is first made by the corporation. (D) Only such persons who are nominated in accordance with the procedures set forth in this Section 5 shall be eligible to serve as directors and only such business shall be conducted at a meeting of stockholders as shall have been brought before the meeting in accordance with the procedures set forth in this Section 5. Except as otherwise provided by law, the Chairman of the meeting shall have the power and duty to determine whether a nomination or any business proposed to be brought before the meeting was made, or proposed, as the case may be, in accordance with the procedures set forth in these Bylaws and, if any proposed nomination or business is not in compliance with these Bylaws, to declare that such defective proposal or nomination shall not be presented for stockholder action at the meeting and shall be disregarded. (E) Notwithstanding the foregoing provisions of this Section 5, in order to include information with respect to a stockholder proposal in the proxy statement and form of proxy for a stockholder's meeting, stockholders must provide notice as required by the regulations promulgated under the 1934 Act. Nothing in these Bylaws shall be deemed to affect any rights of stockholders to request inclusion of proposals in the corporation proxy statement pursuant to Rule 14a-8 under the 1934 Act. (F) For purposes of this Section 5, "public announcement" shall mean disclosure in a press release reported by the Dow Jones News Service, Associated Press or comparable national news service or in a document publicly filed by the corporation with the Securities and Exchange Commission pursuant to Section 13, 14 or 15(d) of the 1934 Act. 3. SECTION 6. SPECIAL MEETINGS. (A) Special meetings of the stockholders of the corporation may be called, for any purpose or purposes, by (i) the Chairman of the Board of Directors, (ii) the Chief Executive Officer, (iii) the Board of Directors pursuant to a resolution adopted by a majority of the total number of authorized directors (whether or not there exist any vacancies in previously authorized directorships at the time any such resolution is presented to the Board of Directors for adoption) or (iv) the holders of fifty percent of the Company's Common Stock. At any time or times that the corporation is subject to Section 2115(b) of the California General Corporation Law ("CGCL"), stockholders holding five percent (5%) or more of the outstanding shares shall have the right to call a special meeting of stockholders only as set forth in Section 18(c) herein. (B) If a special meeting is properly called by any person or persons other than the Board of Directors, the request shall be in writing, specifying the general nature of the business proposed to be transacted, and shall be delivered personally or sent by registered mail or by telegraphic or other facsimile transmission to the Chairman of the Board of Directors, the Chief Executive Officer, or the Secretary of the corporation. No business may be transacted at such special meeting otherwise than specified in such notice. The Board of Directors shall determine the time and place of such special meeting, which shall be held not less than thirty-five (35) nor more than one hundred twenty (120) days after the date of the receipt of the request. Upon determination of the time and place of the meeting, the officer receiving the request shall cause notice to be given to the stockholders entitled to vote, in accordance with the provisions of Section 7 of these Bylaws. If the notice is not given within one hundred (100) days after the receipt of the request, the person or persons properly requesting the meeting may set the time and place of the meeting and give the notice. Nothing contained in this paragraph (b) shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board of Directors may be held. (C) Nominations of persons for election to the Board of Directors may be made at a special meeting of stockholders at which directors are to be elected pursuant to the corporation's notice of meeting (i) by or at the direction of the Board of Directors or (ii) by any stockholder of the corporation who is a stockholder of record at the time of giving notice provided for in these Bylaws who shall be entitled to vote at the meeting and who complies with the notice procedures set forth in this Section 6(c). In the event the corporation calls a special meeting of stockholders for the purpose of electing one or more directors to the Board of Directors, any such stockholder may nominate a person or persons (as the case may be), for election to such position(s) as specified in the corporation's notice of meeting, if the stockholder's notice required by Section 5(b) of these Bylaws shall be delivered to the Secretary at the principal executive offices of the corporation not earlier than the close of business on the one hundred twentieth (120/th/) day prior to such special meeting and not later than the close of business on the later of the ninetieth (90/th/) day prior to such meeting or the tenth (10/th/) day following the day on which public announcement is first made of the date of the special meeting and of the nominees proposed by the Board of Directors to be elected at such meeting. In no 4. event shall the public announcement of an adjournment of a special meeting commence a new time period for the giving of a stockholder's notice as described above. SECTION 7. NOTICE OF MEETINGS. Except as otherwise provided by law or the Certificate of Incorporation, written notice of each meeting of stockholders shall be given not less than ten (10) nor more than sixty (60) days before the date of the meeting to each stockholder entitled to vote at such meeting, such notice to specify the place, date and hour and purpose or purposes of the meeting. Notice of the time, place and purpose of any meeting of stockholders may be waived in writing, signed by the person entitled to notice thereof, either before or after such meeting, and will be waived by any stockholder by his attendance thereat in person or by proxy, except when the stockholder attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Any stockholder so waiving notice of such meeting shall be bound by the proceedings of any such meeting in all respects as if due notice thereof had been given. SECTION 8. QUORUM. At all meetings of stockholders, except where otherwise provided by statute or by the Certificate of Incorporation, or by these Bylaws, the presence, in person or by proxy duly authorized, of the holders of a majority of the outstanding shares of stock entitled to vote shall constitute a quorum for the transaction of business. In the absence of a quorum, any meeting of stockholders may be adjourned, from time to time, either by the chairman of the meeting or by vote of the holders of a majority of the shares represented thereat, but no other business shall be transacted at such meeting. The stockholders present at a duly called or convened meeting, at which a quorum is present, may continue to transact business until adjournment, notwithstanding the withdrawal of enough stockholders to leave less than a quorum. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, in all matters other than the election of directors, the affirmative vote of the majority of shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise provided by statute, the Certificate of Incorporation or these Bylaws, directors shall be elected by a plurality of the votes of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or classes or series is required, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, a majority of the outstanding shares of such class or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter and, except where otherwise provided by the statute or by the Certificate of Incorporation or these Bylaws, the affirmative vote of the majority (plurality, in the case of the election of directors) of the votes cast by the holders of shares of such class or classes or series shall be the act of such class or classes or series. SECTION 9. ADJOURNMENT AND NOTICE OF ADJOURNED MEETINGS. Any meeting of stockholders, whether annual or special, may be adjourned from time to time either by the chairman of the meeting or by the vote of a majority of the shares casting votes. When a meeting 5. is adjourned to another time or place, notice need not be given of the adjourned meeting if the time and place thereof are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the corporation may transact any business which might have been transacted at the original meeting. If the adjournment is for more than thirty (30) days or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting. SECTION 10. VOTING RIGHTS. For the purpose of determining those stockholders entitled to vote at any meeting of the stockholders, except as otherwise provided by law, only persons in whose names shares stand on the stock records of the corporation on the record date, as provided in Section 12 of these Bylaws, shall be entitled to vote at any meeting of stockholders. Every person entitled to vote shall have the right to do so either in person or by an agent or agents authorized by a proxy granted in accordance with Delaware law. An agent so appointed need not be a stockholder. No proxy shall be voted after three (3) years from its date of creation unless the proxy provides for a longer period. SECTION 11. JOINT OWNERS OF STOCK. If shares or other securities having voting power stand of record in the names of two (2) or more persons, whether fiduciaries, members of a partnership, joint tenants, tenants in common, tenants by the entirety, or otherwise, or if two (2) or more persons have the same fiduciary relationship respecting the same shares, unless the Secretary is given written notice to the contrary and is furnished with a copy of the instrument or order appointing them or creating the relationship wherein it is so provided, their acts with respect to voting shall have the following effect: (a) if only one (1) votes, his act binds all; (b) if more than one (1) votes, the act of the majority so voting binds all; (c) if more than one (1) votes, but the vote is evenly split on any particular matter, each faction may vote the securities in question proportionally, or may apply to the Delaware Court of Chancery for relief as provided in the DGCL, Section 217(b). If the instrument filed with the Secretary shows that any such tenancy is held in unequal interests, a majority or even-split for the purpose of subsection (c) shall be a majority or even-split in interest. SECTION 12. LIST OF STOCKHOLDERS. The Secretary shall prepare and make, at least ten (10) days before every meeting of stockholders, a complete list of the stockholders entitled to vote at said meeting, arranged in alphabetical order, showing the address of each stockholder and the number of shares registered in the name of each stockholder. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting, during ordinary business hours, for a period of at least ten (10) days prior to the meeting, either at a place within the city where the meeting is to be held, which place shall be specified in the notice of the meeting, or, if not specified, at the place where the meeting is to be held. The list shall be produced and kept at the time and place of meeting during the whole time thereof and may be inspected by any stockholder who is present. SECTION 13. ACTION WITHOUT MEETING. (A) Unless otherwise provided in the Certificate of Incorporation, any action required by statute to be taken at any annual or special meeting of the stockholders, or any action 6. which may be taken at any annual or special meeting of the stockholders, may be taken without a meeting, without prior notice and without a vote, if a consent in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted. (B) Every written consent shall bear the date of signature of each stockholder who signs the consent, and no written consent shall be effective to take the corporate action referred to therein unless, within sixty (60) days of the earliest dated consent delivered to the corporation in the manner herein required, written consents signed by a sufficient number of stockholders to take action are delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to a corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. (C) Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing. If the action which is consented to is such as would have required the filing of a certificate under any section of the DGCL if such action had been voted on by stockholders at a meeting thereof, then the certificate filed under such section shall state, in lieu of any statement required by such section concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the DGCL. (D) Notwithstanding the foregoing, no such action by written consent may be taken following the closing of the initial public offering pursuant to an effective registration statement under the Securities Act of 1933, as amended (the "1933 Act"), covering the offer and sale of Common Stock of the corporation (the "Initial Public Offering"). SECTION 14. ORGANIZATION. (A) At every meeting of stockholders, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President, or, if the President is absent, a chairman of the meeting chosen by a majority in interest of the stockholders entitled to vote, present in person or by proxy, shall act as chairman. The Secretary, or, in his absence, an Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. (B) The Board of Directors of the corporation shall be entitled to make such rules or regulations for the conduct of meetings of stockholders as it shall deem necessary, appropriate or convenient. Subject to such rules and regulations of the Board of Directors, if any, the chairman of the meeting shall have the right and authority to prescribe such rules, regulations and procedures and to do all such acts as, in the judgment of such chairman, are necessary, appropriate or convenient for the proper conduct of the meeting, including, without limitation, establishing an agenda or order of business for the meeting, rules and procedures for maintaining order at the meeting and the safety of those present, limitations on participation in 7. such meeting to stockholders of record of the corporation and their duly authorized and constituted proxies and such other persons as the chairman shall permit, restrictions on entry to the meeting after the time fixed for the commencement thereof, limitations on the time allotted to questions or comments by participants and regulation of the opening and closing of the polls for balloting on matters which are to be voted on by ballot. Unless and to the extent determined by the Board of Directors or the chairman of the meeting, meetings of stockholders shall not be required to be held in accordance with rules of parliamentary procedure. ARTICLE IV DIRECTORS SECTION 15. NUMBER AND TERM OF OFFICE. The authorized number of directors of the corporation shall be fixed in accordance with the Certificate of Incorporation. Directors need not be stockholders unless so required by the Certificate of Incorporation. If for any cause, the directors shall not have been elected at an annual meeting, they may be elected as soon thereafter as convenient at a special meeting of the stockholders called for that purpose in the manner provided in these Bylaws. SECTION 16. POWERS. The powers of the corporation shall be exercised, its business conducted and its property controlled by the Board of Directors, except as may be otherwise provided by statute or by the Certificate of Incorporation. SECTION 17. CLASSES OF DIRECTORS. (A) Subject to the rights of the holders of any series of Preferred Stock to elect additional directors under specified circumstances, following the closing of the Initial Public Offering, the directors shall be divided into three classes designated as Class I, Class II and Class III, respectively. Directors shall be assigned to each class in accordance with a resolution or resolutions adopted by the Board of Directors. At the first annual meeting of stockholders following the closing of the Initial Public Offering, the term of office of the Class I directors shall expire and Class I directors shall be elected for a full term of three years. At the second annual meeting of stockholders following the Initial Public Offering, the term of office of the Class II directors shall expire and Class II directors shall be elected for a full term of three years. At the third annual meeting of stockholders following the Initial Public Offering, the term of office of the Class III directors shall expire and Class III directors shall be elected for a full term of three years. At each succeeding annual meeting of stockholders, directors shall be elected for a full term of three years to succeed the directors of the class whose terms expire at such annual meeting. During such time or times that the corporation is subject to Section 2115(b) of the CGCL, this Section 17(a) shall become effective and apply only when the corporation is a "listed" corporation within the meaning of Section 301.5 of the CGCL. (B) In the event that the corporation (i) is subject to Section 2115(b) of the CGCL and (ii) is not a "listed" corporation or ceases to be a "listed" corporation under Section 8. 301.5 of the CGCL, Section 17(a) of these Bylaws shall not apply and all directors shall be elected at each annual meeting of stockholders to hold office until the next annual meeting. (C) No person entitled to vote at an election for directors may cumulate votes to which such person is entitled, unless, at the time of such election, the corporation (i) is subject to (S)2115(b) of the CGCL and (ii) is not a "listed" corporation or ceases to be a "listed" corporation under Section 301.5 of the CGCL. During this time, every stockholder entitled to vote at an election for directors may cumulate such stockholder's votes and give one candidate a number of votes equal to the number of directors to be elected multiplied by the number of votes to which such stockholder's shares are otherwise entitled, or distribute the stockholder's votes on the same principle among as many candidates as such stockholder thinks fit. No stockholder, however, shall be entitled to so cumulate such stockholder's votes unless (i) the names of such candidate or candidates have been placed in nomination prior to the voting and (ii) the stockholder has given notice at the meeting, prior to the voting, of such stockholder's intention to cumulate such stockholder's votes. If any stockholder has given proper notice to cumulate votes, all stockholders may cumulate their votes for any candidates who have been properly placed in nomination. Under cumulative voting, the candidates receiving the highest number of votes, up to the number of directors to be elected, are elected. Notwithstanding the foregoing provisions of this section, each director shall serve until his successor is duly elected and qualified or until his death, resignation or removal. No decrease in the number of directors constituting the Board of Directors shall shorten the term of any incumbent director. SECTION 18. VACANCIES. (A) Unless otherwise provided in the Certificate of Incorporation, any vacancies on the Board of Directors resulting from death, resignation, disqualification, removal or other causes and any newly created directorships resulting from any increase in the number of directors shall, unless the Board of Directors determines by resolution that any such vacancies or newly created directorships shall be filled by stockholders, be filled only by the affirmative vote of a majority of the directors then in office, even though less than a quorum of the Board of Directors. Any director elected in accordance with the preceding sentence shall hold office for the remainder of the full term of the director for which the vacancy was created or occurred and until such director's successor shall have been elected and qualified. A vacancy in the Board of Directors shall be deemed to exist under this Section 18 in the case of the death, removal or resignation of any director. (B) If at the time of filling any vacancy or any newly created directorship, the directors then in office shall constitute less than a majority of the whole board (as constituted immediately prior to any such increase), the Delaware Court of Chancery may, upon application of any stockholder or stockholders holding at least ten percent (10%) of the total number of the shares at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace 9. the directors chosen by the directors then in offices as aforesaid, which election shall be governed by Section 211 of the DGCL. (C) At any time or times that the corporation is subject to Section 2115(b) of the CGCL, if, after the filling of any vacancy, the directors then in office who have been elected by stockholders shall constitute less than a majority of the directors then in office, then (1) Any holder or holders of an aggregate of five percent (5%) or more of the total number of shares at the time outstanding having the right to vote for those directors may call a special meeting of stockholders; or (2) The Superior Court of the proper county shall, upon application of such stockholder or stockholders, summarily order a special meeting of stockholders, to be held to elect the entire board, all in accordance with Section 305(c) of the CGCL. The term of office of any director shall terminate upon that election of a successor. SECTION 19. RESIGNATION. Any director may resign at any time by delivering his written resignation to the Secretary, such resignation to specify whether it will be effective at a particular time, upon receipt by the Secretary or at the pleasure of the Board of Directors. If no such specification is made, it shall be deemed effective at the pleasure of the Board of Directors. When one or more directors shall resign from the Board of Directors, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective, and each Director so chosen shall hold office for the unexpired portion of the term of the Director whose place shall be vacated and until his successor shall have been duly elected and qualified. SECTION 20. REMOVAL. (A) During such time or times that the corporation is subject to Section 2115(b) of the CGCL, the Board of Directors or any individual director may be removed from office at any time without cause by the affirmative vote of the holders of at least a majority of the outstanding shares entitled to vote on such removal; provided, however, that unless the entire Board is removed, no individual director may be removed when the votes cast against such director's removal, or not consenting in writing to such removal, would be sufficient to elect that director if voted cumulatively at an election which the same total number of votes were cast (or, if such action is taken by written consent, all shares entitled to vote were voted) and the entire number of directors authorized at the time of such director's most recent election were then being elected. (B) Following any date on which the corporation is no longer subject to Section 2115(b) of the CGCL and subject to any limitations imposed by law, Section 20(a) above shall no longer apply and removal shall be as provided in Section 141(k) of the DGCL. 10. SECTION 21. MEETINGS. (A) ANNUAL MEETINGS. The annual meeting of the Board of Directors shall be held immediately before or after the annual meeting of stockholders and at the place where such meeting is held. No notice of an annual meeting of the Board of Directors shall be necessary and such meeting shall be held for the purpose of electing officers and transacting such other business as may lawfully come before it. (B) REGULAR MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, regular meetings of the Board of Directors may be held at any time or date and at any place within or without the State of Delaware which has been designated by the Board of Directors and publicized among all directors. No formal notice shall be required for regular meetings of the Board of Directors. (C) SPECIAL MEETINGS. Unless otherwise restricted by the Certificate of Incorporation, special meetings of the Board of Directors may be held at any time and place within or without the State of Delaware whenever called by the Chairman of the Board, the President or any two of the directors (D) TELEPHONE MEETINGS. Any member of the Board of Directors, or of any committee thereof, may participate in a meeting by means of conference telephone or similar communications equipment by means of which all persons participating in the meeting can hear each other, and participation in a meeting by such means shall constitute presence in person at such meeting. (E) NOTICE OF MEETINGS. Notice of the time and place of all special meetings of the Board of Directors shall be orally or in writing, by telephone, including a voice messaging system or other system or technology designed to record and communicate messages, facsimile, telegraph or telex, or by electronic mail or other electronic means, during normal business hours, at least twenty- four (24) hours before the date and time of the meeting, or sent in writing to each director by first class mail, charges prepaid, at least three (3) days before the date of the meeting. Notice of any meeting may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends the meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. (F) WAIVER OF NOTICE. The transaction of all business at any meeting of the Board of Directors, or any committee thereof, however called or noticed, or wherever held, shall be as valid as though had at a meeting duly held after regular call and notice, if a quorum be present and if, either before or after the meeting, each of the directors not present shall sign a written waiver of notice. All such waivers shall be filed with the corporate records or made a part of the minutes of the meeting. 11. SECTION 22. QUORUM AND VOTING. (A) Unless the Certificate of Incorporation requires a greater number and except with respect to indemnification questions arising under Section 43 hereof, for which a quorum shall be one-third of the exact number of directors fixed from time to time in accordance with the Certificate of Incorporation, a quorum of the Board of Directors shall consist of a majority of the exact number of directors fixed from time to time by the Board of Directors in accordance with the Certificate of Incorporation; provided, however, at any meeting whether a quorum be present or otherwise, a majority of the directors present may adjourn from time to time until the time fixed for the next regular meeting of the Board of Directors, without notice other than by announcement at the meeting. (B) At each meeting of the Board of Directors at which a quorum is present, all questions and business shall be determined by the affirmative vote of a majority of the directors present, unless a different vote be required by law, the Certificate of Incorporation or these Bylaws. SECTION 23. ACTION WITHOUT MEETING. Unless otherwise restricted by the Certificate of Incorporation or these Bylaws, any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting, if all members of the Board of Directors or committee, as the case may be, consent thereto in writing, and such writing or writings are filed with the minutes of proceedings of the Board of Directors or committee. SECTION 24. FEES AND COMPENSATION. Directors shall be entitled to such compensation for their services as may be approved by the Board of Directors, including, if so approved, by resolution of the Board of Directors, a fixed sum and expenses of attendance, if any, for attendance at each regular or special meeting of the Board of Directors and at any meeting of a committee of the Board of Directors. Nothing herein contained shall be construed to preclude any director from serving the corporation in any other capacity as an officer, agent, employee, or otherwise and receiving compensation therefor. SECTION 25. COMMITTEES. (A) EXECUTIVE COMMITTEE. The Board of Directors may appoint an Executive Committee to consist of one (1) or more members of the Board of Directors. The Executive Committee, to the extent permitted by law and provided in the resolution of the Board of Directors shall have and may exercise all the powers and authority of the Board of Directors in the management of the business and affairs of the corporation, and may authorize the seal of the corporation to be affixed to all papers which may require it; but no such committee shall have the power or authority in reference to (i) approving or adopting, or recommending to the stockholders, any action or matter expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopting, amending or repealing any bylaw of the corporation. 12. (B) OTHER COMMITTEES. The Board of Directors may, from time to time, appoint such other committees as may be permitted by law. Such other committees appointed by the Board of Directors shall consist of one (1) or more members of the Board of Directors and shall have such powers and perform such duties as may be prescribed by the resolution or resolutions creating such committees, but in no event shall any such committee have the powers denied to the Executive Committee in these Bylaws. (C) TERM. Each member of a committee of the Board of Directors shall serve a term on the committee coexistent with such member's term on the Board of Directors. The Board of Directors, subject to any requirements of any outstanding series of preferred Stock and the provisions of subsections (a) or (b) of this Bylaw, may at any time increase or decrease the number of members of a committee or terminate the existence of a committee. The membership of a committee member shall terminate on the date of his death or voluntary resignation from the committee or from the Board of Directors. The Board of Directors may at any time for any reason remove any individual committee member and the Board of Directors may fill any committee vacancy created by death, resignation, removal or increase in the number of members of the committee. The Board of Directors may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee, and, in addition, in the absence or disqualification of any member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not he or they constitute a quorum, may unanimously appoint another member of the Board of Directors to act at the meeting in the place of any such absent or disqualified member. (D) MEETINGS. Unless the Board of Directors shall otherwise provide, regular meetings of the Executive Committee or any other committee appointed pursuant to this Section 25 shall be held at such times and places as are determined by the Board of Directors, or by any such committee, and when notice thereof has been given to each member of such committee, no further notice of such regular meetings need be given thereafter. Special meetings of any such committee may be held at any place which has been determined from time to time by such committee, and may be called by any director who is a member of such committee, upon written notice to the members of such committee of the time and place of such special meeting given in the manner provided for the giving of written notice to members of the Board of Directors of the time and place of special meetings of the Board of Directors. Notice of any special meeting of any committee may be waived in writing at any time before or after the meeting and will be waived by any director by attendance thereat, except when the director attends such special meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. A majority of the authorized number of members of any such committee shall constitute a quorum for the transaction of business, and the act of a majority of those present at any meeting at which a quorum is present shall be the act of such committee. SECTION 26. ORGANIZATION. At every meeting of the directors, the Chairman of the Board of Directors, or, if a Chairman has not been appointed or is absent, the President (if a 13. director), or if the President is absent, the most senior Vice President (if a director), or, in the absence of any such person, a chairman of the meeting chosen by a majority of the directors present, shall preside over the meeting. The Secretary, or in his absence, any Assistant Secretary directed to do so by the President, shall act as secretary of the meeting. ARTICLE V OFFICERS SECTION 27. OFFICERS DESIGNATED. The officers of the corporation shall include, if and when designated by the Board of Directors, the Chairman of the Board of Directors, the Chief Executive Officer, the President, one or more Vice Presidents, the Secretary, the Chief Financial Officer, the Treasurer and the Controller, all of whom shall be elected at the annual organizational meeting of the Board of Directors. The Board of Directors may also appoint one or more Assistant Secretaries, Assistant Treasurers, Assistant Controllers and such other officers and agents with such powers and duties as it shall deem necessary. The Board of Directors may assign such additional titles to one or more of the officers as it shall deem appropriate. Any one person may hold any number of offices of the corporation at any one time unless specifically prohibited therefrom by law. The salaries and other compensation of the officers of the corporation shall be fixed by or in the manner designated by the Board of Directors. SECTION 28. TENURE AND DUTIES OF OFFICERS. (A) GENERAL. All officers shall hold office at the pleasure of the Board of Directors and until their successors shall have been duly elected and qualified, unless sooner removed. Any officer elected or appointed by the Board of Directors may be removed at any time by the Board of Directors. If the office of any officer becomes vacant for any reason, the vacancy may be filled by the Board of Directors. (B) DUTIES OF CHAIRMAN OF THE BOARD OF DIRECTORS. The Chairman of the Board of Directors, when present, shall preside at all meetings of the stockholders and the Board of Directors. The Chairman of the Board of Directors shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. If there is no President, then the Chairman of the Board of Directors shall also serve as the Chief Executive Officer of the corporation and shall have the powers and duties prescribed in paragraph (c) of this Section 28. (C) DUTIES OF PRESIDENT. The President shall preside at all meetings of the stockholders and at all meetings of the Board of Directors, unless the Chairman of the Board of Directors has been appointed and is present. Unless some other officer has been elected Chief Executive Officer of the corporation, the President shall be the chief executive officer of the corporation and shall, subject to the control of the Board of Directors, have general supervision, direction and control of the business and officers of the corporation. The President shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. 14. (D) DUTIES OF VICE PRESIDENTS. The Vice Presidents may assume and perform the duties of the President in the absence or disability of the President or whenever the office of President is vacant. The Vice Presidents shall perform other duties commonly incident to their office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (E) DUTIES OF SECRETARY. The Secretary shall attend all meetings of the stockholders and of the Board of Directors and shall record all acts and proceedings thereof in the minute book of the corporation. The Secretary shall give notice in conformity with these Bylaws of all meetings of the stockholders and of all meetings of the Board of Directors and any committee thereof requiring notice. The Secretary shall perform all other duties given him in these Bylaws and other duties commonly incident to his office and shall also perform such other duties and have such other powers, as the Board of Directors shall designate from time to time. The President may direct any Assistant Secretary to assume and perform the duties of the Secretary in the absence or disability of the Secretary, and each Assistant Secretary shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. (F) DUTIES OF CHIEF FINANCIAL OFFICER. The Chief Financial Officer shall keep or cause to be kept the books of account of the corporation in a thorough and proper manner and shall render statements of the financial affairs of the corporation in such form and as often as required by the Board of Directors or the President. The Chief Financial Officer, subject to the order of the Board of Directors, shall have the custody of all funds and securities of the corporation. The Chief Financial Officer shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. The President may direct the Treasurer or any Assistant Treasurer, or the Controller or any Assistant Controller to assume and perform the duties of the Chief Financial Officer in the absence or disability of the Chief Financial Officer, and each Treasurer and Assistant Treasurer and each Controller and Assistant Controller shall perform other duties commonly incident to his office and shall also perform such other duties and have such other powers as the Board of Directors or the President shall designate from time to time. SECTION 29. DELEGATION OF AUTHORITY. The Board of Directors may from time to time delegate the powers or duties of any officer to any other officer or agent, notwithstanding any provision hereof. SECTION 30. RESIGNATIONS. Any officer may resign at any time by giving written notice to the Board of Directors or to the President or to the Secretary. Any such resignation shall be effective when received by the person or persons to whom such notice is given, unless a later time is specified therein, in which event the resignation shall become effective at such later time. Unless otherwise specified in such notice, the acceptance of any such resignation shall not be necessary to make it effective. Any resignation shall be without prejudice to the rights, if any, of the corporation under any contract with the resigning officer. 15. SECTION 31. REMOVAL. Any officer may be removed from office at any time, either with or without cause, by the affirmative vote of a majority of the directors in office at the time, or by the unanimous written consent of the directors in office at the time, or by any committee or superior officers upon whom such power of removal may have been conferred by the Board of Directors. ARTICLE VI EXECUTION OF CORPORATE INSTRUMENTS AND VOTING OF SECURITIES OWNED BY THE CORPORATION SECTION 32. EXECUTION OF CORPORATE INSTRUMENTS. The Board of Directors may, in its discretion, determine the method and designate the signatory officer or officers, or other person or persons, to execute on behalf of the corporation any corporate instrument or document, or to sign on behalf of the corporation the corporate name without limitation, or to enter into contracts on behalf of the corporation, except where otherwise provided by law or these Bylaws, and such execution or signature shall be binding upon the corporation. All checks and drafts drawn on banks or other depositaries on funds to the credit of the corporation or in special accounts of the corporation shall be signed by such person or persons as the Board of Directors shall authorize so to do. Unless authorized or ratified by the Board of Directors or within the agency power of an officer, no officer, agent or employee shall have any power or authority to bind the corporation by any contract or engagement or to pledge its credit or to render it liable for any purpose or for any amount. SECTION 33. VOTING OF SECURITIES OWNED BY THE CORPORATION. All stock and other securities of other corporations owned or held by the corporation for itself, or for other parties in any capacity, shall be voted, and all proxies with respect thereto shall be executed, by the person authorized so to do by resolution of the Board of Directors, or, in the absence of such authorization, by the Chairman of the Board of Directors, the Chief Executive Officer, the President, or any Vice President. ARTICLE VII SHARES OF STOCK SECTION 34. FORM AND EXECUTION OF CERTIFICATES. Certificates for the shares of stock of the corporation shall be in such form as is consistent with the Certificate of Incorporation and applicable law. Every holder of stock in the corporation shall be entitled to have a certificate signed by or in the name of the corporation by the Chairman of the Board of Directors, or the President or any Vice President and by the Treasurer or Assistant Treasurer or the Secretary or Assistant Secretary, certifying the number of shares owned by him in the corporation. Any or all of the signatures on the certificate may be facsimiles. In case any officer, transfer agent, or 16. registrar who has signed or whose facsimile signature has been placed upon a certificate shall have ceased to be such officer, transfer agent, or registrar before such certificate is issued, it may be issued with the same effect as if he were such officer, transfer agent, or registrar at the date of issue. Each certificate shall state upon the face or back thereof, in full or in summary, all of the powers, designations, preferences, and rights, and the limitations or restrictions of the shares authorized to be issued or shall, except as otherwise required by law, set forth on the face or back a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional, or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the corporation shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section or otherwise required by law or with respect to this section a statement that the corporation will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical. SECTION 35. LOST CERTIFICATES. A new certificate or certificates shall be issued in place of any certificate or certificates theretofore issued by the corporation alleged to have been lost, stolen, or destroyed, upon the making of an affidavit of that fact by the person claiming the certificate of stock to be lost, stolen, or destroyed. The corporation may require, as a condition precedent to the issuance of a new certificate or certificates, the owner of such lost, stolen, or destroyed certificate or certificates, or his legal representative, to agree to indemnify the corporation in such manner as it shall require or to give the corporation a surety bond in such form and amount as it may direct as indemnity against any claim that may be made against the corporation with respect to the certificate alleged to have been lost, stolen, or destroyed. SECTION 36. TRANSFERS. (A) Transfers of record of shares of stock of the corporation shall be made only upon its books by the holders thereof, in person or by attorney duly authorized, and upon the surrender of a properly endorsed certificate or certificates for a like number of shares. (B) The corporation shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the corporation to restrict the transfer of shares of stock of the corporation of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL. SECTION 37. FIXING RECORD DATES. (A) In order that the corporation may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon 17. which the resolution fixing the record date is adopted by the Board of Directors, and which record date shall, subject to applicable law, not be more than sixty (60) nor less than ten (10) days before the date of such meeting. If no record date is fixed by the Board of Directors, the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or if notice is waived, at the close of business on the day next preceding the day on which the meeting is held. A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting; provided, however, that the Board of Directors may fix a new record date for the adjourned meeting. (B) Prior to the Initial Public Offering, in order that the corporation may determine the stockholders entitled to consent to corporate action in writing without a meeting, the Board of Directors may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board of Directors, and which date shall not be more than ten (10) days after the date upon which the resolution fixing the record date is adopted by the Board of Directors. Any stockholder of record seeking to have the stockholders authorize or take corporate action by written consent shall, by written notice to the Secretary, request the Board of Directors to fix a record date. The Board of Directors shall promptly, but in all events within ten (10) days after the date on which such a request is received, adopt a resolution fixing the record date. If no record date has been fixed by the Board of Directors within ten (10) days of the date on which such a request is received, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting, when no prior action by the Board of Directors is required by applicable law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the corporation by delivery to its registered office in the State of Delaware, its principal place of business or an officer or agent of the corporation having custody of the book in which proceedings of meetings of stockholders are recorded. Delivery made to the corporation's registered office shall be by hand or by certified or registered mail, return receipt requested. If no record date has been fixed by the Board of Directors and prior action by the Board of Directors is required by law, the record date for determining stockholders entitled to consent to corporate action in writing without a meeting shall be at the close of business on the day on which the Board of Directors adopts the resolution taking such prior action. (C) In order that the corporation may determine the stockholders entitled to receive payment of any dividend or other distribution or allotment of any rights or the stockholders entitled to exercise any rights in respect of any change, conversion or exchange of stock, or for the purpose of any other lawful action, the Board of Directors may fix, in advance, a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted, and which record date shall be not more than sixty (60) days prior to such action. If no record date is fixed, the record date for determining stockholders for any such purpose shall be at the close of business on the day on which the Board of Directors adopts the resolution relating thereto. 18. SECTION 38. REGISTERED STOCKHOLDERS. The corporation shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends, and to vote as such owner, and shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of any other person whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware. ARTICLE VIII OTHER SECURITIES OF THE CORPORATION SECTION 39. EXECUTION OF OTHER SECURITIES. All bonds, debentures and other corporate securities of the corporation, other than stock certificates (covered in Section 34), may be signed by the Chairman of the Board of Directors, the President or any Vice President, or such other person as may be authorized by the Board of Directors, and the corporate seal impressed thereon or a facsimile of such seal imprinted thereon and attested by the signature of the Secretary or an Assistant Secretary, or the Chief Financial Officer or Treasurer or an Assistant Treasurer; provided, however, that where any such bond, debenture or other corporate security shall be authenticated by the manual signature, or where permissible facsimile signature, of a trustee under an indenture pursuant to which such bond, debenture or other corporate security shall be issued, the signatures of the persons signing and attesting the corporate seal on such bond, debenture or other corporate security may be the imprinted facsimile of the signatures of such persons. Interest coupons appertaining to any such bond, debenture or other corporate security, authenticated by a trustee as aforesaid, shall be signed by the Treasurer or an Assistant Treasurer of the corporation or such other person as may be authorized by the Board of Directors, or bear imprinted thereon the facsimile signature of such person. In case any officer who shall have signed or attested any bond, debenture or other corporate security, or whose facsimile signature shall appear thereon or on any such interest coupon, shall have ceased to be such officer before the bond, debenture or other corporate security so signed or attested shall have been delivered, such bond, debenture or other corporate security nevertheless may be adopted by the corporation and issued and delivered as though the person who signed the same or whose facsimile signature shall have been used thereon had not ceased to be such officer of the corporation. ARTICLE IX DIVIDENDS SECTION 40. DECLARATION OF DIVIDENDS. Dividends upon the capital stock of the corporation, subject to the provisions of the Certificate of Incorporation and applicable law, if any, may be declared by the Board of Directors pursuant to law at any regular or special meeting. Dividends may be paid in cash, in property, or in shares of the capital stock, subject to the provisions of the Certificate of Incorporation and applicable law. SECTION 41. DIVIDEND RESERVE. Before payment of any dividend, there may be set aside out of any funds of the corporation available for dividends such sum or sums as the Board 19. of Directors from time to time, in their absolute discretion, think proper as a reserve or reserves to meet contingencies, or for equalizing dividends, or for repairing or maintaining any property of the corporation, or for such other purpose as the Board of Directors shall think conducive to the interests of the corporation, and the Board of Directors may modify or abolish any such reserve in the manner in which it was created. ARTICLE X FISCAL YEAR SECTION 42. FISCAL YEAR. The fiscal year of the corporation shall be fixed by resolution of the Board of Directors. ARTICLE XI INDEMNIFICATION SECTION 43. INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS. (A) DIRECTORS AND OFFICERS. The corporation shall indemnify its directors and officers to the fullest extent not prohibited by the DGCL or any other applicable law; provided, however, that the corporation may modify the extent of such indemnification by individual contracts with its directors and officers; and, provided, further, that the corporation shall not be required to indemnify any director or officer in connection with any proceeding (or part thereof) initiated by such person unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the corporation, (iii) such indemnification is provided by the corporation, in its sole discretion, pursuant to the powers vested in the corporation under the DGCL or any other applicable law or (iv) such indemnification is required to be made under subsection (d). (B) OFFICERS, EMPLOYEES AND OTHER AGENTS. The corporation shall have power to indemnify its officers, employees and other agents as set forth in the DGCL or any other applicable law. The Board of Directors shall have the power to delegate the determination of whether indemnification shall be given to any such person to such officers or other persons as the Board of Directors shall determine. (C) EXPENSES. The corporation shall advance to any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that he is or was a director or officer, of the corporation, or is or was serving at the request of the corporation as a director or officer of another corporation, partnership, joint venture, trust or other enterprise, prior to the final disposition of the proceeding, promptly following request therefor, all expenses incurred by any director or officer in connection with such proceeding 20. upon receipt of an undertaking by or on behalf of such person to repay said amounts if it should be determined ultimately that such person is not entitled to be indemnified under this Section 43 or otherwise. Notwithstanding the foregoing, unless otherwise determined pursuant to paragraph (e) of this Section 43, no advance shall be made by the corporation to an officer of the corporation (except by reason of the fact that such officer is or was a director of the corporation in which event this paragraph shall not apply) in any action, suit or proceeding, whether civil, criminal, administrative or investigative, if a determination is reasonably and promptly made (i) by the Board of Directors by a majority vote of a quorum consisting of directors who were not parties to the proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a quorum of disinterested directors so directs, by independent legal counsel in a written opinion, that the facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation. (D) ENFORCEMENT. Without the necessity of entering into an express contract, all rights to indemnification and advances to directors and officers and officers under this Bylaw shall be deemed to be contractual rights and be effective to the same extent and as if provided for in a contract between the corporation and the director or officer. Any right to indemnification or advances granted by this Section 43 to a director or officer shall be enforceable by or on behalf of the person holding such right in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. The claimant in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. In connection with any claim for indemnification, the corporation shall be entitled to raise as a defense to any such action that the claimant has not met the standards of conduct that make it permissible under the DGCL or any other applicable law for the corporation to indemnify the claimant for the amount claimed. In connection with any claim by an officer of the corporation (except in any action, suit or proceeding, whether civil, criminal, administrative or investigative, by reason of the fact that such officer is or was a director of the corporation) for advances, the corporation shall be entitled to raise a defense as to any such action clear and convincing evidence that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the corporation, or with respect to any criminal action or proceeding that such person acted without reasonable cause to believe that his conduct was lawful. Neither the failure of the corporation (including its Board of Directors, independent legal counsel or its stockholders) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances because he has met the applicable standard of conduct set forth in the DGCL or any other applicable law, nor an actual determination by the corporation (including its Board of Directors, independent legal counsel or its stockholders) that the claimant has not met such applicable standard of conduct, shall be a defense to the action or create a presumption that claimant has not met the applicable standard of conduct. In any suit brought by a director or officer to enforce a right to indemnification or to an advancement of expenses hereunder, the burden of proving that the director or officer is not 21. entitled to be indemnified, or to such advancement of expenses, under this Section 43 or otherwise shall be on the corporation. (E) NON-EXCLUSIVITY OF RIGHTS. The rights conferred on any person by this Bylaw shall not be exclusive of any other right which such person may have or hereafter acquire under any applicable statute, provision of the Certificate of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. The corporation is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advances, to the fullest extent not prohibited by the Delaware General Corporation Law, or by any other applicable law. (F) SURVIVAL OF RIGHTS. The rights conferred on any person by this Bylaw shall continue as to a person who has ceased to be a director, officer, employee or other agent and shall inure to the benefit of the heirs, executors and administrators of such a person. (G) INSURANCE. To the fullest extent permitted by the DGCL or any other applicable law, the corporation, upon approval by the Board of Directors, may purchase insurance on behalf of any person required or permitted to be indemnified pursuant to this Section 43. (H) AMENDMENTS. Any repeal or modification of this Section 43 shall only be prospective and shall not affect the rights under this Bylaw in effect at the time of the alleged occurrence of any action or omission to act that is the cause of any proceeding against any agent of the corporation. (I) SAVING CLAUSE. If this Bylaw or any portion hereof shall be invalidated on any ground by any court of competent jurisdiction, then the corporation shall nevertheless indemnify each director and officer to the full extent not prohibited by any applicable portion of this Section 43 that shall not have been invalidated, or by any other applicable law. If this Section 43 shall be invalid due to the application of the indemnification provisions of another jurisdiction, then the corporation shall indemnify each director and officer to the full to the full extent under any other applicable law. (J) CERTAIN DEFINITIONS. For the purposes of this Bylaw, the following definitions shall apply: (1) The term "proceeding" shall be broadly construed and shall include, without limitation, the investigation, preparation, prosecution, defense, settlement, arbitration and appeal of, and the giving of testimony in, any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative. (2) The term "expenses" shall be broadly construed and shall include, without limitation, court costs, attorneys' fees, witness fees, fines, amounts paid in settlement or 22. judgment and any other costs and expenses of any nature or kind incurred in connection with any proceeding. (3) The term the "corporation" shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, and employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Section 43 with respect to the resulting or surviving corporation as he would have with respect to such constituent corporation if its separate existence had continued. (4) References to a "director," "officer," "employee," or "agent" of the corporation shall include, without limitation, situations where such person is serving at the request of the corporation as, respectively, a director, officer, employee, trustee or agent of another corporation, partnership, joint venture, trust or other enterprise. (5) References to "other enterprises" shall include employee benefit plans; references to "fines" shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to "serving at the request of the corporation" shall include any service as a director, officer, employee or agent of the corporation which imposes duties on, or involves services by, such director, officer, employee, or agent with respect to an employee benefit plan, its participants, or beneficiaries; and a person who acted in good faith and in a manner he reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner "not opposed to the best interests of the corporation" as referred to in this Section 43. ARTICLE XII NOTICES SECTION 44. NOTICES. (A) NOTICE TO STOCKHOLDERS. Whenever, under any provisions of these Bylaws, notice is required to be given to any stockholder, it shall be given in writing, timely and duly deposited in the United States mail, postage prepaid, and addressed to his last known post office address as shown by the stock record of the corporation or its transfer agent. (B) NOTICE TO DIRECTORS. Any notice required to be given to any director may be given by the method stated in subsection (a), or by overnight delivery service, facsimile, telex or telegram, except that such notice other than one which is delivered personally shall be sent to such address as such director shall have filed in writing with the Secretary, or, in the absence of such filing, to the last known post office address of such director. 23. (C) AFFIDAVIT OF MAILING. An affidavit of mailing, executed by a duly authorized and competent employee of the corporation or its transfer agent appointed with respect to the class of stock affected, specifying the name and address or the names and addresses of the stockholder or stockholders, or director or directors, to whom any such notice or notices was or were given, and the time and method of giving the same, shall in the absence of fraud, be prima facie evidence of the facts therein contained. (D) TIME NOTICES DEEMED GIVEN. All notices given by mail or by overnight delivery service, as above provided, shall be deemed to have been given as at the time of mailing, and all notices given by facsimile, telex or telegram shall be deemed to have been given as of the sending time recorded at time of transmission. (E) METHODS OF NOTICE. It shall not be necessary that the same method of giving notice be employed in respect of all directors, but one permissible method may be employed in respect of any one or more, and any other permissible method or methods may be employed in respect of any other or others. (F) FAILURE TO RECEIVE NOTICE. The period or limitation of time within which any stockholder may exercise any option or right, or enjoy any privilege or benefit, or be required to act, or within which any director may exercise any power or right, or enjoy any privilege, pursuant to any notice sent him in the manner above provided, shall not be affected or extended in any manner by the failure of such stockholder or such director to receive such notice. (G) NOTICE TO PERSON WITH WHOM COMMUNICATION IS UNLAWFUL. Whenever notice is required to be given, under any provision of law or of the Certificate of Incorporation or Bylaws of the corporation, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful. (H) NOTICE TO PERSON WITH UNDELIVERABLE ADDRESS. Whenever notice is required to be given, under any provision of law or the Certificate of Incorporation or Bylaws of the corporation, to any stockholder to whom (i) notice of two consecutive annual meetings, and all notices of meetings or of the taking of action by written consent without a meeting to such person during the period between such two consecutive annual meetings, or (ii) all, and at least two, payments (if sent by first class mail) of dividends or interest on securities during a twelve-month period, have been mailed addressed to such person at his address as shown on the records of the corporation and have been returned undeliverable, the giving of such notice to such person shall not be required. Any action or meeting which shall be taken or held without notice to such person shall have the same force and effect as if such notice had been duly given. If any such 24. person shall deliver to the corporation a written notice setting forth his then current address, the requirement that notice be given to such person shall be reinstated. In the event that the action taken by the corporation is such as to require the filing of a certificate under any provision of the DGCL, the certificate need not state that notice was not given to persons to whom notice was not required to be given pursuant to this paragraph. ARTICLE XIII AMENDMENTS SECTION 45. AMENDMENTS. Subject to paragraph (h) of Section 43 of the Bylaws, the Bylaws may be altered or amended or new Bylaws adopted by the affirmative vote of at least sixty-six and two-thirds percent (66-2/3%) of the voting power of all of the then-outstanding shares of the voting stock of the corporation entitled to vote. The Board of Directors shall also have the power to adopt, amend, or repeal Bylaws. ARTICLE XIV LOANS TO OFFICERS SECTION 46. LOANS TO OFFICERS. The corporation may lend money to, or guarantee any obligation of, or otherwise assist any officer or other employee of the corporation or of its subsidiaries, including any officer or employee who is a Director of the corporation or its subsidiaries, whenever, in the judgment of the Board of Directors, such loan, guarantee or assistance may reasonably be expected to benefit the corporation. The loan, guarantee or other assistance may be with or without interest and may be unsecured, or secured in such manner as the Board of Directors shall approve, including, without limitation, a pledge of shares of stock of the corporation. Nothing in these Bylaws shall be deemed to deny, limit or restrict the powers of guaranty or warranty of the corporation at common law or under any statute. 25. EX-4.2 4 FORM OF WARRANT EXHIBIT 4.2 THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED. BE INCORPORATED WARRANT TO PURCHASE UP TO ____________ SHARES OF COMMON STOCK (VOID AFTER MARCH 31, 2001) This certifies that __________________________, or his assigns, for value received, is entitled to purchase from Be Incorporated, a California corporation (the "Company"), up to _______________ shares of fully paid and nonassessable Common Stock of the Company (the "Common Stock") at a price of one dollar ($1.00) per share (the "Warrant Price"), upon surrender to the Company at its principal offices of this Warrant properly endorsed with the form of Subscription Notice attached hereto completed and duly signed and upon payment in cash or by check of the Warrant Price for the number of shares for which this Warrant is exercised, which shall not exceed the number of shares that have then become exercisable hereunder. This Warrant shall expire at 5:00 p.m. (California time) on March 31, 2001 with respect to all shares other than those that have been exercised prior to that time. This Warrant is subject to the following terms and conditions: 1. The purchase rights represented by this Warrant are exercisable at the option of the holder of record hereof, either as an entirety, or for any part of the number of shares of Common Stock (but not for a fraction of a share) which may be purchased hereunder. 2. The Company agrees at all times to reserve a sufficient number of shares of authorized but unissued Common Stock, when and as required for the purpose of complying with the terms of this Warrant. 3. Nothing contained in this Warrant shall be construed as conferring upon the holder hereof or any other person the right to vote or to consent or to receive notice as a shareholder in respect of meetings of shareholders for the election of directors of the Company or any other matters or any rights whatsoever as a shareholder of the Company; and no dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. 4. This Warrant is transferable on the books of the Company at its principal office by the above named holder of record in person or by duly authorized attorney, upon surrender to this Company properly endorsed. If there is no such transfer, the Company may treat the original holder of record of this Warrant as the absolute owner hereof for all purposes and shall not be affected by any notice to the contrary. 5. In the event of changes in the outstanding Common Stock of the Company by reason of stock dividends, split-ups, recapitalizations, reclassifications, mergers, consolidations, combinations or exchanges of shares, separations, reorganizations, liquidations, or the like, the number and class of shares available under the Warrant in the aggregate and the Warrant Price shall be correspondingly adjusted by the Board of Directors of the Company. The adjustment shall be such as will give the holder of the Warrant upon exercise, with respect to all shares of Common Stock that have not been exercised at that time, for the same aggregate Warrant Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment. 6. No fractional share shall be issued upon exercise of this Warrant. 7. In the event of any reclassification or recapitalization of the capital stock of the Company, any merger or consolidation of the Company, or any transfer of all or substantially all of the assets of the Company to any other corporation, entity, or person, or any voluntary or involuntary dissolution, liquidation, or winding up of the Company, the Company shall mail to the holder of this Warrant at least thirty (30) days prior to the record date specified therein, a notice specifying (i) the date on which any such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation, or winding up is expected to become effective, (ii) the time, if any, that is to be fixed, as to when the holders of record of Common Stock (or other securities) shall be entitled to exchange their shares of Common Stock (or other securities) for securities or other property deliverable upon such reorganization, reclassification, transfer, consolidation, merger, dissolution, liquidation, or winding up, and (iii) the terms of the merger. 8. The Company will pay all taxes and other governmental charges that may be imposed in respect of the issue or delivery of shares of Common Stock upon exercise of this Warrant, including, without limitation, any tax or other charge imposed in connection with any transfer involved in the issue and delivery of shares of Common Stock in a name other than that in which this Warrant was so registered. 9. This Warrant has not been registered under the Act. Neither this Warrant nor any interest herein may be sold, offered for sale, pledged, hypothecated or otherwise transferred without an effective registration statement for the Warrant under such Act, an opinion of counsel satisfactory to the Company that registration is not required or an applicable exemption from such Act. Each certificate representing any shares of Common Stock issued upon the exercise of this Warrant shall bear the following legend (in addition to any legend required under applicable state securities laws): "THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"). THEY MAY 2 NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT AS TO THE SECURITIES UNDER THE ACT AND ANY APPLICABLE STATE SECURITIES LAW OR AN OPINION OF COUNSEL SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED." 10. This Warrant is issued in and shall be governed by the laws of the State of California, as applied to contracts entered into in California between California residents and to be performed entirely within California. 11. This Warrant is the only warrant issued by the Company to the holder and supersedes and cancels all prior warrants issued by the Company to the holder, whether or not such prior warrants have become exercisable or have been transferred without notice to the Company. IN WITNESS WHEREOF the Company has caused this Warrant to be duly executed by its officers thereunto duly authorized this ____ day of ___________, 19__. BE INCORPORATED ____________________________ ATTEST: ______________________________ 3 SUBSCRIPTION NOTICE (TO BE SIGNED ONLY UPON EXERCISE OF WARRANT) To_______________________: The undersigned, the holder of the within Warrant, hereby irrevocably elects to exercise the purchase right represented by such Warrant for, and to purchase thereunder, __________ ____________ (__________ ) shares of Common Stock of Be Incorporated and herewith makes payment of ( $ ) therefor, and requests that the certificates for such shares be issued in the name of, and delivered to, ____________________________ whose address is _____________________________________________________________. _______________________________________________________________________________ The undersigned represents that it is acquiring such Common Stock for its own account for investment and not with a view to or for sale in connection with any distribution thereof (subject, however, to any requirement of law that the disposition thereof shall at all times be within its control.) DATED:___________________ __________________________________________ (Signature must conform in all respects to name of holder as specified on the face of the Warrant) __________________________________________ __________________________________________ (Address) 1 EX-4.6 5 WARRANT Exhibit 4.6 NO. CW-39 THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR ANY STATE SECURITIES LAWS. SUCH SECURITIES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR AN EXEMPTION THEREFROM UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAWS. WARRANT TO PURCHASE 1,538,462 SHARES OF COMMON STOCK OF BE INCORPORATED This certifies that INTEL CORPORATION or its assigns (the "Holder"), for value received, is entitled to purchase from BE INCORPORATED, a California corporation (the "Company"), having a place of business at 800 El Camino Real, Suite 300, Menlo Park, California 94025, a maximum of 1,538,462 fully paid and nonassessable shares of the Company's Common Stock ("Common Stock") for cash at a price per share equal to the lower of (i) $3.25 or (ii) the price of any equity financing (excluding any issuances to officers, directors, employees, consultants or other agents of the Company pursuant to plans or arrangements approved by the Company's Board of Directors) completed within two years from the Vesting Date, as defined below (the "Stock Purchase Price"), at any time or from time to time up to and including 5:00 p.m. (Pacific time) on the earlier of (i) the date of the closing of any consolidation or merger of the Company with or into any other corporation or other entity or person, or any other corporate reorganization, in which the stockholders of the Company immediately prior to such consolidation, merger or reorganization, own less than fifty percent (50%) of the Company's voting power immediately after such consolidation, merger or reorganization, or any transaction or series of related transactions in which in excess of fifty percent (50%) of the company's voting power is transferred (an "Acquisition") or five years from the Vesting Date, as defined below, such earlier day being referred to herein as the "Expiration Date", upon surrender to the Company at its principal office (or at such other location as the Company may advise the Holder in writing) of this Warrant properly endorsed with the Form of Subscription attached hereto duly filled in and signed and, if applicable, upon payment in cash or by check of the aggregate Stock Purchase Price for the number of shares for which this Warrant is being exercised determined in accordance with the provisions hereof (or on a net basis pursuant to Section 1.2 below). The Company shall deliver notice of an Acquisition to the Holder at least 15 days prior to the closing thereof. The Stock Purchase Price and the number of shares purchasable hereunder are subject to adjustment as provided in Section 3 of this Warrant. This Warrant is subject to the following terms and conditions: 1. EXERCISE; ISSUANCE OF CERTIFICATES; PAYMENT FOR SHARES. 1.1 GENERAL. This Warrant is exercisable at the option of the holder of record hereof, at any time or from time to time, up to the Expiration Date for all or any part of the shares of Common Stock (but not for a fraction of a share) which may be purchased hereunder. The 1. Company agrees that the shares of Common Stock purchased under this Warrant shall be and are deemed to be issued to the Holder hereof as the record owner of such shares as of the close of business on the date on which this Warrant shall have been surrendered, properly endorsed, the completed, executed Form of Subscription delivered and payment made for such shares. Certificates for the shares of Common Stock so purchased, together with any other securities or property to which the Holder hereof is entitled upon such exercise, shall be delivered to the Holder hereof by the Company at the Company's expense within a reasonable time after the rights represented by this Warrant have been so exercised. In case of a purchase of less than all the shares which may be purchased under this Warrant, the Company shall cancel this Warrant and execute and deliver a new Warrant or Warrants of like tenor for the balance of the shares purchasable under the Warrant surrendered upon such purchase to the Holder hereof within a reasonable time. Each stock certificate so delivered shall be in such denominations of Common Stock as may be requested by the Holder hereof and shall be registered in the name of such Holder. The Company hereby acknowledges that exercise of this Warrant by Holder may subject the Company and/or the Holder to the filing requirements of the Hart-Scott-Rodino Antitrust Improvements Act of 1976 (the "HSR Act") and that Holder may be prevented from exercising this Warrant until the expiration or early termination of all waiting periods imposed by the HSR Act ("HSR Act Restrictions"). If on or before the Expiration Date Holder has sent the Notice of Exercise to Company and Holder has not been able to complete the exercise of this Warrant prior to the Expiration Date because of HSR Act Restrictions and so long as Holder has complied with reasonable promptness, the Holder shall be entitled to complete the process of exercising this Warrant in accordance with the procedures contained herein notwithstanding the fact that completion of the exercise of this Warrant would take place after the Expiration Date. 1.2 NET ISSUE EXERCISE. Notwithstanding any provisions herein to the contrary, if the fair market value of one share of the Company's Common Stock is greater than the Stock Purchase Price (at the date of calculation as set forth below), in lieu of exercising this Warrant for cash, the Holder may elect to receive shares equal to the value (as determined below) of this Warrant (or the portion thereof being canceled) by surrender of this Warrant at the principal office of the Company together with the properly endorsed Form of Subscription and notice of such election in which event the Company shall issue to the Holder a number of shares of Common Stock computed using the following formula: X = Y (A-B) ------- A Where X = the number of shares of Common Stock to be issued to the Holder Y = the number of shares of Common Stock purchasable under the Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being canceled (at the date of such calculation) A = the fair market value of one share of the Company's Common Stock (at the date of such calculation) 2. B = Stock Purchase Price (as adjusted to the date of such calculation) For purposes of the above calculation, fair market value of one share of Common Stock shall be the closing price on the preceding trading day, as reported by a securities exchange or NASDAQ, or if prior to the initial public offering, as determined by the Company's Board of Directors in good faith. 1.3 "Easy Sale" Exercise. In lieu of the payment methods set forth in Section 1.2 above, when permitted by law and applicable regulations (including Nasdaq and NASD rules), the Holder may pay the Purchase Price through a "same day sale" commitment from the Holder (and if applicable a broker-dealer that is a member of the National Association of Securities Dealers (a "NASD Dealer")), whereby the Holder irrevocably elects to exercise this Warrant and to sell a portion of the Shares so purchased to pay for the Purchase Price and the Holder (or, if applicable, the NASD Dealer) commits upon sale (or, in the case of the NASD Dealer, upon receipt) of such Shares to forward the Purchase Price directly to the Company. 1.4 Vesting. The Warrant will vest and become exercisable (the ------- "Vesting Date") on the closing referred to in Section 2.1 of that certain Additional Series 2 Convertible Preferred Stock Agreement of even date herewith between the Company and Holder. 2. SHARES TO BE FULLY PAID; RESERVATION OF SHARES. The Company covenants and agrees that all shares of Common Stock which may be issued upon the exercise of the rights represented by this Warrant will, upon issuance, be duly authorized, validly issued, fully paid and nonassessable and free from all preemptive rights of any stockholder and free of all taxes, liens and charges with respect to the issue thereof. The Company further covenants and agrees that, during the period within which the rights represented by this Warrant may be exercised, the Company will at all times have authorized and reserved, for the purpose of issue or transfer upon exercise of the subscription rights evidenced by this Warrant, a sufficient number of shares of authorized but unissued Common Stock, or other securities and property, when and as required to provide for the exercise of the rights represented by this Warrant. The Company will take all such action as may be necessary to assure that such shares of Common Stock may be issued as provided herein without violation of any applicable law or regulation, or of any requirements of any domestic securities exchange upon which the Common Stock may be listed; provided, however, that the Company shall not be required to effect a registration under Federal or State securities laws with respect to such exercise. 3. ADJUSTMENT OF STOCK PURCHASE PRICE AND NUMBER OF SHARES. The Stock Purchase Price and the number of shares purchasable upon the exercise of this Warrant shall be subject to adjustment from time to time upon the occurrence of certain events described in this Section 3. Upon each adjustment of the Stock Purchase Price, the Holder of this Warrant shall thereafter be entitled to purchase, at the Stock Purchase Price resulting from such adjustment, the number of shares obtained by multiplying the Stock Purchase Price in effect immediately prior to such adjustment by the number of shares purchasable pursuant hereto immediately prior to such 3. adjustment, and dividing the product thereof by the Stock Purchase Price resulting from such adjustment. 3.1 SUBDIVISION OR COMBINATION OF STOCK. In case the Company shall at any time subdivide its outstanding shares of Common Stock into a greater number of shares, the Stock Purchase Price in effect immediately prior to such subdivision shall be proportionately reduced, and conversely, in case the outstanding shares of Common Stock of the Company shall be combined into a smaller number of shares, the Stock Purchase Price in effect immediately prior to such combination shall be proportionately increased. 3.2 DIVIDENDS IN COMMON STOCK, OTHER STOCK, PROPERTY, RECLASSIFICATION. If at any time or from time to time the Holders of Common Stock (or any shares of stock or other securities at the time receivable upon the exercise of this Warrant) shall have received or become entitled to receive, without payment therefor, (A) Common Stock or any shares of stock or other securities which are at any time directly or indirectly convertible into or exchangeable for Common Stock, or any rights or options to subscribe for, purchase or otherwise acquire any of the foregoing by way of dividend or other distribution, (B) any cash paid or payable otherwise than as a cash dividend, or (C) Common Stock or additional stock or other securities or property (including cash) by way of spin-off, split-up, reclassification, combination of shares or similar corporate rearrangement, (other than shares of Common Stock issued as a stock split or adjustments in respect of which shall be covered by the terms of Section 3.1 above), then and in each such case, the Holder hereof shall, upon the exercise of this Warrant, be entitled to receive, in addition to the number of shares of Common Stock receivable thereupon, and without payment of any additional consideration therefor, the amount of stock and other securities and property (including cash in the cases referred to in clause (b) above and this clause (c)) which such Holder would hold on the date of such exercise had he been the holder of record of such Common Stock as of the date on which holders of Common Stock received or became entitled to receive such shares or all other additional stock and other securities and property. 3.3 RECLASSIFICATION. If the Company, by reclassification of securities or otherwise, shall change any of the securities as to which purchase rights under this Warrant exist into the same or a different number of securities of any other class or classes, this Warrant shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities that were subject to the purchase rights under this Warrant immediately prior to such reclassification or other change and the Purchase Price therefore shall be appropriately adjusted, all subject to further adjustment as provided in this Section 3. No adjustment shall be made pursuant to this Section 3.3 upon any conversion or redemption of the Common Stock which is the subject of Section 3.5. 4. 3.4 REORGANIZATION, CONSOLIDATION, MERGER OR SALE. In the case of any capital reorganization of the capital stock of the Company (other than a combination, reclassification, exchange or subdivision of shares otherwise provided for herein), or any consolidation or merger of the Company with another corporation, or the sale of all or substantially all of its assets or other transaction shall be effected in such a way that holders of Common Stock shall be entitled to receive stock, securities, or other assets or property (an "Organic Change"), then, as a condition of such Organic Change, lawful and adequate provisions shall be made by the Company whereby the Holder hereof shall, until the consummation of such Organic Change, have the right to elect to purchase and receive (in lieu of the shares of the Common Stock of the Company immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby) such shares of stock, securities or other assets or property as may be issued or payable with respect to or in exchange for a number of outstanding shares of such Common Stock equal to the number of shares of such stock immediately theretofore purchasable and receivable upon the exercise of the rights represented hereby. Unless exercised prior to such Organic Change, this Warrant will expire. 3.5 CONVERSION OF COMMON STOCK. In case all or any portion of the authorized and outstanding shares of Common Stock of the Company are redeemed or converted or reclassified into other securities or property pursuant to the Company's Articles of Incorporation or otherwise, or the Common Stock otherwise ceases to exist, then, in such case, the Holder of this Warrant, upon exercise hereof at any time after the date on which the Common Stock is so redeemed or converted, reclassified or ceases to exist (the "Termination Date"), shall receive, in lieu of the number of shares of Common Stock that would have been issuable upon such exercise immediately prior to the Termination Date, the securities or property of Common Stock of the Company that would have been received if this Warrant had been exercised in full and the Common Stock received thereupon had been simultaneously converted immediately prior to the Termination Date, all subject to further adjustment as provided in this Warrant. Additionally, the Purchase Price shall be immediately adjusted to equal the quotient obtained by dividing (x) the aggregate Purchase Price of the maximum number of shares of Common Stock for which this Warrant was exercisable immediately prior to the Termination Date by (y) the number of shares of Common Stock of the Company for which this Warrant is exercisable immediately after the Termination Date, all subject to further adjustment as provided herein. 3.6 CERTAIN EVENTS. If any change in the outstanding Common Stock of the Company or any other event occurs as to which the other provisions of this Section 3 are not strictly applicable or if strictly applicable would not fairly protect the purchase rights of the Holder of the Warrant in accordance with such provisions, then the Board of Directors of the Company shall make an adjustment in the number and class of shares available under the Warrant, the Stock Purchase Price or the application of such provisions, so as to protect such purchase rights as aforesaid. The adjustment shall be such as will give the Holder of the Warrant upon exercise for the same aggregate Stock Purchase Price the total number, class and kind of shares as he would have owned had the Warrant been exercised prior to the event and had he continued to hold such shares until after the event requiring adjustment. 5. 3.7 NOTICES OF CHANGE. (A) Immediately upon any adjustment in the number or class of shares subject to this Warrant and of the Stock Purchase Price, the Company shall give written notice thereof to the Holder, setting forth in reasonable detail and certifying the calculation of such adjustment. (B) The Company shall give written notice to the Holder at least 10 business days prior to the date on which the Company closes its books or takes a record for determining rights to receive any dividends or distributions. (C) The Company shall also give written notice to the Holder at least 30 business days prior to the date on which an Organic Change shall take place. 4. ISSUE TAX. The issuance of certificates for shares of Common Stock upon the exercise of the Warrant shall be made without charge to the Holder of the Warrant for any issue tax (other than any applicable income taxes) in respect thereof; provided, however, that the Company shall not be required to pay any tax which may be payable in respect of any transfer involved in the issuance and delivery of any certificate in a name other than that of the then Holder of the Warrant being exercised. 5. CLOSING OF BOOKS. The Company will at no time close its transfer books against the transfer of any warrant or of any shares of Common Stock issued or issuable upon the exercise of any warrant in any manner which interferes with the timely exercise of this Warrant. 6. NO VOTING OR DIVIDEND RIGHTS; LIMITATION OF LIABILITY. Nothing contained in this Warrant shall be construed as conferring upon the Holder hereof the right to vote or to consent or to receive notice as a stockholder of the Company or any other matters or any rights whatsoever as a stockholder of the Company. No dividends or interest shall be payable or accrued in respect of this Warrant or the interest represented hereby or the shares purchasable hereunder until, and only to the extent that, this Warrant shall have been exercised. No provisions hereof, in the absence of affirmative action by the holder to purchase shares of Common Stock, and no mere enumeration herein of the rights or privileges of the holder hereof, shall give rise to any liability of such Holder for the Stock Purchase Price or as a stockholder of the Company, whether such liability is asserted by the Company or by its creditors. 7. WARRANTS TRANSFERABLE. Subject to compliance with applicable federal and state securities laws and except for transfers to a direct competitor of the Company which shall be subject to the same restrictions set forth in Section 8 of the Additional Series 2 Convertible Preferred Stock Purchase Agreement between Holder and Company dated February 4, 1998, this Warrant and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes), upon surrender of this Warrant properly endorsed. Each taker and holder of this Warrant, by taking or holding the same, consents and agrees that this Warrant, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, 6. when this Warrant shall have been so endorsed, may be treated by the Company, at the Company's option, and all other persons dealing with this Warrant as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Warrant, or to the transfer hereof on the books of the Company any notice to the contrary notwithstanding; but until such transfer on such books, the Company may treat the registered owner hereof as the owner for all purposes. 8. RIGHTS AND OBLIGATIONS SURVIVE EXERCISE OF WARRANT. The rights and obligations of the Company, of the holder of this Warrant and of the holder of shares of Common Stock issued upon exercise of this Warrant, referred to in Section 7 shall survive the exercise of this Warrant. 9. RESTRICTIONS ON TRANSFER. The Holder, by acceptance hereof, agrees that, absent an effective registration statement filed with the SEC under the Securities Act of 1933, as amended (the "1933 Act"), covering the disposition or sale of this Warrant or the Common Stock issued or issuable upon exercise hereof or the Common Stock issuable upon conversion thereof, as the case may be, and registration or qualification under applicable state securities laws, such Holder will not sell, transfer, pledge, or hypothecate any or all such Warrants, Warrant Stock, or Common Stock, as the case may be, unless either (i) the Company has received an opinion of counsel, in form and substance reasonably satisfactory to the Company, to the effect that such registration is not required in connection with such disposition or (ii) the sale of such securities is made pursuant to SEC Rule 144. 10. COMPLIANCE WITH SECURITIES LAWS. By acceptance of this Warrant, the Holder hereby represents, warrants and covenants that any shares of stock purchased upon exercise of this Warrant or acquired upon conversion thereof shall be acquired for investment only and not with a view to, or for sale in connection with, any distribution thereof; that the Holder has had such opportunity as such Holder has deemed adequate to obtain from representatives of the Company such information as is necessary to permit the Holder to evaluate the merits and risks of its investment in the company; that the Holder is able to bear the economic risk of holding such shares as may be acquired pursuant to the exercise of this Warrant for an indefinite period; that the Holder understands that the shares of stock acquired pursuant to the exercise of this Warrant or acquired upon conversion thereof will not be registered under the 1933 Act (unless otherwise required pursuant to exercise by the Holder of the registration rights, if any, previously granted to the registered Holder) and will be "restricted securities" within the meaning of Rule 144 under the 1933 Act and that the exemption from registration under Rule 144 will not be available for at least one year from the date of exercise of this Warrant, subject to any special treatment by the SEC for exercise of this Warrant pursuant to Section 2.2, and even then will not be available unless a public market then exists for the stock, adequate information concerning the Company is then available to the public, and other terms and conditions of Rule 144 are complied with; and that all stock certificates representing shares of stock issued to the Holder upon exercise of this Warrant or upon conversion of such shares may have affixed thereto a legend substantially in the following form: 7. THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE AND MAY NOT BE TRANSFERRED OR RESOLD EXCEPT AS PERMITTED UNDER THE ACT AND THE APPLICABLE STATE SECURITIES LAWS, PURSUANT TO REGISTRATION OR EXEMPTION THEREFROM. INVESTORS SHOULD BE AWARE THAT THEY MAY BE REQUIRED TO BEAR THE FINANCIAL RISKS OF THIS INVESTMENT FOR AN INDEFINITE PERIOD OF TIME. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER TO THE EFFECT THAT ANY PROPOSED TRANSFER OR RESALE IS IN COMPLIANCE WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS 11. MODIFICATION AND WAIVER. This Warrant and any provision hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of the same is sought. 12. NOTICES. Any notice, request or other document required or permitted to be given or delivered to the holder hereof or the Company shall be delivered or shall be sent by certified mail, postage prepaid, to each such holder at its address as shown on the books of the Company or to the Company at the address indicated therefor in the first paragraph of this Warrant or such other address as either may from time to time provide to the other. 13. BINDING EFFECT ON SUCCESSORS. All of the obligations of the Company relating to the Common Stock issuable upon the exercise of this Warrant shall survive the exercise and termination of this Warrant. All of the covenants and agreements of the Company shall inure to the benefit of the successors and assigns of the holder hereof. 14. DESCRIPTIVE HEADINGS AND GOVERNING LAW. The description headings of the several sections and paragraphs of this Warrant are inserted for convenience only and do not constitute a part of this Warrant. This Warrant shall be construed and enforced in accordance with, and the rights of the parties shall be governed by, the laws of the State of California. 15. LOST WARRANTS. The Company represents and warrants to the Holder hereof that upon receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction, or mutilation of this Warrant and, in the case of any such loss, theft or destruction, upon receipt of an indemnity reasonably satisfactory to the Company, or in the case of any such mutilation upon surrender and cancellation of such Warrant, the Company, at its expense, will make and deliver a new Warrant, of like tenor, in lieu of the lost, stolen, destroyed or mutilated Warrant. 8. 16. FRACTIONAL SHARES. No fractional shares shall be issued upon exercise of this Warrant. The Company shall, in lieu of issuing any fractional share, pay the holder entitled to such fraction a sum in cash equal to such fraction multiplied by the then effective Stock Purchase Price. [THIS SPACE INTENTIONALLY LEFT BLANK] 9. IN WITNESS WHEREOF, the Company has caused this Warrant to be duly executed by its officers, thereunto duly authorized this ______ day of ______________, 1998. BE INCORPORATED a California corporation By: /s/ Jean-Louis Gassee ------------------------------- Title: Chief Executive Officer & Resident ------------------------------------ ATTEST: /s/ Andrei M. Manoliu - ----------------------------- Secretary 10. EXHIBIT A SUBSCRIPTION FORM Date: _________________, 19___ Be Incorporated 800 El Camino Real, Suite 300 Menlo Park, California 94025 Attn: President Ladies and Gentlemen: [_] The undersigned hereby elects to exercise the warrant issued to it by Be Incorporated (the "Company") and dated _______________ __, 1998 Warrant No. CW-___ (the "Warrant") and to purchase thereunder __________________________________ shares of the Common Stock of the Company (the "Shares") at a purchase price of _____________________________ Dollars and ________ Cents ($__________) per Share or an aggregate purchase price of __________________________________ Dollars and ________ Cents ($__________) (the "Purchase Price"). [_] The undersigned hereby elects to convert _______________________ percent (____%) of the value of the Warrant pursuant to the provisions of Section 1.2 of the Warrant. [_] Elects the Easy Sale Exercise option pursuant to Section 1.3 of the Warrant, and accordingly requests delivery of a net of ______________ of such securities. Pursuant to the terms of the Warrant the undersigned has delivered the Purchase Price herewith in full in cash or by certified check or wire transfer. If this exercise is deemed to be a new investment decision or a new investment representation is otherwise required under the then applicable SEC rules and regulations, the undersigned also makes the representations set forth on the attached Exhibit B of the Warrant. Very truly yours, ___________________________________ By:________________________________ Title:_____________________________ Exhibit B INVESTMENT REPRESENTATION THIS AGREEMENT MUST BE COMPLETED, SIGNED AND RETURNED TO BE INCORPORATED ALONG WITH THE SUBSCRIPTION FORM BEFORE THE COMMON STOCK ISSUABLE UPON EXERCISE OF THE WARRANT DATED _____________ __, 1998, WILL BE ISSUED. _____________________, 19__ Be Incorporated 800 El Camino Real, Suite 300 Menlo Park, California 94025 Attn: President Ladies and Gentlemen: The undersigned, _________________________ ("Purchaser"), intends to acquire up to ______________ shares of the Common Stock (the "Common Stock") of Be Incorporated (the "Company") from the Company pursuant to the exercise or conversion of certain Warrants to purchase Common Stock held by Purchaser. The Common Stock will be issued to Purchaser in a transaction not involving a public offering and pursuant to an exemption from registration under the Securities Act of 1933, as amended (the "1933 Act") and applicable state securities laws. In connection with such purchase and in order to comply with the exemptions from registration relied upon by the Company, Purchaser represents, warrants and agrees as follows: Purchaser is acquiring the Common Stock for its own account, to hold for investment, and Purchaser shall not make any sale, transfer or other disposition of the Common Stock in violation of the 1933 Act or the General Rules and Regulations promulgated thereunder by the Securities and Exchange Commission (the "SEC") or in violation of any applicable state securities law. Purchaser has been advised that the Common Stock has not been registered under the 1933 Act or state securities laws on the ground that this transaction is exempt from registration, and that reliance by the Company on such exemptions is predicated in part on Purchaser's representations set forth in this letter. Purchaser has been informed that under the 1933 Act, the Common Stock must be held indefinitely unless it is subsequently registered under the 1933 Act or unless an exemption from such registration (such as Rule 144) is available with respect to any proposed transfer or disposition by Purchaser of the Common Stock. Purchaser further agrees that the Company may refuse to permit Purchaser to sell, transfer or dispose of the Common Stock (except as permitted under Rule 144) unless there is in effect a registration statement under the 1933 Act and any applicable state securities laws covering such transfer, or unless Purchaser furnishes an opinion of counsel reasonably satisfactory to counsel for the Company, to the effect that such registration is not required. Purchaser also understands and agrees that there will be placed on the certificate(s) for the Common Stock, or any substitutions therefor, a legend stating in substance: "The shares represented by this certificate have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), or any state securities laws. These shares have been acquired for investment and may not be sold or otherwise transferred in the absence of an effective registration statement for these shares under the Securities Act and applicable state securities laws, or an opinion of counsel satisfactory to the Company that registration is not required and that an applicable exemption is available." Purchaser has carefully read this letter and has discussed its requirements and other applicable limitations upon Purchaser's resale of the Common Stock with Purchaser's counsel. Very truly yours, ________________________________ By:_____________________________ Title:__________________________ EX-4.7 6 AMENDED & RESTATED INVESTORS RIGHTS AGREE EXHIBIT 4.7 BE INCORPORATED AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT FEBRUARY 4, 1998 TABLE OF CONTENTS
PAGE 1. GENERAL..................................................................................... 1 1.1 Definitions........................................................................ 1 2. REGISTRATION; RESTRICTIONS ON TRANSFER...................................................... 3 2.1 Restrictions on Transfer........................................................... 3 2.2 Demand Registration................................................................ 4 2.3 Piggyback Registrations............................................................ 5 2.4 Form S-3 Registration.............................................................. 6 2.5 Expenses of Registration........................................................... 7 2.6 Obligations of the Company......................................................... 7 2.7 Termination of Registration Rights................................................. 8 2.8 Delay of Registration.............................................................. 8 2.9 Indemnification.................................................................... 8 2.10 Assignment of Registration Rights.................................................. 11 2.11 Amendment of Registration Rights................................................... 11 2.12 Limitation on Subsequent Registration Rights....................................... 11 2.13 "Market Stand-Off"Agreement........................................................ 11 3. COVENANTS................................................................................... 12 3.1 Basic Financial Information and Reporting.......................................... 12 3.2 Inspection Rights.................................................................. 12 3.3 Confidentiality of Records......................................................... 13 3.4 Reservation of Common Stock........................................................ 13 3.5 Key Man Insurance.................................................................. 13 3.6 Real Property Holding Corporation.................................................. 13 3.7 Covenant to Approve Acquisition by Lead Investor................................... 13 3.8 Termination of Covenants........................................................... 13 4. RIGHTS OF FIRST REFUSAL..................................................................... 14 4.1 Subsequent Offerings............................................................... 14 4.2 Exercise of Rights................................................................. 14 4.3 Issuance of Equity Securities to Other Persons..................................... 14 4.4 Termination of Rights of First Refusal............................................. 15 4.5 Transfer of Rights of First Refusal................................................ 15
i. TABLE OF CONTENTS (CONTINUED) PAGE 4.6 Excluded Securities............................................................... 15 5. MISCELLANEOUS.............................................................................. 16 5.1 Governing Law..................................................................... 16 5.2 Survival.......................................................................... 16 5.3 Successors and Assigns............................................................ 16 5.4 Separability...................................................................... 16 5.5 Amendment and Waiver.............................................................. 16 5.6 Delays or Omissions............................................................... 16 5.7 Notices........................................................................... 17 5.8 Titles and Subtitles.............................................................. 17 5.9 Counterparts...................................................................... 17
ii. AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the "Agreement") is entered into as of the 4/th/ day of February, 1998, by and among BE INCORPORATED, a California corporation (the "Company"), the other parties (the "Prior Purchasers") to that certain 1996 Investors' Rights Agreement dated April 12, 1996 (the "Prior Agreement") and the purchasers of the Company's Series 2 Preferred Stock ("Series 2 Stock") set forth on Exhibit A of that certain Series 2 Preferred Stock Purchase Agreement of even date herewith (the "Primary Agreement") and that certain Additional Series 2 Preferred Stock Purchase Agreement of even date herewith (the "Lead Investor Agreement") (the Primary Agreement and Lead Investor Agreement together shall be the "Purchase Agreement"). The purchasers of the Series 2 Stock together with the Prior Purchasers shall be referred to hereinafter as the "Purchasers" and each individually as a "Purchaser." RECITALS WHEREAS, the Company and the Prior Purchasers are parties to the Prior Agreement; and WHEREAS, the Company proposes to sell and issue up to eight million three hundred eighty-four thousand (8,384,000) shares of its Series 2 Stock pursuant to the Purchase Agreement; and WHEREAS, as a condition of entering into the Purchase Agreement, the additional Purchasers have requested that the Company extend to them registration rights, information rights and a right of first refusal as set forth below; and WHEREAS, the parties intend by this Agreement to supplement and supersede the Prior Agreement; NOW, THEREFORE, in consideration of the mutual promises, representations, warranties, covenants and conditions set forth in this Agreement and in the Purchase Agreement, the parties mutually agree as follows: 1. GENERAL 1.1 DEFINITIONS. As used in this Agreement the following terms shall have the following respective meanings: "HOLDER" means any person owning of record Registrable Securities that have not been sold to the public or any assignee of record of such Registrable Securities in accordance with Section 2.10 hereof. "REGISTER," "REGISTERED," and "REGISTRATION" refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act, and the declaration or ordering of effectiveness of such registration statement or document. "REGISTRABLE SECURITIES" means (i) Common Stock of the Company issued or issuable upon conversion of the Shares; and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security which is issued as) a dividend or other distribution with respect to, or in exchange for or in replacement of, such above-described securities. Notwithstanding the foregoing, Registrable Securities shall not include any securities sold by a person to the public either pursuant to a registration statement or Rule 144 or sold in a private transaction in which the transferor's rights under Section 2 of this Agreement are not assigned. "REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of shares determined by calculating the total number of shares of the Company's Common Stock that are Registrable Securities and either (1) are then issued and outstanding or (2) are issuable pursuant to then exercisable or convertible securities. "REGISTRATION EXPENSES" shall mean all expenses incurred by the Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without limitation, all registration and filing fees, printing expenses, fees and disbursements of counsel for the Company, reasonable fees and disbursements of a single special counsel for the Holders, blue sky fees and expenses and the expense of any special audits incident to or required by any such registration (but excluding the compensation of regular employees of the Company which shall be paid in any event by the Company). "SECURITIES ACT" shall mean the Securities Act of 1933, as amended. "SELLING EXPENSES" shall mean all underwriting discounts and selling commissions applicable to the sale. "SHARES" shall mean the Company's (i) Series 1 Preferred Stock, (ii) the Series 2 Stock and (iii) the shares of Common Stock, if any, issued upon the exercise of the warrant to acquire up to 1,538,462 shares dated the date hereof. "FORM S-3" means such form under the Securities Act as in effect on the date hereof or any successor registration form under the Securities Act subsequently adopted by the SEC which permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC. "SEC" or "COMMISSION" means the Securities and Exchange Commission. 2. REGISTRATION; RESTRICTIONS ON TRANSFER 2.1 RESTRICTIONS ON TRANSFER. 2.1.1 Each Holder agrees not to make any disposition of all or any portion of the Registrable Securities (or the Common Stock issuable upon the conversion thereof) unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 2.1, provided and to the extent such Section is then applicable and: (A) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (B) (A) Such Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and (B) if reasonably requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. It is agreed that the Company will not require opinions of counsel for transactions made pursuant to Rule 144 except in unusual circumstances. (C) Notwithstanding the provisions of paragraphs (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for a transfer by a Holder which is (A) a partnership to its partners in accordance with partnership interests, (B) to the Holder's family member or trust for the benefit of an individual Holder or (C) in connection with any exempted transfer pursuant to Section 8.6(3) of the Series 1 Convertible Preferred Stock Purchase Agreement dated April 12, 1996 or Section 8.6(3) of the Primary Agreement; provided the transferee will be subject to the terms of this Section 2.1 to the same extent as if he were an original Holder hereunder. 2.1.2 Each certificate representing the Shares or Registrable Securities shall (unless otherwise permitted by the provisions of the Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws or as provided elsewhere in the Agreement or the Purchase Agreement): THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH. 2.1.3 The Company shall be obligated to reissue promptly unlegended certificates at the request of any holder thereof if the holder shall have obtained an opinion of counsel (which counsel may be counsel to the Company) reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration, qualification or legend. 2.1.4 Any legend endorsed on an instrument pursuant to applicable state securities laws and the stop-transfer instructions with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal. 2.2 DEMAND REGISTRATION. 2.2.1 Subject to the conditions of this Section 2.2, if the Company shall receive at any time after the third anniversary of the date first above written, a written request from the Holders of more than fifty percent (50%) of the Registrable Securities then outstanding (the "Initiating Holders") that the Company file a registration statement under the Securities Act covering the registration of at least twenty percent (20%) of the Registrable Securities then outstanding and having an aggregate offering price to the public in excess of $5,000,000, then the Company shall, within thirty (30) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of Section 2.2.2, effect, as soon as practicable, the registration under the Securities Act of all Registrable Securities that the Holders request to be registered. 2.2.2 If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 2.2 and the Company shall include such information in the written notice referred to in Section 2.2.1. In such event, the right of any Holder to include his Registrable Securities in such registration shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders (which underwriter or underwriters shall be reasonably acceptable to the Company). Notwithstanding any other provision of this Section 2.2, if the underwriter advises the Company in writing that marketing factors require a limitation of the number of securities to be underwritten (including Registrable Securities) then the Company shall so advise all Holders of Registrable Securities which would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities on a pro rata basis based on the number of Registrable Securities held by all such Holders (including the Initiating Holders). Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration. 2.2.3 The Company shall not be obligated to effect more than three (3) registrations pursuant to this Section 2.2. 2.2.4 The Company shall not be required to effect a registration pursuant to this Section 2.2 during the period starting with the date of filing of, and ending on the date ninety (90) days following the effective date of the registration statement pertaining to the initial public offering of the Company's common stock (the "Initial Offering"), provided that the Company is making reasonable and good faith efforts to cause such registration statement to become effective. In addition, the Company shall not be required to effect a registration pursuant to this Section 2.2 if within thirty (30) days of receipt of a written request from Initiating Holders pursuant to Section 2.2.1, the Company gives notice to the Holders of the Company's intention to make its Initial Offering within ninety (90) days. 2.2.5 Notwithstanding the foregoing, if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 2.2, a certificate signed by the Chairman of the Board stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such registration statement to be filed and it is therefore essential to defer the filing of such registration statement, the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders; provided that such right to delay a request shall be exercised by the Company no more than once in any one-year period. 2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of Registrable Securities in writing at least thirty (30) days prior to the filing of any registration statement under the Securities Act for purposes of a public offering of securities of the Company (including, but not limited to, registration statements relating to secondary offerings of securities of the Company, but excluding registration statements relating to employee benefit plans and corporate reorganizations) and will afford each such Holder an opportunity to include in such registration statement all or part of such Registrable Securities held by such Holder. Each Holder desiring to include in any such registration statement all or any part of the Registrable Securities held by it shall, within twenty (20) days after receipt of the above-described notice from the Company, so notify the Company in writing. Such notice shall state the intended method of disposition of the Registrable Securities by such Holder. If a Holder decides not to include all of its Registrable Securities in any registration statement thereafter filed by the Company, such Holder shall nevertheless continue to have the right to include any Registrable Securities in any subsequent registration statement or registration statements as may be filed by the Company with respect to offerings of its securities, all upon the terms and conditions set forth herein. 2.3.1 Underwriting. If the registration statement under which the Company gives notice under this Section 2.3 is for an underwritten offering, the Company shall so advise the Holders of Registrable Securities. In such event, the right of any such Holder to be included in a registration pursuant to this Section 2.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. All Holders proposing to distribute their Registrable Securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting. Notwithstanding any other provision of the Agreement, if the underwriter determines in good faith that marketing factors require a limitation of the number of shares to be underwritten, the number of shares that may be included in the underwriting shall be allocated, first, to the Company; second, to the Holders on a pro rata basis based on the total number of Registrable Securities held by the Holders; and third, to any shareholder of the Company (other than a Holder) on a pro rata basis. No such reduction shall reduce the securities being offered by the Company for its own account to be included in the registration and underwriting, except that in no event shall the amount of securities of the selling Holders included in the registration be reduced below thirty percent (30%) of the total amount of securities included in such registration, unless such offering is the Initial Offering, in which event any or all of the Registrable Securities of the Holders may be excluded in accordance with the immediately preceding sentence. In no event will shares of any other selling shareholder be included in such registration which would reduce the number of shares which may be included by Holders without the written consent of Holders of at least fifty percent (50%) of the Registrable Securities proposed to be sold in the offering. 2.4 FORM S-3 REGISTRATION. In case the Company shall receive from any Holder or Holders of Registrable Securities a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company will: 2.4.1 promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders of Registrable Securities; and 2.4.2 as soon as practicable, effect such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holder's or Holders' Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holder or Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company; provided, however, that the Company shall not be obligated to effect any such registration, qualification or compliance pursuant to this Section 2.4: (i) if Form S-3 is not available for such offering by the Holders, (ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public of less than $500,000, (iii) if the Company shall furnish to the Holders a certificate signed by the Chairman of the Board of Directors of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its shareholders for such Form S-3 Registration to be effected at such time, in which event the Company shall have the right to defer the filing of the Form S-3 registration statement for a period of not more than ninety (90) days after receipt of the request of the Holder or Holders under this Section 2.4, provided that such right to delay a request shall be exercised by the Company no more than once in any one year period, (iv) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two (2) registrations on Form S-3 for the Holders pursuant to this Section 2.4, or (v) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance. 2.4.3 Subject to the foregoing, the Company shall file a Form S-3 registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Holders. 2.5 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Section 2.2 or any registration under Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling Expenses incurred in connection with any registrations hereunder, shall be borne by the holders of the securities so registered pro rata on the basis of the number of shares so registered. The Company shall not, however, be required to pay for expenses of any registration proceeding begun pursuant to Section 2.2 or 2.4, the request of which has been subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is based upon material adverse information concerning the Company of which the Initiating Holders were not aware at the time of such request or (b) the Holders of a majority of Registrable Securities agree to forfeit their right to one requested registration pursuant to Section 2.2 or Section 2.4 in which event such right shall be forfeited by all Holders). If the Holders are required to pay the Registration Expenses, such expenses shall be borne by the holders of securities (including Registrable Securities) requesting such registration in proportion to the number of shares for which registration was requested. If the Company is required to pay the Registration Expenses of a withdrawn offering pursuant to Section 2.5(a), then the Holders shall not forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand registration. 2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible: 2.6.1 Prepare and file with the SEC a registration statement with respect to such Registrable Securities and use its best efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for up to ninety (90) days. 2.6.2 Prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Securities Act with respect to the disposition of all securities covered by such registration statement. 2.6.3 Furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Securities Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them. 2.6.4 Use its best efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions. 2.6.5 In the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of such offering. Each Holder participating in such underwriting shall also enter into and perform its obligations under such an agreement. 2.6.6 Notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus relating thereto is required to be delivered under the Securities Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing. 2.6.7 Furnish, at the request of a majority of the Holders participating in the registration, on the date that such Registrable Securities are delivered to the underwriters for sale, if such securities are being sold through underwriters, or, if such securities are not being sold through underwriters, on the date that the registration statement with respect to such securities becomes effective, (i) an opinion, dated as of such date, of the counsel representing the Company for the purposes of such registration, in form and substance as is customarily given to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities and (ii) a letter dated as of such date, from the independent certified public accountants of the Company, in form and substance as is customarily given by independent certified public accountants to underwriters in an underwritten public offering and reasonably satisfactory to a majority in interest of the Holders requesting registration, addressed to the underwriters, if any, and to the Holders requesting registration of Registrable Securities. 2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted under this Section 2 shall terminate and be of no further force and effect seven (7) years after the date following the Company's Initial Offering. 2.8 DELAY OF REGISTRATION. No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 2. 2.9 INDEMNIFICATION. In the event any Registrable Securities are included in a registration statement under Sections 2.2, 2.3 or 2.4: 2.9.1 To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers and directors of each Holder, any underwriter (as defined in the Securities Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Securities Act or the Securities Exchange Act of 1934, as amended, (the "1934 Act"), against any losses, claims, damages, or liabilities (joint or several) to which they may become subject under the Securities Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a "Violation") by the Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state therein a material fact required to be stated therein, or necessary to make the statements therein not misleading, or (iii) any violation or alleged violation by the Company of the Securities Act, the 1934 Act, any state securities law or any rule or regulation promulgated under the Securities Act, the 1934 Act or any state securities law in connection with the offering covered by such registration statement; and the Company will reimburse each such Holder, partner, officer or director, underwriter or controlling person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in this Section 2.9.1 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation which occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by such Holder, partner, officer, director, underwriter or controlling person of such Holder. 2.9.2 To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers, each person, if any, who controls the Company within the meaning of the Securities Act, any underwriter and any other Holder selling securities under such registration statement or any of such other Holder's partners, directors or officers or any person who controls such Holder, against any losses, claims, damages or liabilities (joint or several) to which the Company or any such director, officer, controlling person, underwriter or other such Holder, or partner, director, officer or controlling person of such other Holder may become subject under the Securities Act, the 1934 Act or other federal or state law, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder under an instrument duly executed by such Holder and stated to be specifically for use in connection with such registration; and each such Holder will reimburse any legal or other expenses reasonably incurred by the Company or any such director, officer, controlling person, underwriter or other Holder, or partner, officer, director or controlling person of such other Holder in connection with investigating or defending any such loss, claim, damage, liability or action if it is judicially determined that there was such a Violation; provided, however, that the indemnity agreement contained in this Section 2.9.2 shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder, which consent shall not be unreasonably withheld; provided further, that in no event shall any indemnity under this Section 2.9.2 exceed the net proceeds from the offering received by such Holder. 2.9.3 Promptly after receipt by an indemnified party under this Section 2.9 of notice of the commencement of any action (including any governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 2.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in, and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party shall have the right to retain its own counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if materially prejudicial to its ability to defend such action, shall relieve such indemnifying party of any liability to the indemnified party under this Section 2.9, but the omission so to deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 2.9. 2.9.4 If the indemnification provided for in this Section 2.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or payable by such indemnified party as a result of such loss, claim, damage or liability in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and of the indemnified party on the other in connection with the Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant equitable considerations. The relative fault of the indemnifying party and of the indemnified party shall be determined by a court of law by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties' relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission. 2.9.5 The foregoing indemnity agreements of the Company and Holders are subject to the condition that, insofar as they relate to any Violation made in a preliminary prospectus but eliminated or remedied in the amended prospectus on file with the SEC at the time the registration statement in question becomes effective or the amended prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final Prospectus"), such indemnity agreement shall not inure to the benefit of any person if a copy of the Final Prospectus was furnished to the indemnified party and was not furnished to the person asserting the loss, liability, claim or damage at or prior to the time such action is required by the Securities Act. 2.9.6 The obligations of the Company and Holders under this Section 2.9 shall survive the completion of any offering of Registrable Securities in a registration statement, and otherwise. 2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register Registrable Securities pursuant to this Section 2 may be assigned by a Holder to a transferee or assignee of Registrable Securities; provided, however, that no such transferee or assignee shall be entitled to registration rights under Sections 2.2, 2.3 or 2.4 hereof unless it acquires at least fifty thousand (50,000) shares of Registrable Securities (as adjusted for stock splits and combinations) and the Company shall, within twenty (20) days after such transfer, be furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned. Notwithstanding the foregoing, rights to cause the Company to register securities may be assigned to any subsidiary, parent, general partner, limited partner, retired partner, family member or trust for the benefit of a Holder. 2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 2 may be amended and the observance thereof may be waived (either generally or in a particular instance and either retroactively or prospectively), only with the written consent of the Company and the Holders of more than fifty percent (50%) of the Registrable Securities. Any amendment or waiver effected in accordance with this Section 2.11 shall be binding upon each Holder and the Company. By acceptance of any benefits under this Section 2, Holders of Registrable Securities hereby agree to be bound by the provisions hereunder. 2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of this Agreement, the Company shall not, without the prior written consent of the Holders of a majority of the Registrable Securities, enter into any agreement with any holder or prospective holder of any securities of the Company that would permit such holder to require that the Company register any securities held by such holder. 2.13 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an underwriter of Common Stock (or other securities) of the Company, no Purchaser shall sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by such Purchaser (other than those included in the registration) for a period specified by the underwriters not to exceed one hundred eighty (180) days following the effective date of a registration statement of the Company filed under the Securities Act, provided that: 2.13.1 such agreement shall apply only to the Company's Initial Offering; and 2.13.2 all officers and directors of the Company and holders of at least one percent (1%) of the Company's voting securities enter into similar agreements. The obligations described in this Section 2.13 shall not apply to a registration relating solely to employee benefit plans on Form S-8 or similar form that may be promulgated in the future, or a registration relating solely to a Commission Rule 145 transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions with respect to the shares (or securities) subject to the foregoing restriction until the end of said one hundred eighty (180) day period. 3. COVENANTS. 3.1 BASIC FINANCIAL INFORMATION AND REPORTING. 3.1.1 The Company will maintain true books and records of account in which full and correct entries will be made of all its business transactions pursuant to a system of accounting established and administered in accordance with generally accepted accounting principles consistently applied, and will set aside on its books all such proper accruals and reserves as shall be required under generally accepted accounting principles consistently applied. 3.1.2 As soon as practicable after the end of each fiscal year of the Company, and in any event within 135 days thereafter, the Company will furnish each Purchaser an audited consolidated balance sheet of the Company, as at the end of such fiscal year, and an audited consolidated statement of income and an audited consolidated statement of cash flows of the Company, for such year, all prepared in accordance with generally accepted accounting principles and setting forth in each case in comparative form the figures for the previous fiscal year, all in reasonable detail. Such financial statements shall be accompanied by a report and opinion thereon by independent public accountants of national standing selected by the Company's Board of Directors. 3.1.3 The Company will furnish each Purchaser, as soon as practicable after the end of the first, second and third quarterly accounting periods in each fiscal year of the Company, and in any event within forty-five (45) days thereafter, a consolidated balance sheet of the Company as of the end of each such quarterly period, and a consolidated statement of income and a consolidated statement of cash flows of the Company for such period and for the current fiscal year to date. 3.1.4 So long as a Purchaser (with its affiliates) shall own not less than nine hundred thousand (900,000) shares of Registrable Securities (a "Major Purchaser"), the Company will furnish each such Major Purchaser (i) at least thirty (30) days prior to the beginning of each fiscal year an annual budget and operating plans for such fiscal year; and (ii) within thirty (30) days after the end of each month, an unaudited balance sheet and statements of income and cash flows. 3.2 INSPECTION RIGHTS. Each Major Purchaser shall have the right to visit and inspect any of the properties of the Company or any of its subsidiaries, and to discuss the affairs, finances and accounts of the Company or any of its subsidiaries with its officers, all at such reasonable times and as often as may be reasonably requested; provided, however, that the Company shall not be obligated under this Section 3.2 with respect to a competitor of the Company or with respect to information which the Board of Directors determines in good faith is confidential and should not, therefore, be disclosed. 3.3 CONFIDENTIALITY OF RECORDS. Each Purchaser agrees to use, and to use its best efforts to insure that its authorized representatives use, the same degree of care as such Purchaser uses to protect its own confidential information to keep confidential any information furnished to it which the Company identifies as being confidential or proprietary (so long as such information is not in the public domain), except that such Purchaser may disclose such proprietary or confidential information to any partner, subsidiary or parent of such Purchaser for the purpose of evaluating its investment in the Company as long as such partner, subsidiary or parent is advised of the confidentiality provisions of this Section 3.3. 3.4 RESERVATION OF COMMON STOCK. The Company will at all times reserve and keep available, solely for issuance and delivery upon the conversion of the Preferred Stock, all Common Stock issuable from time to time upon such conversion. 3.5 KEY MAN INSURANCE. The Company will use its best efforts to obtain and maintain in full force and effect term life insurance in the amount of five million ($5,000,000) dollars on the life of Jean-Louis Gassee, naming the Company as beneficiary. 3.6 REAL PROPERTY HOLDING CORPORATION. The Company covenants that it will operate in a manner such that it will not become a "United States real property holding corporation" as that term is defined in Section 897(c)(2) of the Internal Revenue Code of 1986, as amended, and the regulations thereunder ("FIRPTA"). The Company agrees to make determinations as to its status as a USRPHC, and will file statements concerning those determinations with the Internal Revenue Service, in the manner and at the times required under Reg. (S)1.897-2(h), or any supplementary or successor provision thereto. Within 30 days of a request from an Purchaser or any of its partners, the Company will inform the requesting party, in the manner set forth in Reg. (S)1.897- 2(h)(1)(iv) or any supplementary or successor provision thereto, whether that party's interest in the Company constitutes a United States real property interest (within the meaning of Internal Revenue Code Section 897(c)(1) and the regulations thereunder) and whether the Company has provided to the Internal Revenue Service all required notices as to its USRPHC status. 3.7 COVENANT TO APPROVE ACQUISITION BY LEAD INVESTOR. Each Purchaser hereby irrevocably agrees that in the event that the matter of the sale of assets of the Company as contemplated by, and subject to Lead Investor's satisfaction of all conditions set forth in, Section 9.3 of the Lead Investor Agreement as currently in effect, is submitted to a vote of the shareholders, such Purchaser shall vote its shares in favor of the sale of assets as set forth in such Section 9.3, provided that no amendment to such Section 9.3 shall be binding on the Purchaser unless approved in writing by a majority in interest of the Purchasers. 3.8 TERMINATION OF COVENANTS. All covenants of the Company contained in Section 3 of this Agreement shall expire and terminate as to each Purchaser after the time of effectiveness of the Company's first firm commitment underwritten public offering registered under the Securities Act. 4. RIGHTS OF FIRST REFUSAL. 4.1 SUBSEQUENT OFFERINGS. Each Major Purchaser shall have a right of first refusal to purchase its pro rata share of all Equity Securities, as defined below, that the Company may, from time to time, propose to sell and issue after the date of this Agreement, other than the Equity Securities excluded by Section 4.6 hereof. Each Major Purchaser's pro rata share is equal to the ratio of the number of shares of the Company's Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Preferred Stock and other convertible securities and the exercise of all outstanding options and warrants) of which such Major Purchaser is deemed to be a holder immediately prior to the issuance of such Equity Securities to the total number of shares of the Company's outstanding Common Stock (including all shares of Common Stock issued or issuable upon conversion of the Preferred Stock and other convertible securities and the exercise of all outstanding options and warrants). The term "Equity Securities" shall mean (i) any stock or similar security of the Company, (ii) any security convertible, with or without consideration, into any stock or similar security (including any option to purchase such a convertible security), (iii) any security carrying any warrant or right to subscribe to or purchase any stock or similar security or (iv) any such warrant or right. 4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity Securities, it shall give each Major Purchaser written notice of its intention, describing the Equity Securities, the price and the terms and conditions upon which the Company proposes to issue the same. Each Major Purchaser shall have fifteen (15) days from the giving of such notice to agree to purchase its pro rata share of the Equity Securities for the price and upon the terms and conditions specified in the notice by giving written notice to the Company and stating therein the quantity of Equity Securities to be purchased. Notwithstanding the foregoing, the Company shall not be required to offer or sell such Equity Securities to any Major Purchaser who would cause the Company to be in violation of applicable federal securities laws by virtue of such offer or sale. 4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If not all of the Major Purchasers elect to purchase their pro rata share of the Equity Securities, then the Company shall promptly notify in writing the Major Purchasers who do so elect and shall offer such Major Purchasers the right to acquire such unsubscribed shares ("Subscription Notice"). Each of such Major Purchasers shall have five (5) days after receipt of the Subscription Notice to notify the Company of its election to purchase all or a portion thereof of the unsubscribed shares. If the Major Purchasers fail to exercise in full the rights of first refusal, the Company shall have ninety (90) days thereafter to sell the Equity Securities in respect of which the Major Purchasers' rights were not exercised, at a price and upon terms and conditions no more favorable to the purchasers thereof than specified in the Company's notice to the Major Purchasers pursuant to Section 4.2 hereof. If the Company has not sold such Equity Securities within such ninety (90) days, the Company shall not thereafter issue or sell any Equity Securities, without first offering such securities to the Major Purchasers in the manner provided above. 4.4 TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of first refusal established by this Section 4 shall terminate upon the closing of an underwritten public offering of Common Stock of the Company made pursuant to an effective registration statement under the Securities Act. 4.5 TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first refusal of each Major Purchaser under this Section 4 may be transferred to any constituent partner or affiliate of such Major Purchaser, to any successor in interest to all or substantially all the assets of such Major Purchaser, or to a transferee who acquires at least five hundred thousand (500,000) shares of Registrable Securities. 4.6 EXCLUDED SECURITIES. The rights of first refusal established by this Section 4 shall have no application to any of the following Equity Securities: 4.6.1 up to 3,569,000 shares of Common Stock (and/or options, warrants or other Common Stock purchase rights issued pursuant to such options, warrants or other rights) issued or to be issued after the date hereof to employees, officers or directors of, or consultants or advisors to the Company or any subsidiary, pursuant to stock purchase or stock option plans or other arrangements that are approved by the Board (including therein options outstanding on the date hereof) plus any shares reacquired by the Company from such persons upon termination of such persons' service relationship with the Company; 4.6.2 stock issued pursuant to any rights or agreements outstanding as of the date of this Agreement, options and warrants outstanding as of the date of this Agreement; and stock issued pursuant to any such rights or agreements granted after the date of this Agreement, provided that the rights of first refusal established by this Section 4 applied with respect to the initial sale or grant by the Company of such rights or agreements; 4.6.3 any Equity Securities issued for consideration other than cash pursuant to a merger, consolidation, acquisition or similar business combination; 4.6.4 any Equity Securities that are issued by the Company as part of an underwritten public offering referred to in Section 4.4 hereof; 4.6.5 shares of Common Stock issued in connection with any stock split, stock dividend or recapitalization by the Company; 4.6.6 shares of Common Stock issued upon conversion of the Preferred Stock; and 4.6.7 any Equity Securities issued pursuant to any equipment leasing arrangement or bank financing approved by the Company's Board of Directors. 5. MISCELLANEOUS. 5.1 GOVERNING LAW. This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California. 5.2 SURVIVAL. The representations, warranties, covenants, and agreements made herein shall survive any investigation made by any Holder and the closing of the transactions contemplated hereby. All statements as to factual matters contained in any certificate or other instrument delivered by or on behalf of the Company pursuant hereto in connection with the transactions contemplated hereby shall be deemed to be representations and warranties by the Company hereunder solely as of the date of such certificate or instrument. 5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors, and administrators of the parties hereto and shall inure to the benefit of and be enforceable by each person who shall be a holder of Registrable Securities from time to time; provided, however, that prior to the receipt by the Company of adequate written notice of the transfer of any Registrable Securities specifying the full name and address of the transferee, the Company may deem and treat the person listed as the holder of such shares in its records as the absolute owner and holder of such shares for all purposes, including the payment of dividends or any redemption price. 5.4 SEPARABILITY. In case any provision of the Agreement shall be invalid, illegal, or unenforceable, the validity, legality, and enforceability of the remaining provisions shall not in any way be affected or impaired thereby. 5.5 AMENDMENT AND WAIVER. 5.5.1 By execution of this Agreement, the Company and the Prior Purchasers holding more than fifty percent (50%) of the Registrable Securities as defined in the Prior Agreement hereby amend the Prior Agreement in its entirety and supersede it by this Agreement. 5.5.2 Except as otherwise expressly provided, this Agreement may be amended or modified only upon the written consent of the Company and the holders of more than fifty percent (50%) of the Registrable Securities. 5.5.3 Except as otherwise expressly provided, the obligations of the Company and the rights of the Holders under this Agreement may be waived only with the written consent of the holders of more than fifty percent (50%) of the Registrable Securities. 5.6 DELAYS OR OMISSIONS. It is agreed that no delay or omission to exercise any right, power, or remedy accruing to any Holder, upon any breach, default or noncompliance of the Company under this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar breach, default or noncompliance thereafter occurring. It is further agreed that any waiver, permit, consent, or approval of any kind or character on any Holder's part of any breach, default or noncompliance under the Agreement or any waiver on such Holder's part of any provisions or conditions of this Agreement must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not alternative. 5.7 NOTICES. All notices required or permitted hereunder shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed telex or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the party to be notified at the address as set forth on the Schedule of Purchasers as attached to the Primary Agreement or at such other address as such party may designate by ten (10) days advance written notice to the other parties hereto. 5.8 TITLES AND SUBTITLES. The titles of the sections and subsections of this Agreement are for convenience of reference only and are not to be considered in construing this Agreement. 5.9 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall constitute one instrument. IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of the date set forth in the first paragraph hereof. COMPANY: BE INCORPORATED By: /s/ Jean-Louis Gassee ------------------------------ Jean-Louis Gassee Chief Executive Officer PURCHASER: By:_______________________________ Name:_____________________________ Title:____________________________ Address:__________________________ EX-10.1 7 FORM OF INDEMNITY AGREEMENT EXHIBIT 10.1 INDEMNITY AGREEMENT THIS AGREEMENT is made and entered into this ____ day of _________, 1999 by and between BE INCORPORATED, a Delaware corporation (the "Corporation"), and ____________ ("Agent"). RECITALS WHEREAS, Agent performs a valuable service to the Corporation in his/her capacity as _______________ of the Corporation; WHEREAS, the stockholders of the Corporation have adopted bylaws (the "Bylaws") providing for the indemnification of the directors, officers, employees and other agents of the Corporation, including persons serving at the request of the Corporation in such capacities with other corporations or enterprises, as authorized by the Delaware General Corporation Law, as amended (the "Code"); WHEREAS, the Bylaws and the Code, by their non-exclusive nature, permit contracts between the Corporation and its agents, officers, employees and other agents with respect to indemnification of such persons; and WHEREAS, in order to induce Agent to continue to serve as ______________ of the Corporation, the Corporation has determined and agreed to enter into this Agreement with Agent; NOW, THEREFORE, in consideration of Agent's continued service as _______________ after the date hereof, the parties hereto agree as follows: AGREEMENT 1. SERVICES TO THE CORPORATION. Agent will serve, at the will of the Corporation or under separate contract, if any such contract exists, as ______________ of the Corporation or as a director, officer or other fiduciary of an affiliate of the Corporation (including any employee benefit plan of the Corporation) faithfully and to the best of his ability so long as he is duly elected and qualified in accordance with the provisions of the Bylaws or other applicable charter documents of the Corporation or such affiliate; provided, however, that Agent may at any time and for any reason resign from such position (subject to any contractual obligation that Agent may have assumed apart from this Agreement) and that the Corporation or any affiliate shall have no obligation under this Agreement to continue Agent in any such position. 2. INDEMNITY OF AGENT. The Corporation hereby agrees to hold harmless and indemnify Agent to the fullest extent authorized or permitted by the provisions of the Bylaws and the Code, as the same may be amended from time to time (but, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than the Bylaws or the Code permitted prior to adoption of such amendment). 1. 3. ADDITIONAL INDEMNITY. In addition to and not in limitation of the indemnification otherwise provided for herein, and subject only to the exclusions set forth in Section 4 hereof, the Corporation hereby further agrees to hold harmless and indemnify Agent: (A) against any and all expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that Agent becomes legally obligated to pay because of any claim or claims made against or by him in connection with any threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative (including an action by or in the right of the Corporation) to which Agent is, was or at any time becomes a party, or is threatened to be made a party, by reason of the fact that Agent is, was or at any time becomes a director, officer, employee or other agent of Corporation, or is or was serving or at any time serves at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise; and (B) otherwise to the fullest extent as may be provided to Agent by the Corporation under the non-exclusivity provisions of the Code and Section 43 of the Bylaws. 4. LIMITATIONS ON ADDITIONAL INDEMNITY. No indemnity pursuant to Section 3 hereof shall be paid by the Corporation: (A) on account of any claim against Agent for an accounting of profits made from the purchase or sale by Agent of securities of the Corporation pursuant to the provisions of Section 16(b) of the Securities Exchange Act of 1934 and amendments thereto or similar provisions of any federal, state or local statutory law; (B) on account of Agent's conduct that was knowingly fraudulent or deliberately dishonest or that constituted willful misconduct; (C) on account of Agent's conduct that constituted a breach of Agent's duty of loyalty to the Corporation or resulted in any personal profit or advantage to which Agent was not legally entitled; (D) for which payment is actually made to Agent under a valid and collectible insurance policy or under a valid and enforceable indemnity clause, bylaw or agreement, except in respect of any excess beyond payment under such insurance, clause, bylaw or agreement; (E) if indemnification is not lawful (and, in this respect, both the Corporation and Agent have been advised that the Securities and Exchange Commission believes that indemnification for liabilities arising under the federal securities laws is against public policy and is, therefore, unenforceable and that claims for indemnification should be submitted to appropriate courts for adjudication); or (F) in connection with any proceeding (or part thereof) initiated by Agent, or any proceeding by Agent against the Corporation or its directors, officers, employees or other agents, unless (i) such indemnification is expressly required to be made by law, (ii) the proceeding was authorized by the Board of Directors of the Corporation, (iii) such indemnification is provided by the Corporation, in its sole discretion, pursuant to the powers 2. vested in the Corporation under the Code, or (iv) the proceeding is initiated pursuant to Section 9 hereof. 5. CONTINUATION OF INDEMNITY. All agreements and obligations of the Corporation contained herein shall continue during the period Agent is a director, officer, employee or other agent of the Corporation (or is or was serving at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise) and shall continue thereafter so long as Agent shall be subject to any possible claim or threatened, pending or completed action, suit or proceeding, whether civil, criminal, arbitrational, administrative or investigative, by reason of the fact that Agent was serving in the capacity referred to herein. 6. PARTIAL INDEMNIFICATION. Agent shall be entitled under this Agreement to indemnification by the Corporation for a portion of the expenses (including attorneys' fees), witness fees, damages, judgments, fines and amounts paid in settlement and any other amounts that Agent becomes legally obligated to pay in connection with any action, suit or proceeding referred to in Section 3 hereof even if not entitled hereunder to indemnification for the total amount thereof, and the Corporation shall indemnify Agent for the portion thereof to which Agent is entitled. 7. NOTIFICATION AND DEFENSE OF CLAIM. Not later than thirty (30) days after receipt by Agent of notice of the commencement of any action, suit or proceeding, Agent will, if a claim in respect thereof is to be made against the Corporation under this Agreement, notify the Corporation of the commencement thereof; but the omission so to notify the Corporation will not relieve it from any liability which it may have to Agent otherwise than under this Agreement. With respect to any such action, suit or proceeding as to which Agent notifies the Corporation of the commencement thereof: (A) the Corporation will be entitled to participate therein at its own expense; (B) except as otherwise provided below, the Corporation may, at its option and jointly with any other indemnifying party similarly notified and electing to assume such defense, assume the defense thereof, with counsel reasonably satisfactory to Agent. After notice from the Corporation to Agent of its election to assume the defense thereof, the Corporation will not be liable to Agent under this Agreement for any legal or other expenses subsequently incurred by Agent in connection with the defense thereof except for reasonable costs of investigation or otherwise as provided below. Agent shall have the right to employ separate counsel in such action, suit or proceeding but the fees and expenses of such counsel incurred after notice from the Corporation of its assumption of the defense thereof shall be at the expense of Agent unless (i) the employment of counsel by Agent has been authorized by the Corporation, (ii) Agent shall have reasonably concluded that there may be a conflict of interest between the Corporation and Agent in the conduct of the defense of such action or (iii) the Corporation shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of Agent's separate counsel shall be at the expense of the Corporation. The Corporation shall not be entitled to assume the defense of any action, suit or proceeding brought by or on behalf of the Corporation or as to which Agent shall have made the conclusion provided for in clause (ii) above; and 3. (C) the Corporation shall not be liable to indemnify Agent under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent, which shall not be unreasonably withheld. The Corporation shall be permitted to settle any action except that it shall not settle any action or claim in any manner which would impose any penalty or limitation on Agent without Agent's written consent, which may be given or withheld in Agent's sole discretion. 8. EXPENSES. The Corporation shall advance, prior to the final disposition of any proceeding, promptly following request therefor, all expenses incurred by Agent in connection with such proceeding upon receipt of an undertaking by or on behalf of Agent to repay said amounts if it shall be determined ultimately that Agent is not entitled to be indemnified under the provisions of this Agreement, the Bylaws, the Code or otherwise. 9. ENFORCEMENT. Any right to indemnification or advances granted by this Agreement to Agent shall be enforceable by or on behalf of Agent in any court of competent jurisdiction if (i) the claim for indemnification or advances is denied, in whole or in part, or (ii) no disposition of such claim is made within ninety (90) days of request therefor. Agent, in such enforcement action, if successful in whole or in part, shall be entitled to be paid also the expense of prosecuting his claim. It shall be a defense to any action for which a claim for indemnification is made under Section 3 hereof (other than an action brought to enforce a claim for expenses pursuant to Section 8 hereof, provided that the required undertaking has been tendered to the Corporation) that Agent is not entitled to indemnification because of the limitations set forth in Section 4 hereof. Neither the failure of the Corporation (including its Board of Directors or its stockholders) to have made a determination prior to the commencement of such enforcement action that indemnification of Agent is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors or its stockholders) that such indemnification is improper shall be a defense to the action or create a presumption that Agent is not entitled to indemnification under this Agreement or otherwise. 10. SUBROGATION. In the event of payment under this Agreement, the Corporation shall be subrogated to the extent of such payment to all of the rights of recovery of Agent, who shall execute all documents required and shall do all acts that may be necessary to secure such rights and to enable the Corporation effectively to bring suit to enforce such rights. 11. NON-EXCLUSIVITY OF RIGHTS. The rights conferred on Agent by this Agreement shall not be exclusive of any other right which Agent may have or hereafter acquire under any statute, provision of the Corporation's Certificate of Incorporation or Bylaws, agreement, vote of stockholders or directors, or otherwise, both as to action in his official capacity and as to action in another capacity while holding office. 4. 12. SURVIVAL OF RIGHTS. (A) The rights conferred on Agent by this Agreement shall continue after Agent has ceased to be a director, officer, employee or other agent of the Corporation or to serve at the request of the Corporation as a director, officer, employee or other agent of another corporation, partnership, joint venture, trust, employee benefit plan or other enterprise and shall inure to the benefit of Agent's heirs, executors and administrators. (B) The Corporation shall require any successor (whether direct or indirect, by purchase, merger, consolidation or otherwise) to all or substantially all of the business or assets of the Corporation, expressly to assume and agree to perform this Agreement in the same manner and to the same extent that the Corporation would be required to perform if no such succession had taken place. 13. SEPARABILITY. Each of the provisions of this Agreement is a separate and distinct agreement and independent of the others, so that if any provision hereof shall be held to be invalid for any reason, such invalidity or unenforceability shall not affect the validity or enforceability of the other provisions hereof. Furthermore, if this Agreement shall be invalidated in its entirety on any ground, then the Corporation shall nevertheless indemnify Agent to the fullest extent provided by the Bylaws, the Code or any other applicable law. 14. GOVERNING LAW. This Agreement shall be interpreted and enforced in accordance with the laws of the State of Delaware. 15. AMENDMENT AND TERMINATION. No amendment, modification, termination or cancellation of this Agreement shall be effective unless in writing signed by both parties hereto. 16. IDENTICAL COUNTERPARTS. This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute but one and the same Agreement. Only one such counterpart need be produced to evidence the existence of this Agreement. 17. HEADINGS. The headings of the sections of this Agreement are inserted for convenience only and shall not be deemed to constitute part of this Agreement or to affect the construction hereof. 18. NOTICES. All notices, requests, demands and other communications hereunder shall be in writing and shall be deemed to have been duly given (i) upon delivery if delivered by hand to the party to whom such communication was directed or (ii) upon the third business day after the date on which such communication was mailed if mailed by certified or registered mail with postage prepaid: (A) If to Agent, at the address indicated on the signature page hereof. 5. (B) If to the Corporation, to Be Incorporated 800 El Camino Real, Suite 400 Menlo Park, CA 94025 or to such other address as may have been furnished to Agent by the Corporation. IN WITNESS WHEREOF, the parties hereto have executed this Agreement on and as of the day and year first above written. BE INCORPORATED By:___________________________________ Title:________________________________ AGENT ______________________________________ Address: ______________________________________ ______________________________________ 6. EX-10.2.1 8 1992 STOCK OPTION PLAN EXHIBIT 10.2.1 BE INCORPORATED 1992 STOCK OPTION PLAN Adopted by the Board of Directors February 5, 1992 Amended by the Board of Directors January 27, 1998 Approved by the Shareholders January 27, 1998 1. PURPOSES. -------- (a) The purpose of the Plan is to provide a means by which selected Employees, Directors of and Consultants to the Company, and its Affiliates, may be given an opportunity to purchase stock of the Company. (b) The Company, by means of the Plan, seeks to retain the services of persons who are now Employees, Directors of or Consultants to the Company or its affiliates, to secure and retain the services of new Employees, Directors and Consultants, and to provide incentives for such persons to exert maximum efforts for the success of the Company and its affiliates. (c) The Company intends that the Options issued under the Plan shall, in the discretion of the Board or any Committee to which responsibility for administration of the Plan has been delegated pursuant to subsection 3(c), be either Incentive Stock Options or Nonstatutory Stock Options. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and in such form as issued pursuant to Section 6, and a separate certificate or certificates will be issued for shares purchased on exercise of each type of Option. 2. DEFINITIONS. ----------- (a) "AFFILIATE" means any parent corporation or subsidiary --------- corporation, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f) respectively, of the Code. (b) "BOARD" means the Board of Directors of the Company. ----- (c) "CODE" means the Internal Revenue Code of 1986, as amended. ---- (d) "COMMITTEE" means a Committee appointed by the Board in --------- accordance with subsection 3(c) of the Plan. (e) "COMPANY" means Be Incorporated, a California corporation. ------- (f) "CONSULTANT" means any person, including an advisor, engaged by ---------- the Company or an Affiliate to render consulting services and who is compensated for such services, provided that the term "Consultant" shall not include Directors who are paid only a director's fee by the Company or who are not compensated by the Company for their services as Directors. (g) "CONTINUOUS STATUS AS AN EMPLOYEE, DIRECTOR OR CONSULTANT" means -------------------------------------------------------- that the service of an individual to the Company, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Board, in its sole discretion, may determine whether Continuous Status as an Employee, Director or Consultant shall be considered interrupted in the case of: (i) any leave of absence approved by the Board, including sick leave, military leave, or any other personal leave; or (ii) transfers between locations of the Company or between the Company, Affiliates or their successors. (h) "DIRECTOR" means a member of the Board. -------- (i) "DISINTERESTED PERSON" means a Director: who either (i) was not -------------------- during the one year prior to service as an administrator of the Plan granted or awarded equity securities pursuant to the Plan or any other plan of the Company or any affiliate entitling the participants therein to acquire equity securities of the Company or any affiliate except as permitted by Rule 16b-3(c)(2)(i); or (ii) is otherwise considered to be a "disinterested person" in accordance 2 with Rule 16b-3(c)(2)(i), or any other applicable rules, regulations or interpretations of the Securities and Exchange Commission. (j) "EMPLOYEE" means any person, including Officers and Directors, -------- employed by the Company or any Affiliate of the Company. Neither service as a Director nor payment of a director's fee by the Company shall be sufficient to constitute "employment" by the Company. (k) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as ------------ amended. (l) "FAIR MARKET VALUE" means, the value of the common stock of the ----------------- Company determined in good faith by the Board and in a manner consistent with Section 260.140.50 of Title 10 of the California Code of Regulations. (m) "INCENTIVE STOCK OPTION" means an Option intended to qualify as ---------------------- an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (n) "NONSTATUTORY STOCK OPTION" means an Option not intended to ------------------------- qualify as an Incentive Stock Option. (o) "OFFICER" means a person who is an officer of the Company within ------- the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (p) "OPTION" means a stock option granted pursuant to the Plan. ------ (q) "OPTION AGREEMENT" means a written agreement between the Company ---------------- and an Optionee evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (r) "OPTIONEE" means a person who holds an outstanding Option. -------- (s) "PLAN" means this 1992 Stock Option Plan. ---- 3 (t) "RULE 16B-3" means Rule 16b-3 of the Exchange Act or any ---------- successor to Rule 16b-3, as in effect when discretion is being exercised with respect to the Plan. 3. ADMINISTRATION. -------------- (a) The Plan shall be administered by the Board unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (1) To determine from time to time which of the persons eligible under the Plan shall be granted Options; when and how each Option shall be granted; whether an Option will be an Incentive Stock Option or a Nonstatutory Stock Option; the provisions of each Option granted (which need not be identical), including the time or times such Option may be exercised in whole or in part; and the number of shares for which an Option shall be granted to each such person. (2) To construe and interpret the Plan and Options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Option Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (3) To amend the Plan or an Option as provided in Section 11. (c) The Board may delegate administration of the Plan to a committee composed of not fewer than two (2) members (the "Committee"), all of the members of which Committee shall be Disinterested Persons. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by 4 the Board (and references in this Plan to the Board shall thereafter be to the Committee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. Additionally, prior to the date of the first registration of an equity security of the Company under Section 12 of the Exchange Act, and notwithstanding anything to the contrary contained herein, the Board may delegate administration of the Plan to any person or persons and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. Notwithstanding anything in this Section 3 to the contrary, the Board or the Committee may delegate to a committee of one or more members of the Board the authority to grant Options to eligible persons who (1) are not then subject to Section 16 of the Exchange Act and/or (2) are either (i) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Option, or (ii) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code. (d) Any requirement that an administrator of the Plan be a Disinterested Person shall not apply (i) prior to the date of the first registration of an equity security of the Company under Section 12 of the Exchange Act, or (ii) if the Board or the Committee expressly declares that such requirement shall not apply. Any Disinterested Person shall otherwise comply with the requirements of Rule 16b-3. 4. SHARES SUBJECT TO THE PLAN. -------------------------- (a) Subject to the provisions of Section 10 relating to adjustments upon changes in stock, the stock that may be sold pursuant to Options shall not exceed in the aggregate eight million (8,000,000) shares of the Company's common stock. If any Option shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the 5 stock not purchased under such Option shall revert to and again become available for issuance under the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. ELIGIBILITY. ----------- (a) Incentive Stock Options may be granted only to Employees. Nonstatutory Stock Options may be granted only to Employees, Directors or Consultants. (b) A Director shall in no event be eligible for the benefits of the Plan unless at the time discretion is exercised in the selection of the Director as a person to whom Options may be granted, or in the determination of the number of shares which may be covered by Options granted to the Director: (i) the Board has delegated its discretionary authority over the Plan to a Committee which consists solely of Disinterested Persons; or (ii) the Plan otherwise complies with the requirements of Rule 16b-3. The Board shall otherwise comply with the requirements of Rule 16b-3. This subsection 5(b) shall not apply (i) prior to the date of the first registration of an equity security of the Company under Section 12 of the Exchange Act, or (ii) if the Board or Committee expressly declares that it shall not apply. (c) No person shall be eligible for the grant of an Option if, at the time of grant, such person owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of such stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. 6. OPTION PROVISIONS. ----------------- 6 Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (a) TERM. No Option shall be exercisable after the expiration of ten ---- (10) years from the date it was granted. (b) PRICE. The exercise price of each Incentive Stock Option shall ----- be not less than one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted; the exercise price of each Nonstatutory Stock Option shall be not less than eighty-five percent (85%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Option (whether an Incentive Stock Option or a Nonstatutory Stock Option) may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (c) CONSIDERATION. The purchase price of stock acquired pursuant ------------- to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised, or (ii) at the discretion of the Board or the Committee, at the time of the grant of the Option, (A) by delivery to the Company of other common stock of the Company, (B) according to a deferred payment or other arrangement (which may include, without limiting the generality of the foregoing, the use of other common stock of the Company) with the person to whom the Option is granted or to whom the Option is transferred pursuant to 7 subsection 6(d), or (C) in any other form of legal consideration that may be acceptable to the Board. In the case of any deferred payment arrangement, interest shall be payable at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (d) TRANSFERABILITY. An Incentive Stock Option shall not be --------------- transferable except by will or by the laws of descent and distribution, and shall be exercisable during the lifetime of the person to whom the Incentive Stock Option is granted only by such person. A Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution or pursuant to a qualified domestic relations order satisfying the requirements of Rule 16b-3 and the rules thereunder (a "QDRO"), and shall be exercisable during the lifetime of the person to whom the Option is granted only by such person or any transferee pursuant to a QDRO. The person to whom the Option is granted may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionee, shall thereafter be entitled to exercise the Option. (e) Vesting. The total number of shares of stock subject to an Option ------- may, but need not, be allotted in periodic installments (which may, but need not, be equal). The Option Agreement may provide that from time to time during each of such installment periods, the Option may become exercisable ("vest") with respect to some or all of the shares allotted to that period, and may be exercised with respect to some or all of the shares allotted to such period and/or any prior period as to which the Option became vested but was not fully exercised. The Option may be subject to such other terms and conditions on the time or times when it may be 8 exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary but in each case will, to the extent required by applicable law, provide for vesting of at least twenty percent (20%) per year of the total number of shares subject to the Option. The provisions of this subsection 6(e) are subject to any Option provisions governing the minimum number of shares as to which an Option may be exercised. (f) SECURITIES LAW COMPLIANCE. The Company may require any Optionee, ------------------------- or any person to whom an Option is transferred under subsection 6(d), as a condition of exercising any such Option, (1) to give written assurances satisfactory to the Company as to the Optionee's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters, and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (2) to give written assurances satisfactory to the Company stating that such person is acquiring the stock subject to the Option for such person's own account and not with any present intention of selling or otherwise distributing the stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (i) the issuance of the shares upon the exercise of the Option has been registered under a then currently effective registration statement under the Securities Act of 1933, as amended (the "Securities Act"), or (ii) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may require the Optionee to provide such other representations, written assurances or information which the Company shall determine is necessary, desirable or appropriate to comply with 9 applicable securities and other laws as a condition of granting an Option to such Optionee or permitting the Optionee to exercise such Option. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (g) TERMINATION OF EMPLOYMENT OR RELATIONSHIP AS A DIRECTOR OR ---------------------------------------------------------- CONSULTANT. In the event an Optionee's Continuous Status as an Employee, - ---------- Director or Consultant terminates (other than upon the Optionee's death or disability), the Optionee may exercise his or her Option (to the extent that the Optionee was entitled to exercise it as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months after the termination of the Optionee's Continuous Status as an Employee, Director or Consultant, or such longer or shorter period, which in no event shall be less than thirty (30) days, specified in the Option Agreement, or (ii) the expiration of the term of the Option as set forth in the Option Agreement). If, after termination, the Optionee does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (h) DISABILITY OF OPTIONEE. In the event an Optionee's Continuous ---------------------- Status as an Employee, Director or Consultant terminates as a result of the Optionee's disability, the Optionee may exercise his or her Option, (to the extent that the Optionee was entitled to exercise it as of the date of termination) but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such shorter period, which in no event shall be less than six (6) months, specified in the Option Agreement), or (ii) the expiration of the term of the Option as set forth in the Option Agreement). If, at the date of termination, the 10 Optionee is not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after termination, the Optionee does not exercise his or her Option within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (i) DEATH OF OPTIONEE. In the event of the death of an Optionee during, ----------------- or within a period specified in the Option Agreement after the termination of, the Optionee's Continuous Status as an Employee, Director or Consultant, the Option may be exercised (to the extent the Optionee was entitled to exercise the Option as of the date of death) by the Optionee's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionee's death pursuant to subsection 6(d), but only within the period ending on the earlier of (i) the date eighteen (18) months following the date of death (or such longer or shorter period, which in no event shall be less than six (6) months, specified in the Option Agreement), or (ii) the expiration of the term of such Option as set forth in the Option Agreement. If, at the time of death, the Optionee was not entitled to exercise his or her entire Option, the shares covered by the unexercisable portion of the Option shall revert to and again become available for issuance under the Plan. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate, and the shares covered by such Option shall revert to and again become available for issuance under the Plan. (j) EARLY EXERCISE. The Option may, but need not, include a provision -------------- whereby the Optionee may elect at any time while an Employee, Director or Consultant to exercise the Option as to any part or all of the shares subject to the Option prior to the full vesting of the Option. Any unvested shares so purchased shall be subject to a repurchase right in favor of the 11 Company, with the repurchase price to be equal to the original purchase price of the stock, or to any other restriction the Board determines to be appropriate; provided, however, that to the extent required by applicable law (i) the right to repurchase at the original purchase price shall lapse at a minimum rate of twenty percent (20%) per year over five (5) years from the date the Option was granted, and (ii) such right shall be exercisable only within (A) the ninety (90) day period following the termination of employment [or the relationship as a Director or Consultant, or (B) such longer period as may be agreed to by the Company and the Optionee (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code (regarding "qualified small business stock")), and (iii) such right shall be exercisable only for cash or cancellation of purchase money indebtedness for the shares. Should the right of repurchase be assigned by the Company, the assignee shall pay the Company cash equal to the difference between the original purchase price and the stock's Fair Market Value if the original purchase price is less than the stock's Fair Market Value. (k) WITHHOLDING. To the extent provided by the terms of an Option ----------- Agreement, the Optionee may satisfy any federal, state or local tax withholding obligation relating to the exercise of such Option by any of the following means or by a combination of such means: (1) tendering a cash payment; (2) authorizing the Company to withhold shares from the shares of the common stock otherwise issuable to the Optionee as a result of the exercise of the Option; or (3) delivering to the Company owned and unencumbered shares of the common stock of the Company. 7. COVENANTS OF THE COMPANY. ------------------------ (a) During the terms of the Options, the Company shall keep available at all times the number of shares of stock required to satisfy such Options. 12 (b) The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the Options; provided, however, that this undertaking shall not require the Company to register under the Securities Act either the Plan, any Option or any stock issued or issuable pursuant to any such Option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Options unless and until such authority is obtained. 8. USE OF PROCEEDS FROM STOCK. -------------------------- Proceeds from the sale of stock pursuant to Options shall constitute general funds of the Company. 9. MISCELLANEOUS. ------------- (a) Neither an Optionee nor any person to whom an Option is transferred under subsection 6(d) shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option unless and until such person has satisfied all requirements for exercise of the Option pursuant to its terms. (b) Throughout the term of any Option, to the extent required by applicable law, the Company shall deliver to the holder of such Option, not later than one hundred twenty (120) days after the close of each of the Company's fiscal years during the Option term, a balance sheet and an income statement. This section shall not apply when issuance is limited to key employees whose duties in connection with the Company assure them access to equivalent information. 13 (c) Nothing in the Plan or any instrument executed or Option granted pursuant thereto shall confer upon any Employee, Director, Consultant or Optionee any right to continue in the employ of the Company or any Affiliate (or to continue acting as a Director or Consultant) or shall affect the right of the Company or any Affiliate to terminate the employment of any Employee, with or without cause, to remove any Director as provided in the Company's By-Laws and the provisions of the General Corporation Law of the State of California, or to terminate the relationship of any Consultant in accordance with the terms of that Consultant's agreement with the Company or Affiliate to which such Consultant is providing services. (d) To the extent that the aggregate Fair Market Value (determined at the time of grant) of stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionee during any calendar year under all plans of the Company and its Affiliates exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. (e) The Board or the Committee shall have the authority to effect, at any time and from time to time (i) the repricing of any outstanding Options under the Plan and/or (ii) with the consent of the affected holders of Options, the cancellation of any outstanding Options and the grant in substitution therefor of new Options under the Plan covering the same or different numbers of shares of common stock, but having an exercise price per share not less than eighty-five percent (85%) percent of the Fair Market Value (one hundred percent (100%) of the Fair Market Value in the case of an Incentive Stock Option or, in the case of a ten percent (10%) shareholder (as defined in subsection 5(c)), not less than one hundred and ten percent (110%) of the Fair Market Value) per share of common stock on the new grant date. 14 10. ADJUSTMENTS UPON CHANGES IN STOCK. --------------------------------- (a) If any change is made in the stock subject to the Plan, or subject to any Option (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan pursuant to subsection 4(a), and the outstanding Options will be appropriately adjusted in the class(es) and number of shares and price per share of stock subject to such outstanding Options. Such adjustments shall be made by the Board or Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company.") (b) In the event of: (1) a merger or consolidation in which the Company is not the surviving corporation or (2) a reverse merger in which the Company is the surviving corporation but the shares of the Company's common stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) the acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or any Affiliate of the Company) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of directors, then to the extent not prohibited by applicable law: (i) any surviving or 15 acquiring corporation shall assume any Options outstanding under the Plan or shall substitute similar Options (including an option to acquire the same consideration paid to the shareholders in the transaction described in this subsection 10(b)) for those outstanding under the Plan, or (ii) such Options shall continue in full force and effect. In the event any surviving or acquiring corporation refuses to assume or continue such Options, or to substitute similar options for those outstanding under the Plan, then such Options shall terminate if not exercised prior to such event. In the event of a dissolution or liquidation of the Company, any Options outstanding under the Plan shall terminate if not exercised prior to such event. 11. AMENDMENT OF THE PLAN AND OPTIONS. --------------------------------- (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 10 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the shareholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (i) Increase the number of shares reserved for Options under the Plan; (ii) Modify the requirements as to eligibility for participation in the Plan (to the extent such modification requires shareholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code); or (iii) Modify the Plan in any other way if such modification requires shareholder approval in order for the Plan to satisfy the requirements of Section 422 of the Code or to comply with the requirements of Rule 16b-3. (b) The Board may in its sole discretion submit any other amendment to the Plan for shareholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations promulgated 16 thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (c) It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide Optionees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (d) Rights and obligations under any Option granted before amendment of the Plan shall not be altered or impaired by any amendment of the Plan unless (i) the Company requests the consent of the person to whom the Option was granted and (ii) such person consents in writing. (e) The Board at any time, and from time to time, may amend the terms of any one or more Options; provided, however, that the rights and obligations under any Option shall not be impaired by any such amendment unless (i) the Company requests the consent of the person to whom the Option was granted and (ii) such person consents in writing. 12. TERMINATION OR SUSPENSION OF THE PLAN. ------------------------------------- (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate on January 31, 2002, which shall be within ten (10) years from the date the Plan is adopted by the Board or approved by the shareholders of the Company, whichever is earlier. No Options may be granted under the Plan while the Plan is suspended or after it is terminated. 17 (b) Rights and obligations under any Option granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except with the consent of the person to whom the Option was granted. 13. EFFECTIVE DATE OF PLAN. ---------------------- The Plan shall become effective as determined by the Board, but no Options granted under the Plan shall be exercised unless and until the Plan has been approved by the shareholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board and, if required, an appropriate permit has been issued by the Commissioner of Corporations of the State of California. 18 EX-10.2.2 9 FORM OF 1992 STOCK OPTION AGREEMENT EXHIBIT 10.2.2 BE INCORPORATED INCENTIVE STOCK OPTION (1992 STOCK OPTION PLAN) ___________________, Optionee: Be Incorporated (the "Company"), pursuant to its 1992 Stock Option Plan (the "Plan"), has granted to you, the optionee named above, an option to purchase shares of the common stock of the Company ("Common Stock"). This option is intended to qualify as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The grant hereunder is in connection with and in furtherance of the Company's compensatory benefit plan for participation of the Company's employees (including officers), directors or consultants and is intended to comply with the provisions of Rule 701 promulgated by the Securities and Exchange Commission under the Securities Act of 1933, as amended (the "Act"). Defined terms not explicitly defined in this agreement but defined in the Plan shall have the same definitions as in the Plan. The details of your option are as follows: 1. TOTAL NUMBER OF SHARES SUBJECT TO THIS OPTION. The total number of shares of Common Stock subject to this option is ________________________ (____________). 2. VESTING. Subject to the limitations contained herein, 25% of the shares will vest (become exercisable) on ____________________ and 1/48th of the total shares will then vest each month thereafter until either (i) you cease to provide services to the Company for any reason, or (ii) this option becomes fully vested. 3. EXERCISE PRICE AND METHOD OF PAYMENT. (a) EXERCISE PRICE. The exercise price of this option is ____________ ($_____) per share, being not less than the fair market value of the Common Stock on the date of grant of this option. (b) METHOD OF PAYMENT. Payment of the exercise price per share is due in full upon exercise of all or any part of each installment which has accrued to you. You may elect, to the extent permitted by applicable statutes and regulations, to make payment of the exercise price under one of the following alternatives: (i) Payment of the exercise price per share in cash (including check) at the time of exercise; or (ii) Payment pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board which, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds. 4. EXERCISE PRIOR TO VESTING PERMITTED. (a) CONDITIONS OF EARLY EXERCISE. Subject to the provisions of this option you may elect at any time during your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company to exercise the option as to any part or all of the shares subject to this option at any time during the term hereof, including without limitation, a time prior to the date of earliest exercise ("vesting") stated in paragraph 2 hereof; provided, however, that: (i) a partial exercise of this option shall be deemed to cover first vested shares and then the earliest vesting installment of unvested shares; (ii) any shares so purchased from installments which have not vested as of the date of exercise shall be subject to the purchase option in favor of the Company as described in the Early Exercise Stock Purchase Agreement attached hereto; (iii) you shall enter into an Early Exercise Stock Purchase Agreement in the form attached hereto with a vesting schedule that will result in the same vesting as if no early exercise had occurred; and (iv) this option shall not be exercisable under this paragraph 4 to the extent such exercise would cause the aggregate fair market value of any shares subject to incentive stock options granted you by the Company or any Affiliate of the Company (valued as of their grant date) which would become exercisable for the first time during any calendar year to exceed $100,000. (b) EXPIRATION OF EARLY EXERCISE ELECTION. The election provided in this paragraph 4 to purchase shares upon the exercise of this option prior to the vesting dates shall cease upon termination of your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company and may not be exercised after the date thereof. 5. WHOLE SHARES. This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares. 6. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, this option may not be exercised unless the shares issuable upon exercise of this option are then registered under the Act or, if such shares are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Act. 7. TERM. The term of this option commences on May 26, 1998, the date of grant, and expires on May 25, 2008 (the "Expiration Date," which date shall be no more than ten (10) years from date this option is granted), unless this option expires sooner as set forth below or in the Plan. In no event may this option be exercised on or after the Expiration Date. This option shall terminate prior to the Expiration Date as follows: three (3) months after the termination of your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company unless one of the following circumstances exists: (a) Your termination of Continuous Status as an Employee, Director or Consultant is due to your disability. This option will then expire on the earlier of the Expiration Date set forth above or twelve (12) months following such termination of Continuous Status as an Employee, Director or Consultant. You should be aware that if your disability is not considered a permanent and total disability within the meaning of Section 422(c)(6) of the Code, and you exercise this option more than three (3) months following the date of your termination of employment, your exercise will be treated for tax purposes as the exercise of a "nonstatutory stock option" instead of an "incentive stock option." (b) Your termination of Continuous Status as an Employee, Director or Consultant is due to your death or your death occurs within three (3) months following your termination of Continuous Status as an Employee, Director or Consultant for any other reason. This option will then expire on the earlier of the Expiration Date set forth above or twelve (12) months after your death. (c) If during any part of such three (3) month period you may not exercise your option solely because of the condition set forth in paragraph 6 above, then your option will not expire until the earlier of the Expiration Date set forth above or until this option shall have been exercisable for an aggregate period of three (3) months after your termination of Continuous Status as an Employee, Director or Consultant. (d) If your exercise of the option within three (3) months after termination of your Continuous Status as an Employee, Director or Consultant with the Company or with an Affiliate of the Company would result in liability under section 16(b) of the Securities Exchange Act of 1934, then your option will expire on the earlier of (i) the Expiration Date set forth above, (ii) the tenth (10th) day after the last date upon which exercise would result in such liability or (iii) six (6) months and ten (10) days after the termination of your Continuous Status as an Employee, Director or Consultant with the Company or an Affiliate of the Company. However, this option may be exercised following termination of Continuous Status as an Employee, Director or Consultant only as to that number of shares as to which it was exercisable on the date of termination of Continuous Status as an Employee, Director or Consultant under the provisions of paragraph 2 of this option. In order to obtain the federal income tax advantages associated with an "incentive stock option," the Code requires that at all times beginning on the date of grant of the option and ending on the day three (3) months before the date of the option's exercise, you must be an employee of the Company or an Affiliate of the Company, except in the event of your death or permanent and total disability. The Company has provided for continued vesting or extended exercisability of your option under certain circumstances for your benefit, but cannot guarantee that your option will necessarily be treated as an "incentive stock option" if you provide services to the Company or an Affiliate of the Company as a consultant or exercise your option more than three (3) months after the date your employment with the Company and all Affiliates of the Company terminates. 8. EXERCISE. (a) This option may be exercised, to the extent specified above, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to subsection 6(f) of the Plan. (b) By exercising this option you agree that: (i) as a precondition to the completion of any exercise of this option, the Company may require you to enter an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of this option; (2) the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise; or (3) the disposition of shares acquired upon such exercise; (ii) you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of this option that occurs within two (2) years after the date of this option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of this option; and (iii) the Company (or a representative of the underwriters) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Act, require that you not sell or otherwise transfer or dispose of any shares of Common Stock or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date (the "Effective Date") of the registration statement of the Company filed under the Act as may be requested by the Company or the representative of the underwriters. You further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period. 9. TRANSFERABILITY. This option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise this option. 10. OPTION NOT A SERVICE CONTRACT. This option is not an employment contract and nothing in this option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company, or of the Company to continue your employment with the Company. In addition, nothing in this option shall obligate the Company or any Affiliate of the Company, or their respective shareholders, Board of Directors, officers or employees to continue any relationship which you might have as a Director or Consultant for the Company or Affiliate of the Company. 11. NOTICES. Any notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the address specified below or at such other address as you hereafter designate by written notice to the Company. 12. GOVERNING PLAN DOCUMENT. This option is subject to all the provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without limitation the provisions of Section 6 of the Plan relating to option provisions, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control. Dated the ____ day of _________, 19__. Very truly yours, BE INCORPORATED By____________________________________ Duly authorized on behalf of the Board of Directors ATTACHMENTS: Be Incorporated 1992 Stock Option Plan Notice of Exercise The undersigned: (a) Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; and (b) Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned optionee and the Company and its Affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of (i) the options previously granted and delivered to the undersigned under stock option plans of the Company, and (ii) the following agreements only: NONE ________________ (Initial) OTHER __________________________________ __________________________________ __________________________________ ____________________________________ Address:____________________________ ____________________________ EX-10.3.1 10 1999 EQUITY INCENTIVE PLAN Exhibit 10.3.1 BE INCORPORATED 1999 EQUITY INCENTIVE PLAN STOCK OPTION AGREEMENT (INCENTIVE AND NONSTATUTORY STOCK OPTIONS) Pursuant to your Stock Option Grant Notice ("Grant Notice") and this Stock Option Agreement, Be Incorporated (the "Company") has granted you an option under its 1999 Equity Incentive Plan (the "Plan") to purchase the number of shares of the Company's Common Stock indicated in your Grant Notice at the exercise price indicated in your Grant Notice. Defined terms not explicitly defined in this Stock Option Agreement but defined in the Plan shall have the same definitions as in the Plan. The details of your option are as follows: 1. VESTING. Subject to the limitations contained herein, your option will vest as provided in your Grant Notice, provided that vesting will cease upon the termination of your Continuous Service. 2. NUMBER OF SHARES AND EXERCISE PRICE. The number of shares of Common Stock subject to your option and your exercise price per share referenced in your Grant Notice may be adjusted from time to time for Capitalization Adjustments, as provided in the Plan. 3. METHOD OF PAYMENT. Payment of the exercise price is due in full upon exercise of all or any part of your option. You may elect to make payment of the exercise price (i) in cash or by check, or (ii) in the Company's sole discretion at the time your option is exercised and provided that at the time of exercise the Common Stock is publicly traded and quoted regularly in The Wall Street Journal, pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board that, prior to the issuance of Common Stock, results in either the receipt of cash (or check) by the Company or the receipt of irrevocable instructions to pay the aggregate exercise price to the Company from the sales proceeds. 4. WHOLE SHARES. You may exercise your option only for whole shares of Common Stock. 5. SECURITIES LAW COMPLIANCE. Notwithstanding anything to the contrary contained herein, you may not exercise your option unless the shares of Common Stock issuable upon such exercise are then registered under the Securities Act or, if such shares of Common Stock are not then so registered, the Company has determined that such exercise and issuance would be exempt from the registration requirements of the Securities Act. The exercise of your option must also comply with other applicable laws and regulations governing your option, and you may not exercise your option if the Company determines that such exercise would not be in material compliance with such laws and regulations. 1 6. TERM. The term of your option commences on the Date of Grant and expires upon the earliest of the following: (a) three (3) months after the termination of your Continuous Service for any reason other than your Disability or death, provided that if during any part of such three- (3-) month period your option is not exercisable solely because of the condition set forth in the preceding paragraph relating to "Securities Law Compliance," your option shall not expire until the earlier of the Expiration Date or until it shall have been exercisable for an aggregate period of three (3) months after the termination of your Continuous Service; (b) twelve (12) months after the termination of your Continuous Service due to your Disability; (c) eighteen (18) months after your death if you die either during your Continuous Service or within three (3) months after your Continuous Service terminates; (d) the Expiration Date indicated in your Grant Notice; or (e) the tenth (10th) anniversary of the Date of Grant. If your option is an incentive stock option, note that, to obtain the federal income tax advantages associated with an "incentive stock option," the Code requires that at all times beginning on the date of grant of your option and ending on the day three (3) months before the date of your option's exercise, you must be an employee of the Company or an Affiliate, except in the event of your death or Disability. The Company has provided for extended exercisability of your option under certain circumstances for your benefit but cannot guarantee that your option will necessarily be treated as an "incentive stock option" if you continue to provide services to the Company or an Affiliate as a Consultant or Director after your employment terminates or if you otherwise exercise your option more than three (3) months after the date your employment terminates. 7. EXERCISE. (a) You may exercise the vested portion of your option (and the unvested portion of your option if your Grant Notice so permits) during its term by delivering a Notice of Exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require. (b) By exercising your option you agree that, as a condition to any exercise of your option, the Company may require you to enter into an arrangement providing for the payment by you to the Company of any tax withholding obligation of the Company arising by reason of (1) the exercise of your option, (2) the lapse of any substantial risk of forfeiture to which the shares of Common Stock are subject at the time of exercise, or (3) the disposition of shares of Common Stock acquired upon such exercise. 2 (c) If your option is an incentive stock option, by exercising your option you agree that you will notify the Company in writing within fifteen (15) days after the date of any disposition of any of the shares of the Common Stock issued upon exercise of your option that occurs within two (2) years after the date of your option grant or within one (1) year after such shares of Common Stock are transferred upon exercise of your option. (d) By exercising your option you agree that the Company (or a representative of the underwriter(s)) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, require that you not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your shares of Common Stock until the end of such period. 8. TRANSFERABILITY. Your option is not transferable, except by will or by the laws of descent and distribution, and is exercisable during your life only by you. Notwithstanding the foregoing, by delivering written notice to the Company, in a form satisfactory to the Company, you may designate a third party who, in the event of your death, shall thereafter be entitled to exercise your option. 9. RIGHT OF FIRST REFUSAL. Shares of Common Stock that you acquire upon exercise of your option are subject to any right of first refusal that may be described in the Company's bylaws in effect at such time the Company elects to exercise its right. The Company's right of first refusal shall expire on the Listing Date. 10. RIGHT OF REPURCHASE. To the extent provided in the Company's bylaws as amended from time to time, the Company shall have the right to repurchase all or any part of the shares of Common Stock you acquire pursuant to the exercise of your option. 11. OPTION NOT A SERVICE CONTRACT. Your option is not an employment or service contract, and nothing in your option shall be deemed to create in any way whatsoever any obligation on your part to continue in the employ of the Company or an Affiliate, or of the Company or an Affiliate to continue your employment. In addition, nothing in your option shall obligate the Company or an Affiliate, their respective shareholders, Boards of Directors, Officers or Employees to continue any relationship that you might have as a Director or Consultant for the Company or an Affiliate. 12. WITHHOLDING OBLIGATIONS. (a) At the time you exercise your option, in whole or in part, or at any time thereafter as requested by the Company, you hereby authorize withholding from payroll and any 3 other amounts payable to you, and otherwise agree to make adequate provision for (including by means of a "cashless exercise" pursuant to a program developed under Regulation T as promulgated by the Federal Reserve Board to the extent permitted by the Company), any sums required to satisfy the federal, state, local and foreign tax withholding obligations of the Company or an Affiliate, if any, which arise in connection with your option. (b) Upon your request and subject to approval by the Company, in its sole discretion, and compliance with any applicable conditions or restrictions of law, the Company may withhold from fully vested shares of Common Stock otherwise issuable to you upon the exercise of your option a number of whole shares of Common Stock having a Fair Market Value, determined by the Company as of the date of exercise, not in excess of the minimum amount of tax required to be withheld by law. If the date of determination of any tax withholding obligation is deferred to a date later than the date of exercise of your option, share withholding pursuant to the preceding sentence shall not be permitted unless you make a proper and timely election under Section 83(b) of the Code, covering the aggregate number of shares of Common Stock acquired upon such exercise with respect to which such determination is otherwise deferred, to accelerate the determination of such tax withholding obligation to the date of exercise of your option. Notwithstanding the filing of such election, shares of Common Stock shall be withheld solely from fully vested shares of Common Stock determined as of the date of exercise of your option that are otherwise issuable to you upon such exercise. Any adverse consequences to you arising in connection with such share withholding procedure shall be your sole responsibility. (c) You may not exercise your option unless the tax withholding obligations of the Company and/or any Affiliate are satisfied. Accordingly, you may not be able to exercise your option when desired even though your option is vested, and the Company shall have no obligation to issue a certificate for such shares of Common Stock or release such shares of Common Stock from any escrow provided for herein. 13. NOTICES. Any notices provided for in your option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by mail by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed to you at the last address you provided to the Company. 14. GOVERNING PLAN DOCUMENT. Your option is subject to all the provisions of the Plan, the provisions of which are hereby made a part of your option, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of your option and those of the Plan, the provisions of the Plan shall control. 4 EX-10.3.2 11 1999 EQUITY INCENTIVE PLAN STOCK OPTIONS AGREEMENT EXHIBIT 10.3.2 BE INCORPORATED 1999 EQUITY INCENTIVE PLAN ADOPTED MARCH 30, 1999 APPROVED BY STOCKHOLDERS _______________, ______ TERMINATION DATE: MARCH 29, 2009 1. PURPOSES. (A) ELIGIBLE STOCK AWARD RECIPIENTS. The persons eligible to receive Stock Awards are the Employees, Directors and Consultants of the Company and its Affiliates . (B) AVAILABLE STOCK AWARDS. The purpose of the Plan is to provide a means by which eligible recipients of Stock Awards may be given an opportunity to benefit from increases in value of the Common Stock through the granting of the following Stock Awards: (i) Incentive Stock Options, (ii) Nonstatutory Stock Options, (iii) stock bonuses and (iv) rights to acquire restricted stock. (C) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain the services of the group of persons eligible to receive Stock Awards, to secure and retain the services of new members of this group and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. 2. DEFINITIONS. (A) "AFFILIATE" means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. (B) "BOARD" means the Board of Directors of the Company. (C) "CODE" means the Internal Revenue Code of 1986, as amended. (D) "COMMITTEE" means a committee of one or more members of the Board appointed by the Board in accordance with subsection 3(c). (E) "COMMON STOCK" means the common stock of the Company. (F) "COMPANY" means Be Incorporated, a California corporation. (G) "CONSULTANT" means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the Board of Directors of an Affiliate. However, the term "Consultant" shall not include either Directors who are not compensated by the Company 1 for their services as Directors or Directors who are merely paid a director's fee by the Company for their services as Directors. (H) "CONTINUOUS SERVICE" means that the Participant's service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Participant's Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Participant renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Participant renders such service, provided that there is no interruption or termination of the Participant's Continuous Service. For example, a change in status from an Employee of the Company to a Consultant of an Affiliate or a Director will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party's sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave. (I) "COVERED EMPLOYEE" means the chief executive officer and the four (4) other highest compensated officers of the Company for whom total compensation is required to be reported to stockholders under the Exchange Act, as determined for purposes of Section 162(m) of the Code. (J) "DIRECTOR" means a member of the Board of Directors of the Company. (K) "DISABILITY" means (i) before the Listing Date, the inability of a person, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of that person's position with the Company or an Affiliate of the Company because of the sickness or injury of the person and (ii) after the Listing Date, the permanent and total disability of a person within the meaning of Section 22(e)(3) of the Code. (L) "EMPLOYEE" means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a director's fee by the Company or an Affiliate shall not be sufficient to constitute "employment" by the Company or an Affiliate. (M) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (N) "FAIR MARKET VALUE" means, as of any date, the value of the Common Stock determined as follows: (I) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable. 2 (II) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board. (III) Prior to the Listing Date, the value of the Common Stock shall be determined in a manner consistent with Section 260.140.50 of Title 10 of the California Code of Regulations. (O) "INCENTIVE STOCK OPTION" means an Option intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (P) "LISTING DATE" means the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system if such securities exchange or interdealer quotation system has been certified in accordance with the provisions of Section 25100(o) of the California Corporate Securities Law of 1968. (Q) "NON-EMPLOYEE DIRECTOR" means a Director who either (i) is not a current Employee or Officer of the Company or its parent or a subsidiary, does not receive compensation (directly or indirectly) from the Company or its parent or a subsidiary for services rendered as a consultant or in any capacity other than as a Director (except for an amount as to which disclosure would not be required under Item 404(a) of Regulation S-K promulgated pursuant to the Securities Act ("Regulation S-K")), does not possess an interest in any other transaction as to which disclosure would be required under Item 404(a) of Regulation S-K and is not engaged in a business relationship as to which disclosure would be required under Item 404(b) of Regulation S-K; or (ii) is otherwise considered a "non-employee director" for purposes of Rule 16b-3. (R) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an Incentive Stock Option. (S) "OFFICER" means (i) before the Listing Date, any person designated by the Company as an officer and (ii) on and after the Listing Date, a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (T) "OPTION" means an Incentive Stock Option or a Nonstatutory Stock Option granted pursuant to the Plan. (U) "OPTION AGREEMENT" means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (V) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option. 3 (W) "OUTSIDE DIRECTOR" means a Director who either (i) is not a current employee of the Company or an "affiliated corporation" (within the meaning of Treasury Regulations promulgated under Section 162(m) of the Code), is not a former employee of the Company or an "affiliated corporation" receiving compensation for prior services (other than benefits under a tax qualified pension plan), was not an officer of the Company or an "affiliated corporation" at any time and is not currently receiving direct or indirect remuneration from the Company or an "affiliated corporation" for services in any capacity other than as a Director or (ii) is otherwise considered an "outside director" for purposes of Section 162(m) of the Code. (X) "PARTICIPANT" means a person to whom a Stock Award is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Stock Award. (Y) "PLAN" means this 1999 Equity Incentive Plan. (Z) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time. (AA) "SECURITIES ACT" means the Securities Act of 1933, as amended. (BB) "STOCK AWARD" means any right granted under the Plan, including an Option, a stock bonus and a right to acquire restricted stock. (CC) "STOCK AWARD AGREEMENT" means a written agreement between the Company and a holder of a Stock Award evidencing the terms and conditions of an individual Stock Award grant. Each Stock Award Agreement shall be subject to the terms and conditions of the Plan. (DD) "TEN PERCENT STOCKHOLDER" means a person who owns (or is deemed to own pursuant to Section 424(d) of the Code) stock possessing more than ten percent (10%) of the total combined voting power of all classes of stock of the Company or of any of its Affiliates. 3. ADMINISTRATION. (A) ADMINISTRATION BY BOARD. The Board shall administer the Plan unless and until the Board delegates administration to a Committee, as provided in subsection 3(c). Any interpretation of the Plan by the Board and any decision by the Board under the Plan shall be final and binding on all persons. (B) POWERS OF BOARD. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (I) To determine from time to time which of the persons eligible under the Plan shall be granted Stock Awards; when and how each Stock Award shall be granted; what type or combination of types of Stock Award shall be granted; the provisions of each Stock Award granted (which need not be identical), including the time or times when a person shall be permitted to receive Common Stock pursuant to a Stock Award; and the number of shares of Common Stock with respect to which a Stock Award shall be granted to each such person. 4 (II) To construe and interpret the Plan and Stock Awards granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Stock Award Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (III) To amend the Plan or a Stock Award as provided in Section 12. (IV) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan. (C) DELEGATION TO COMMITTEE. (I) GENERAL. The Board may delegate administration of the Plan to a Committee or Committees of one (1) or more members of the Board, and the term "Committee" shall apply to any person or persons to whom such authority has been delegated. If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, including the power to delegate to a subcommittee any of the administrative powers the Committee is authorized to exercise (and references in this Plan to the Board shall thereafter be to the Committee or subcommittee), subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. (II) COMMITTEE COMPOSITION WHEN COMMON STOCK IS PUBLICLY TRADED. At such time as the Common Stock is publicly traded, in the discretion of the Board, a Committee may consist solely of two or more Outside Directors, in accordance with Section 162(m) of the Code, and/or solely of two or more Non- Employee Directors, in accordance with Rule 16b-3. Within the scope of such authority, the Board or the Committee may (1) delegate to a committee of one or more members of the Board who are not Outside Directors the authority to grant Stock Awards to eligible persons who are either (a) not then Covered Employees and are not expected to be Covered Employees at the time of recognition of income resulting from such Stock Award or (b) not persons with respect to whom the Company wishes to comply with Section 162(m) of the Code and/or) (2) delegate to a committee of one or more members of the Board who are not Non- Employee Directors the authority to grant Stock Awards to eligible persons who are not then subject to Section 16 of the Exchange Act. 4. SHARES SUBJECT TO THE PLAN. (A) SHARE RESERVE. Subject to the provisions of Section 11 relating to adjustments upon changes in Common Stock, eight million (8,000,000) shares of Common Stock shall initially be reserved for issuance pursuant to Stock Awards. Of the foregoing aggregate number, however, one million nine hundred forty-three thousand three hundred forty-seven (1,943,347) shares of Common Stock (the "Contingent Pool") shall become available for the grant of Stock Awards only as options (a "1992 "Option") that were granted under the Company's 1992 Stock Option Plan terminate, and then only for the number of shares of Common Stock for which such options ere unexercised at the time of their termination. To the extent that shares of Common Stock are issued pursuant to the exercise of a 1992 Option, the aggregate size of the Contingent Pool shall be reduced. Additionally, at the end of each fiscal year of the Company there shall automatically be added on that date, an additional number of shares of Common Stock for issuance pursuant to Stock Awards. Such additional number of shares of Common Stock shall be equal to the lesser of five percent (5%) of the number of shares of Common Stock issued and outstanding on that date, and the number obtained by subtracting the number of shares of Common Stock then reserved under the Plan, but not subject to outstanding Stock Awards, from eight percent (8%) of the number of shares of Common Stock issued and outstanding on that date. (B) LIMIT ON COMMON STOCK ISSUABLE BY EXERCISE OF "INCENTIVE STOCK OPTIONS." To the extent required by Section 422 of the Code as then in effect, or any successor provision, during the term of the Plan, no more than an aggregate of [twenty-three million (23,000,000)] shares of Common Stock may be issued pursuant to Stock Awards intended to qualify as "incentive stock options" thereunder. 5 (C) REVERSION OF SHARES TO THE SHARE RESERVE. If any Stock Award shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the shares of Common Stock not acquired under such Stock Award shall revert to and again become available for issuance under the Plan. (D) SOURCE OF SHARES. The shares of Common Stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. ELIGIBILITY. (A) ELIGIBILITY FOR SPECIFIC STOCK AWARDS. Incentive Stock Options may be granted only to Employees, but only if such Stock Awards are granted within the period of time permitted under Section 422(b)(2) of the Code, as then in effect, or any successor provision. Stock Awards other than Incentive Stock Options may be granted to Employees, Directors and Consultants. (B) TEN PERCENT STOCKHOLDERS. (I) A Ten Percent Stockholder shall not be granted an Incentive Stock Option unless the exercise price of such Option is at least one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant and the Option is not exercisable after the expiration of five (5) years from the date of grant. (II) Prior to the Listing Date, a Ten Percent Stockholder shall not be granted a Nonstatutory Stock Option unless the exercise price of such Option is at least (i) one hundred ten percent (110%) of the Fair Market Value of the Common Stock at the date of grant or (ii) such lower percentage of the Fair Market Value of the Common Stock at the date of grant as is permitted by Section 260.140.41 of Title 10 of the California Code of Regulations at the time of the grant of the Option. (III) Prior to the Listing Date, a Ten Percent Stockholder shall not be granted a restricted stock award unless the purchase price of the restricted stock is at least (i) one hundred percent (100%) of the Fair Market Value of the Common Stock at the date of grant or (ii) such lower percentage of the Fair Market Value of the Common Stock at the date of grant as is permitted by Section 260.140.41 of Title 10 of the California Code of Regulations at the time of the grant of the Option. (C) SECTION 162(M) LIMITATION. Subject to the provisions of Section 11 relating to adjustments upon changes in the shares of Common Stock, no Employee shall be eligible to be granted Options covering more than two million (2,000,000) shares of Common Stock during any calendar year. This subsection 5(c) shall not apply prior to the Listing Date and, following the Listing Date, this subsection 5(c) shall not apply until (i) the earliest of: (1) the first material modification of the Plan (including any increase in the number of shares of Common Stock 6 reserved for issuance under the Plan in accordance with Section 4); (2) the issuance of all of the shares of Common Stock reserved for issuance under the Plan; (3) the expiration of the Plan; or (4) the first meeting of stockholders at which Directors are to be elected that occurs after the close of the third calendar year following the calendar year in which occurred the first registration of an equity security under Section 12 of the Exchange Act; or (ii) such other date required by Section 162(m) of the Code and the rules and regulations promulgated thereunder. (D) CONSULTANTS. (I) Prior to the Listing Date, a Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, either the offer or the sale of the Company's securities to such Consultant is not exempt under Rule 701 of the Securities Act ("Rule 701") because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by Rule 701, unless the Company determines that such grant need not comply with the requirements of Rule 701 and will satisfy another exemption under the Securities Act as well as comply with the securities laws of all other relevant jurisdictions. (II) From and after the Listing Date, a Consultant shall not be eligible for the grant of a Stock Award if, at the time of grant, a Form S-8 Registration Statement under the Securities Act ("Form S-8") is not available to register either the offer or the sale of the Company's securities to such Consultant because of the nature of the services that the Consultant is providing to the Company, or because the Consultant is not a natural person, or as otherwise provided by the rules governing the use of Form S-8, unless the Company determines both (i) that such grant (A) shall be registered in another manner under the Securities Act (e.g., on a Form S-3 Registration Statement) or (B) does not require registration under the Securities Act in order to comply with the requirements of the Securities Act, if applicable, and (ii) that such grant complies with the securities laws of all other relevant jurisdictions. (III) As of April 7, 1999, Rule 701 and Form S-8 generally are available to consultants and advisors only if (i) they are natural persons; (ii) they provide bona fide services to the issuer, its parents, its majority-owned subsidiaries or majority-owned subsidiaries of the issuer's parent; and (iii) the services are not in connection with the offer or sale of securities in a capital-raising transaction, and do not directly or indirectly promote or maintain a market for the issuer's securities. 6. OPTION PROVISIONS. Each Option shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. All Options shall be separately designated Incentive Stock Options or Nonstatutory Stock Options at the time of grant, and, if certificates are issued, a separate certificate or certificates will be issued for shares of Common Stock purchased on exercise of each type of Option. The provisions of separate Options need not be identical, but each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: 7 (A) TERM. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, no Option granted prior to the Listing Date shall be exercisable after the expiration of ten (10) years from the date it was granted, and no Incentive Stock Option granted on or after the Listing Date shall be exercisable after the expiration of ten (10) years from the date it was granted. (B) EXERCISE PRICE OF AN INCENTIVE STOCK OPTION. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Incentive Stock Option shall be not less than one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Incentive Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (C) EXERCISE PRICE OF A NONSTATUTORY STOCK OPTION. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the exercise price of each Nonstatutory Stock Option granted prior to the Listing Date shall be not less than eighty-five percent (85%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. The exercise price of each Nonstatutory Stock Option granted on or after the Listing Date shall be not less than eighty-five percent (85%) of the Fair Market Value of the Common Stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, a Nonstatutory Stock Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (D) CONSIDERATION. The purchase price of Common Stock acquired pursuant to an Option shall be paid, to the extent permitted by applicable statutes and regulations, either (i) in cash at the time the Option is exercised or (ii) at the discretion of the Board at the time of the grant of the Option (or subsequently in the case of a Nonstatutory Stock Option) (1) by delivery to the Company of other Common Stock, (2) according to a deferred payment or other similar arrangement with the Optionholder or (3) in any other form of legal consideration that may be acceptable to the Board; provided, however, that at any time that the Company is incorporated in Delaware, payment of the Common Stock's "par value," as defined in the Delaware General Corporation Law, shall not be made by deferred payment. In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (E) TRANSFERABILITY OF AN INCENTIVE STOCK OPTION. An Incentive Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form 8 satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. (F) TRANSFERABILITY OF A NONSTATUTORY STOCK OPTION. A Nonstatutory Stock Option granted prior to the Listing Date shall not be transferable except by will or by the laws of descent and distribution and, to the extent provided in the Option Agreement, to such further extent as permitted by Section 260.140.41(d) of Title 10 of the California Code of Regulations at the time of the grant of the Option, and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. A Nonstatutory Stock Option granted on or after the Listing Date shall be transferable to the extent provided in the Option Agreement. If the Nonstatutory Stock Option does not provide for transferability, then the Nonstatutory Stock Option shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Optionholder only by the Optionholder. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. (G) VESTING GENERALLY. The total number of shares of Common Stock subject to an Option may, but need not, vest and therefore become exercisable in periodic installments that may, but need not, be equal. The Option may be subject to such other terms and conditions on the time or times when it may be exercised (which may be based on performance or other criteria) as the Board may deem appropriate. The vesting provisions of individual Options may vary. The provisions of this subsection 6(g) are subject to any Option provisions governing the minimum number of shares of Common Stock as to which an Option may be exercised. (H) MINIMUM VESTING PRIOR TO THE LISTING DATE. Notwithstanding the foregoing subsection 6(g), to the extent that the following restrictions on vesting are required by Section 260.140.41(f) of Title 10 of the California Code of Regulations at the time of the grant of the Option, then: (I) Options granted prior to the Listing Date to an Employee who is not an Officer, Director or Consultant shall provide for vesting of the total number of shares of Common Stock at a rate of at least twenty percent (20%) per year over five (5) years from the date the Option was granted, subject to reasonable conditions such as continued employment; and (II) Options granted prior to the Listing Date to Officers, Directors or Consultants may be made fully exercisable, subject to reasonable conditions such as continued employment, at any time or during any period established by the Company. (I) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's Continuous Service terminates (other than upon the Optionholder's death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder's Continuous Service (or such longer or shorter period specified in the Option Agreement, which period shall not be 9 less than thirty (30) days for Option granted prior to the Listing Date unless such termination is for cause), or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. (J) EXTENSION OF TERMINATION DATE. An Optionholder's Option Agreement may also provide that if the exercise of the Option following the termination of the Optionholder's Continuous Service (other than upon the Optionholder's death or Disability) would be prohibited at any time solely because the issuance of shares of Common Stock would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in subsection 6(a) or (ii) the expiration of a period of three (3) months after the termination of the Optionholder's Continuous Service during which the exercise of the Option would not be in violation of such registration requirements. (K) DISABILITY OF OPTIONHOLDER. In the event that an Optionholder's Continuous Service terminates as a result of the Optionholder's Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise such Option as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination (or such longer or shorter period specified in the Option Agreement, which period shall not be less than six (6) months for Options granted prior to the Listing Date) or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate. (L) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous Service terminates as a result of the Optionholder's death or (ii) the Optionholder dies within the period (if any) specified in the Option Agreement after the termination of the Optionholder's Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise such Option as of the date of death) by the Optionholder's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the option upon the Optionholder's death pursuant to subsection 6(e) or 6(f), but only within the period ending on the earlier of (1) the date eighteen (18) months following the date of death (or such longer or shorter period specified in the Option Agreement, which period shall not be less than six (6) months for Options granted prior to the Listing Date) or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate. (M) EARLY EXERCISE. The Option may, but need not, include a provision whereby the Optionholder may elect at any time before the Optionholder's Continuous Service terminates to exercise the Option as to any part or all of the shares of Common Stock subject to the Option prior to the full vesting of the Option. Subject to the "Repurchase Limitation" in subsection 10(h), any unvested shares of Common Stock so purchased may be subject to a repurchase 10 option in favor of the Company or to any other restriction the Board determines to be appropriate. (N) RIGHT OF REPURCHASE. Subject to the "Repurchase Limitation" in subsection 10(h), the Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to repurchase all or any part of the vested shares of Common Stock acquired by the Optionholder pursuant to the exercise of the Option. (O) RIGHT OF FIRST REFUSAL. The Option may, but need not, include a provision whereby the Company may elect, prior to the Listing Date, to exercise a right of first refusal following receipt of notice from the Optionholder of the intent to transfer all or any part of the shares of Common Stock received upon the exercise of the Option. Except as expressly provided in this subsection 6(o), such right of first refusal shall otherwise comply with any applicable provisions of the Bylaws of the Company. (P) RE-LOAD OPTIONS. Without in any way limiting the authority of the Board to make or not to make grants of Options hereunder, the Board shall have the authority (but not an obligation) to include as part of any Option Agreement a provision entitling the Optionholder to a further Option (a "Re-Load Option") in the event the Optionholder exercises the Option evidenced by the Option Agreement, in whole or in part, by surrendering other shares of Common Stock in accordance with this Plan and the terms and conditions of the Option Agreement. Any such Re-Load Option shall (i) provide for a number of shares of Common Stock equal to the number of shares of Common Stock surrendered as part or all of the exercise price of such Option; (ii) have an expiration date which is the same as the expiration date of the Option the exercise of which gave rise to such Re- Load Option; and (iii) have an exercise price which is equal to one hundred percent (100%) of the Fair Market Value of the Common Stock subject to the Re- Load Option on the date of exercise of the original Option. Notwithstanding the foregoing, a Re-Load Option shall be subject to the same exercise price and term provisions heretofore described for Options under the Plan. Any such Re-Load Option may be an Incentive Stock Option or a Nonstatutory Stock Option, as the Board may designate at the time of the grant of the original Option; provided, however, that the designation of any Re-Load Option as an Incentive Stock Option shall be subject to the one hundred thousand dollar ($100,000) annual limitation on the exercisability of Incentive Stock Options described in subsection 10(d) and in Section 422(d) of the Code. There shall be no Re-Load Options on a Re-Load Option. Any such Re-Load Option shall be subject to the availability of sufficient shares of Common Stock under subsection 4(a) and the "Section 162(m) Limitation" on the grants of Options under subsection 5(c) and shall be subject to such other terms and conditions as the Board may determine which are not inconsistent with the express provisions of the Plan regarding the terms of Options. 7. PROVISIONS OF STOCK AWARDS OTHER THAN OPTIONS. (A) STOCK BONUS AWARDS. Each stock bonus agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of stock bonus agreements may change from time to time, and the terms and 11 conditions of separate stock bonus agreements need not be identical, but each stock bonus agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions: (I) CONSIDERATION. A stock bonus may be awarded in consideration for past services actually rendered to the Company or an Affiliate for its benefit. (II) VESTING. Subject to the "Repurchase Limitation" in subsection 10(h), shares of Common Stock awarded under the stock bonus agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board. (III) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to the "Repurchase Limitation" in subsection 10(h), in the event a Participant's Continuous Service terminates, the Company may reacquire any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of the stock bonus agreement. (IV) TRANSFERABILITY. For a stock bonus award made before the Listing Date, rights to acquire shares of Common Stock under the stock bonus agreement shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant. For a stock bonus award made on or after the Listing Date, rights to acquire shares of Common Stock under the stock bonus agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the stock bonus agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the stock bonus agreement remains subject to the terms of the stock bonus agreement. (B) RESTRICTED STOCK AWARDS. Each restricted stock purchase agreement shall be in such form and shall contain such terms and conditions as the Board shall deem appropriate. The terms and conditions of the restricted stock purchase agreements may change from time to time, and the terms and conditions of separate restricted stock purchase agreements need not be identical, but each restricted stock purchase agreement shall include (through incorporation of provisions hereof by reference in the agreement or otherwise) the substance of each of the following provisions: (I) PURCHASE PRICE. Subject to the provisions of subsection 5(b) regarding Ten Percent Stockholders, the purchase price under each restricted stock purchase agreement shall be such amount as the Board shall determine and designate in such restricted stock purchase agreement. For restricted stock awards made prior to the Listing Date, the purchase price shall not be less than eighty-five percent (85%) of the Common Stock's Fair Market Value on the date such award is made or at the time the purchase is consummated. For restricted stock awards made on or after the Listing Date, the purchase price shall not be less than eighty-five percent (85%) of the Common Stock's Fair Market Value on the date such award is made or at the time the purchase is consummated. 12 (II) CONSIDERATION. The purchase price of Common Stock acquired pursuant to the restricted stock purchase agreement shall be paid either: (i) in cash at the time of purchase; (ii) at the discretion of the Board, according to a deferred payment or other similar arrangement with the Participant; or (iii) in any other form of legal consideration that may be acceptable to the Board in its discretion; provided, however, that at any time that the Company is incorporated in Delaware, then payment of the Common Stock's "par value," as defined in the Delaware General Corporation Law, shall not be made by deferred payment. (III) VESTING. Subject to the "Repurchase Limitation" in subsection 10(h), shares of Common Stock acquired under the restricted stock purchase agreement may, but need not, be subject to a share repurchase option in favor of the Company in accordance with a vesting schedule to be determined by the Board. (IV) TERMINATION OF PARTICIPANT'S CONTINUOUS SERVICE. Subject to the "Repurchase Limitation" in subsection 10(h), in the event a Participant's Continuous Service terminates, the Company may repurchase or otherwise reacquire any or all of the shares of Common Stock held by the Participant which have not vested as of the date of termination under the terms of the restricted stock purchase agreement. (V) TRANSFERABILITY. For a restricted stock award made before the Listing Date, rights to acquire shares of Common Stock under the restricted stock purchase agreement shall not be transferable except by will or by the laws of descent and distribution and shall be exercisable during the lifetime of the Participant only by the Participant. For a restricted stock award made on or after the Listing Date, rights to acquire shares of Common Stock under the restricted stock purchase agreement shall be transferable by the Participant only upon such terms and conditions as are set forth in the restricted stock purchase agreement, as the Board shall determine in its discretion, so long as Common Stock awarded under the restricted stock purchase agreement remains subject to the terms of the restricted stock purchase agreement. 8. COVENANTS OF THE COMPANY. (A) AVAILABILITY OF SHARES. During the terms of the Stock Awards, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Stock Awards. (B) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Stock Awards and to issue and sell shares of Common Stock upon exercise of the Stock Awards; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Stock Award or any Common Stock issued or issuable pursuant to any such Stock Award. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of Common Stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell Common Stock upon exercise of such Stock Awards unless and until such authority is obtained. 13 9. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of Common Stock pursuant to Stock Awards shall constitute general funds of the Company. 10. MISCELLANEOUS. (A) ACCELERATION OF EXERCISABILITY AND VESTING. The Board shall have the power to accelerate the time at which a Stock Award may first be exercised or the time during which a Stock Award or any part thereof will vest in accordance with the Plan, notwithstanding the provisions in the Stock Award stating the time at which it may first be exercised or the time during which it will vest. (B) STOCKHOLDER RIGHTS. No Participant shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares of Common Stock subject to such Stock Award unless and until such Participant has satisfied all requirements for exercise of the Stock Award pursuant to its terms. (C) NO EMPLOYMENT OR OTHER SERVICE RIGHTS. Nothing in the Plan or any instrument executed or Stock Award granted pursuant thereto shall confer upon any Participant any right to continue to serve the Company or an Affiliate in the capacity in effect at the time the Stock Award was granted or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant's agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be. (D) INCENTIVE STOCK OPTION $100,000 LIMITATION. To the extent that the aggregate Fair Market Value (determined at the time of grant) of Common Stock with respect to which Incentive Stock Options are exercisable for the first time by any Optionholder during any calendar year (under all plans of the Company and its Affiliates) exceeds one hundred thousand dollars ($100,000), the Options or portions thereof which exceed such limit (according to the order in which they were granted) shall be treated as Nonstatutory Stock Options. (E) INVESTMENT ASSURANCES. The Company may require a Participant, as a condition of exercising or acquiring Common Stock under any Stock Award, (i) to give written assurances satisfactory to the Company as to the Participant's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Stock Award; and (ii) to give written assurances satisfactory to the Company stating that the Participant is acquiring Common Stock subject to the Stock Award for the Participant's own account and not with any present intention of selling or otherwise distributing the Common Stock. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (iii) the issuance of the shares of Common Stock 14 upon the exercise or acquisition of Common Stock under the Stock Award has been registered under a then currently effective registration statement under the Securities Act or (iv) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the Common Stock. (F) WITHHOLDING OBLIGATIONS. To the extent provided by the terms of a Stock Award Agreement, the Participant may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of Common Stock under a Stock Award by any of the following means (in addition to the Company's right to withhold from any compensation paid to the Participant by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares of Common Stock from the shares of Common Stock otherwise issuable to the Participant as a result of the exercise or acquisition of Common Stock under the Stock Award; or (iii) delivering to the Company owned and unencumbered shares of Common Stock. (G) INFORMATION OBLIGATION. Prior to the Listing Date, to the extent required by Section 260.140.46 of Title 10 of the California Code of Regulations, the Company shall deliver financial statements to Participants at least annually. This subsection 10(g) shall not apply to key Employees whose duties in connection with the Company assure them access to equivalent information. (H) REPURCHASE LIMITATION. The terms of any repurchase option shall be specified in the Stock Award and may be either at Fair Market Value at the time of repurchase or at not less than the original purchase price. To the extent required by Section 260.140.41 and Section 260.140.42 of Title 10 of the California Code of Regulations at the time a Stock Award is made, any repurchase option contained in a Stock Award granted prior to the Listing Date to a person who is not an Officer, Director or Consultant shall be upon the terms described below: (I) FAIR MARKET VALUE. If the repurchase option gives the Company the right to repurchase the shares of Common Stock upon termination of employment at not less than the Fair Market Value of the shares of Common Stock to be purchased on the date of termination of Continuous Service, then (i) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares of Common Stock within ninety (90) days of termination of Continuous Service (or in the case of shares of Common Stock issued upon exercise of Stock Awards after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding "qualified small business stock") and (ii) the right terminates when the shares of Common Stock become publicly traded. (II) ORIGINAL PURCHASE PRICE. If the repurchase option gives the Company the right to repurchase the shares of Common Stock upon termination of Continuous Service at the 15 original purchase price, then (i) the right to repurchase at the original purchase price shall lapse at the rate of at least twenty percent (20%) of the shares of Common Stock per year over five (5) years from the date the Stock Award is granted (without respect to the date the Stock Award was exercised or became exercisable) and (ii) the right to repurchase shall be exercised for cash or cancellation of purchase money indebtedness for the shares of Common Stock within ninety (90) days of termination of Continuous Service (or in the case of shares of Common Stock issued upon exercise of Options after such date of termination, within ninety (90) days after the date of the exercise) or such longer period as may be agreed to by the Company and the Participant (for example, for purposes of satisfying the requirements of Section 1202(c)(3) of the Code regarding "qualified small business stock"). 11. ADJUSTMENTS UPON CHANGES IN STOCK. (A) CAPITALIZATION ADJUSTMENTS. If any change is made in the Common Stock subject to the Plan, or subject to any Stock Award, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject to the Plan pursuant to subsection 4(a) and the maximum number of securities subject to award to any person pursuant to subsection 5(c), and the outstanding Stock Awards will be appropriately adjusted in the class(es) and number of securities and price per share of Common Stock subject to such outstanding Stock Awards. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction "without receipt of consideration" by the Company.) (B) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a dissolution or liquidation of the Company, then all outstanding Stock Awards shall terminate immediately prior to such event. (C) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER. In the event of (i) a sale, lease or other disposition of all or substantially all of the assets of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation or (iii) a reverse merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then any surviving corporation or acquiring corporation shall assume any Stock Awards outstanding under the Plan or shall substitute similar stock awards (including an award to acquire the same consideration paid to the stockholders in the transaction described in this subsection 11(c) for those outstanding under the Plan. In the event any surviving corporation or acquiring corporation refuses to assume such Stock Awards or to substitute similar stock awards for those outstanding under the Plan, then with respect to Stock Awards held by Participants whose Continuous Service has not terminated, the vesting of such Stock Awards (and, if applicable, the time during which such Stock Awards may be exercised) shall be accelerated in full, and the 16 Stock Awards shall terminate if not exercised (if applicable) at or prior to such event. With respect to any other Stock Awards outstanding under the Plan, such Stock Awards shall terminate if not exercised (if applicable) prior to such event. (D) CHANGE IN CONTROL--SECURITIES ACQUISITION. After the Listing Date, in the event of an acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or an Affiliate) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of Directors, then with respect to Stock Awards held by Participants whose Continuous Service has not terminated, the vesting of such Stock Awards (and, if applicable, the time during which such Stock Awards may be exercised) shall be accelerated in full. 12. AMENDMENT OF THE PLAN AND STOCK AWARDS. (A) AMENDMENT OF PLAN. The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 11 relating to adjustments upon changes in Common Stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Section 422 of the Code, Rule 16b-3 or any Nasdaq or securities exchange listing requirements. (B) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval, including, but not limited to, amendments to the Plan intended to satisfy the requirements of Section 162(m) of the Code and the regulations thereunder regarding the exclusion of performance-based compensation from the limit on corporate deductibility of compensation paid to certain executive officers. (C) CONTEMPLATED AMENDMENTS. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible Employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to Incentive Stock Options and/or to bring the Plan and/or Incentive Stock Options granted under it into compliance therewith. (D) NO IMPAIRMENT OF RIGHTS. Rights under any Stock Award granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing. (E) AMENDMENT OF STOCK AWARDS. The Board at any time, and from time to time, may amend the terms of any one or more Stock Awards; provided, however, that the rights under any Stock Award shall not be impaired by any such amendment unless (i) the Company requests the consent of the Participant and (ii) the Participant consents in writing. 17 13. TERMINATION OR SUSPENSION OF THE PLAN. (A) PLAN TERM. The Board may suspend or terminate the Plan at any time. Prior to the Listing Date and unless sooner terminated, the plan shall terminate on the day before the tenth (10th) anniversary of the earlier of the Plan's adoption by the Board or approval by the Company's stockholders. After the Listing Date, the Plan shall terminate as determined by the Board. No Stock Awards may be granted under the Plan while the Plan is suspended or after it is terminated. (B) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall not impair rights and obligations under any Stock Award granted while the Plan is in effect except with the written consent of the Participant. 14. EFFECTIVE DATE OF PLAN. The Plan shall become effective as determined by the Board, but no Stock Award shall be exercised (or, in the case of a stock bonus, shall be granted) unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board. 15. CHOICE OF LAW. The law of the State of Delaware shall govern all questions concerning the construction, validity and interpretation of this Plan, without regard to such state's conflict of laws rules. 18 EX-10.3.3 12 1999 STOCK OPTION GRANT NOTICE Exhibit 10.3.3 BE INCORPORATED OPTION GRANT NOTICE (1999 EQUITY INCENTIVE PLAN) Be Incorporated (the "Company"), pursuant to its 1999 Equity Incentive Plan (the "Plan"), hereby grants to Optionholder an option to purchase the number of shares of the Company's Common Stock set forth below. This option is subject to all of the terms and conditions as set forth herein and in the Stock Option Agreement, the Plan and the Notice of Exercise, all of which are attached hereto and incorporated herein in their entirety. Optionholder: _______________________ Date of Grant: _______________________ Vesting Commencement Date: _______________________ Number of Shares Subject to Option: _______________________ Exercise Price (Per Share): _______________________ Total Exercise Price: _______________________ Expiration Date: _______________________ TYPE OF GRANT: [_] Incentive Stock Option/1/ [_] Nonstatutory Stock Option EXERCISE SCHEDULE: Same as Vesting Schedule VESTING SCHEDULE: __________________________________________________________ __________________________________________________________ PAYMENT: By one or a combination of the following items (described in the Stock Option Agreement): By cash or check Pursuant to a Regulation T Program if the Shares are publicly traded ADDITIONAL TERMS/ACKNOWLEDGEMENTS: The undersigned Optionholder acknowledges receipt of, and understands and agrees to, this Grant Notice, the Stock Option Agreement and the Plan. Optionholder further acknowledges that as of the Date of Grant, this Grant Notice, the Stock Option Agreement and the Plan set forth the entire understanding between Optionholder and the Company regarding the acquisition of stock in the Company and supersede all prior oral and written agreements on that subject with the exception of (i) options previously granted and delivered to Optionholder under the Plan, and (ii) the following agreements only: OTHER AGREEMENTS: ________________________________________ ________________________________________ BE INCORPORATED OPTIONHOLDER: By:_____________________________________ ___________________________________ Signature Signature Title:__________________________________ Date:______________________________ Date:___________________________________ ATTACHMENTS: Stock Option Agreement, 1999 Equity Incentive Plan and Notice of Exercise ______________________ /1/ If this is an incentive stock option, it (plus your other outstanding incentive stock options) cannot be first exercisable for more than $100,000 in ----------- any calendar year. Any excess over $100,000 is a nonstatutory stock option. ATTACHMENT I STOCK OPTION AGREEMENT ATTACHMENT II 1999 EQUITY INCENTIVE PLAN ATTACHMENT III NOTICE OF EXERCISE NOTICE OF EXERCISE Be Incorporated ______________________ ______________________ Date of Exercise: _______________ Ladies and Gentlemen: This constitutes notice under my stock option that I elect to purchase the number of shares for the price set forth below. Type of option (check one): Incentive [_] Nonstatutory [_] Stock option dated: _______________ Number of shares as to which option is exercised: _______________ Certificates to be issued in name of: _______________ Total exercise price: $______________ Cash payment delivered herewith: $______________ By this exercise, I agree (i) to provide such additional documents as you may require pursuant to the terms of Be Incorporated 1992 Stock Option Plan, (ii) to provide for the payment by me to you (in the manner designated by you) of your withholding obligation, if any, relating to the exercise of this option, and (iii) if this exercise relates to an incentive stock option, to notify you in writing within fifteen (15) days after the date of any disposition of any of the shares of Common Stock issued upon exercise of this option that occurs within two (2) years after the date of grant of this option or within one (1) year after such shares of Common Stock are issued upon exercise of this option. I hereby make the following certifications and representations with respect to the number of shares of Common Stock of the Company listed above (the "Shares"), which are being acquired by me for my own account upon exercise of the Option as set forth above: I acknowledge that the Shares have not been registered under the Securities Act of 1933, as amended (the "Securities Act"), and are deemed to constitute "restricted securities" under Rule 701 and "control securities" under Rule 144 promulgated under the Securities Act. I warrant and represent to the Company that I have no present intention of distributing or selling said Shares, except as permitted under the Securities Act and any applicable state securities laws. 1. I further acknowledge that I will not be able to resell the Shares for at least ninety days (90) after the stock of the Company becomes publicly traded (i.e., subject to the reporting requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934) under Rule 701 and that more restrictive conditions apply to affiliates of the Company under Rule 144. I further acknowledge that all certificates representing any of the Shares subject to the provisions of the Option shall have endorsed thereon appropriate legends reflecting the foregoing limitations, as well as any legends reflecting restrictions pursuant to the Company's Articles of Incorporation, Bylaws and/or applicable securities laws. I further agree that, if required by the Company (or a representative of the underwriters) in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, I will not sell or otherwise transfer or dispose of any shares of Common Stock or other securities of the Company during such period (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act as may be requested by the Company or the representative of the underwriters. I further agree that the Company may impose stop-transfer instructions with respect to securities subject to the foregoing restrictions until the end of such period. Very truly yours, ___________________________________ 2. EX-10.4.1 13 EMPLOYEE STOCK PURCHASE PLAN EXHIBIT 10.4.1 BE INCORPORATED EMPLOYEE STOCK PURCHASE PLAN ADOPTED BY THE BOARD OF DIRECTORS MAY 4, 1999 APPROVED BY STOCKHOLDERS _______________, 1999 EFFECTIVE DATE: _______________, 1999 1. PURPOSE. (a) The purpose of the Employee Stock Purchase Plan (the "Plan") is to provide a means by which employees of Be Incorporated (the "Company"), and its Affiliates, as defined in subparagraph 1(b), which are designated as provided in subparagraph 2(b), may be given an opportunity to purchase stock of the Company. (b) The word "Affiliate" as used in the Plan means any parent corporation or subsidiary corporation of the Company, as those terms are defined in Sections 424(e) and (f), respectively, of the Internal Revenue Code of 1986, as amended (the "Code"). (c) The Company, by means of the Plan, seeks to retain the services of its employees, to secure and retain the services of new employees, and to provide incentives for such persons to exert maximum efforts for the success of the Company. (d) The Company intends that the rights to purchase stock of the Company granted under the Plan be considered options issued under an "employee stock purchase plan" as that term is defined in Section 423(b) of the Code. 2. ADMINISTRATION. (a) The Plan shall be administered by the Board of Directors (the "Board") of the Company unless and until the Board delegates administration to a Committee, as provided in subparagraph 2(c). Whether or not the Board has delegated administration, the Board shall have the final power to determine all questions of policy and expediency that may arise in the administration of the Plan. (b) The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (i) To determine when and how rights to purchase stock of the Company shall be granted and the provisions of each offering of such rights (which need not be identical). (ii) To designate from time to time which Affiliates of the Company shall be eligible to participate in the Plan. (iii) To construe and interpret the Plan and rights granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (iv) To amend the Plan as provided in paragraph 13. (v) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company and its Affiliates and to carry out the intent that the Plan be treated as an "employee stock purchase plan" within the meaning of Section 423 of the Code. (c) The Board may delegate administration of the Plan to a Committee composed of not fewer than two (2) members of the Board (the "Committee"). If administration is delegated to a Committee, the Committee shall have, in connection with the administration of the Plan, the powers theretofore possessed by the Board, subject, however, to such resolutions, not inconsistent with the provisions of the Plan, as may be adopted from time to time by the Board. The Board may abolish the Committee at any time and revest in the Board the administration of the Plan. 3. SHARES SUBJECT TO THE PLAN. (a) Subject to the provisions of paragraph 12 relating to adjustments upon changes in stock, the stock that may be sold pursuant to rights granted under the Plan shall not exceed in the aggregate one million five hundred thousand (1,500,000) shares of the Company's common stock (the "Common Stock"). If any right granted under the Plan shall for any reason terminate without having been exercised, the Common Stock not purchased under such right shall again become available for the Plan. (b) The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 4. GRANT OF RIGHTS; OFFERING. (a) The Board or the Committee may from time to time grant or provide for the grant of rights to purchase Common Stock of the Company under the Plan to eligible employees (an "Offering") on a date or dates (the "Offering Date(s)") selected by the Board or the Committee. Each Offering shall be in such form and shall contain such terms and conditions as the Board or the Committee shall deem appropriate, which shall comply with the requirements of Section 423(b)(5) of the Code that all employees granted rights to purchase stock under the Plan shall have the same rights and privileges. The terms and conditions of an Offering shall be incorporated by reference into the Plan and treated as part of the Plan. The provisions of separate Offerings need not be identical, but each Offering shall include (through incorporation of the provisions of this Plan by reference in the memorandum documenting the Offering or otherwise) the period during which the Offering shall be effective, which period shall not exceed twenty-seven (27) months beginning with the Offering Date, and the substance of the provisions contained in paragraphs 5 through 8, inclusive. 2 (b) If an employee has more than one right outstanding under the Plan, unless he or she otherwise indicates in agreements or notices delivered hereunder: (1) each agreement or notice delivered by that employee will be deemed to apply to all of his or her rights under the Plan, and (2) a right with a lower exercise price (or an earlier-granted right, if two rights have identical exercise prices), will be exercised to the fullest possible extent before a right with a higher exercise price (or a later-granted right, if two rights have identical exercise prices) will be exercised. 5. ELIGIBILITY. (a) Rights may be granted only to employees of the Company or, as the Board or the Committee may designate as provided in subparagraph 2(b), to employees of any Affiliate of the Company. Except as provided in subparagraph 5(b), an employee of the Company or any Affiliate shall not be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee has been in the employ of the Company or any Affiliate for such continuous period preceding such grant as the Board or the Committee may require, but in no event shall the required period of continuous employment be greater than two (2) years. In addition, unless otherwise determined by the Board or the Committee and set forth in the terms of the applicable Offering, no employee of the Company or any Affiliate shall be eligible to be granted rights under the Plan, unless, on the Offering Date, such employee's customary employment with the Company or such Affiliate is for at least twenty (20) hours per week and at least five (5) months per calendar year. (b) The Board or the Committee may provide that, each person who, during the course of an Offering, first becomes an eligible employee of the Company or designated Affiliate will, on a date or dates specified in the Offering which coincides with the day on which such person becomes an eligible employee or occurs thereafter, receive a right under that Offering, which right shall thereafter be deemed to be a part of that Offering. Such right shall have the same characteristics as any rights originally granted under that Offering, as described herein, except that: (i) the date on which such right is granted shall be the "Offering Date" of such right for all purposes, including determination of the exercise price of such right; (ii) the period of the Offering with respect to such right shall begin on its Offering Date and end coincident with the end of such Offering; and (iii) the Board or the Committee may provide that if such person first becomes an eligible employee within a specified period of time before the end of the Offering, he or she will not receive any right under that Offering. (c) No employee shall be eligible for the grant of any rights under the Plan if, immediately after any such rights are granted, such employee owns stock possessing five percent (5%) or more of the total combined voting power or value of all classes of stock of the Company or of any Affiliate. For purposes of this subparagraph 5(c), the rules of Section 424(d) of the Code shall apply in determining the stock ownership of any employee, and stock which such 3 employee may purchase under all outstanding rights and options shall be treated as stock owned by such employee. (d) An eligible employee may be granted rights under the Plan only if such rights, together with any other rights granted under "employee stock purchase plans" of the Company and any Affiliates, as specified by Section 423(b)(8) of the Code, do not permit such employee's rights to purchase stock of the Company or any Affiliate to accrue at a rate which exceeds twenty-five thousand dollars ($25,000) of fair market value of such stock (determined at the time such rights are granted) for each calendar year in which such rights are outstanding at any time. (e) Officers of the Company and any designated Affiliate shall be eligible to participate in Offerings under the Plan, provided, however, that the Board may provide in an Offering that certain employees who are highly compensated employees within the meaning of Section 423(b)(4)(D) of the Code shall not be eligible to participate. 6. RIGHTS; PURCHASE PRICE. (a) On each Offering Date, each eligible employee, pursuant to an Offering made under the Plan, shall be granted the right to purchase up to the number of shares of Common Stock of the Company purchasable with a percentage designated by the Board or the Committee not exceeding fifteen (15%) of such employee's Earnings (as defined in subparagraph 7(a)) during the period which begins on the Offering Date (or such later date as the Board or the Committee determines for a particular Offering) and ends on the date stated in the Offering, which date shall be no later than the end of the Offering. The Board or the Committee shall establish one or more dates during an Offering (the "Purchase Date(s)") on which rights granted under the Plan shall be exercised and purchases of Common Stock carried out in accordance with such Offering. (b) In connection with each Offering made under the Plan, the Board or the Committee may specify a maximum number of shares which may be purchased by any employee as well as a maximum aggregate number of shares which may be purchased by all eligible employees pursuant to such Offering. In addition, in connection with each Offering which contains more than one Purchase Date, the Board or the Committee may specify a maximum aggregate number of shares which may be purchased by all eligible employees on any given Purchase Date under the Offering. If the aggregate purchase of shares upon exercise of rights granted under the Offering would exceed any such maximum aggregate number, the Board or the Committee shall make a pro rata allocation of the shares available in as nearly a uniform manner as shall be practicable and as it shall deem to be equitable. (c) The purchase price of stock acquired pursuant to rights granted under the Plan shall be not less than the lesser of: (i) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the Offering Date; or (ii) an amount equal to eighty-five percent (85%) of the fair market value of the stock on the Purchase Date. 4 7. PARTICIPATION; WITHDRAWAL; TERMINATION. (a) An eligible employee may become a participant in the Plan pursuant to an Offering by delivering a participation agreement to the Company within the time specified in the Offering, in such form as the Company provides. Each such agreement shall authorize payroll deductions of up to the maximum percentage specified by the Board or the Committee of such employee's Earnings during the Offering. "Earnings" is defined as an employee's regular salary or wages (including amounts thereof elected to be deferred by the employee, that would otherwise have been paid, under any arrangement established by the Company intended to comply with Section 401(k), Section 402(e)(3), Section 125, Section 402(h), or Section 403(b) of the Code, and also including any deferrals under a non-qualified deferred compensation plan or arrangement established by the Company), which shall include or exclude bonuses, commissions, overtime pay, incentive pay, profit sharing, other remuneration paid directly to the employee, the cost of employee benefits paid for by the Company or an Affiliate, education or tuition reimbursements, imputed income arising under any group insurance or benefit program, traveling expenses, business and moving expense reimbursements, income received in connection with stock options, contributions made by the Company or an Affiliate under any employee benefit plan, and similar items of compensation, as determined by the Board or Committee. The payroll deductions made for each participant shall be credited to an account for such participant under the Plan and shall be deposited with the general funds of the Company. A participant may reduce (including to zero) or increase such payroll deductions, and an eligible employee may begin such payroll deductions, after the beginning of any Offering only as provided for in the Offering. A participant may make additional payments into his or her account only if specifically provided for in the Offering and only if the participant has not had the maximum amount withheld during the Offering. (b) At any time during an Offering, a participant may terminate his or her payroll deductions under the Plan and withdraw from the Offering by delivering to the Company a notice of withdrawal in such form as the Company provides. Such withdrawal may be elected at any time prior to the end of the Offering except as provided by the Board or the Committee in the Offering. Upon such withdrawal from the Offering by a participant, the Company shall distribute to such participant all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the participant) under the Offering, without interest, and such participant's interest in that Offering shall be automatically terminated. A participant's withdrawal from an Offering will have no effect upon such participant's eligibility to participate in any other Offerings under the Plan but such participant will be required to deliver a new participation agreement in order to participate in subsequent Offerings under the Plan. (c) Rights granted pursuant to any Offering under the Plan shall terminate immediately upon cessation of any participating employee's employment with the Company and any designated Affiliate, for any reason, and the Company shall distribute to such terminated employee all of his or her accumulated payroll deductions (reduced to the extent, if any, such deductions have been used to acquire stock for the terminated employee), under the Offering, without interest. 5 (d) Rights granted under the Plan shall not be transferable by a participant otherwise than by will or the laws of descent and distribution, or by beneficiary designation as provided in paragraph 14, and otherwise during his or her lifetime, shall be exercisable only by the person to whom such rights are granted. 8. EXERCISE. (a) On each date specified therefor in the relevant Offering ("Purchase Date"), each participant's accumulated payroll deductions and other additional payments specifically provided for in the Offering (without any increase for interest) will be applied to the purchase of whole shares of stock of the Company, up to the maximum number of shares permitted pursuant to the terms of the Plan and the applicable Offering, at the purchase price specified in the Offering. No fractional shares shall be issued upon the exercise of rights granted under the Plan. The amount, if any, of accumulated payroll deductions remaining in each participant's account after the purchase of shares which is less than the amount required to purchase one share of stock on the final Purchase Date of an Offering shall be held in each such participant's account for the purchase of shares under the next Offering under the Plan, unless such participant withdraws from such next Offering, as provided in subparagraph 7(b), or is no longer eligible to be granted rights under the Plan, as provided in paragraph 5, in which case such amount shall be distributed to the participant after such final Purchase Date, without interest. The amount, if any, of accumulated payroll deductions remaining in any participant's account after the purchase of shares which is equal to the amount required to purchase whole shares of stock on the final Purchase Date of an Offering shall be distributed in full to the participant after such Purchase Date, without interest. (b) No rights granted under the Plan may be exercised to any extent unless the shares to be issued upon such exercise under the Plan (including rights granted thereunder) are covered by an effective registration statement pursuant to the Securities Act of 1933, as amended (the "Securities Act") and the Plan is in material compliance with all applicable state, foreign and other securities and other laws applicable to the Plan. If on a Purchase Date in any Offering hereunder the Plan is not so registered or in such compliance, no rights granted under the Plan or any Offering shall be exercised on such Purchase Date, and the Purchase Date shall be delayed until the Plan is subject to such an effective registration statement and such compliance, except that the Purchase Date shall not be delayed more than twelve (12) months and the Purchase Date shall in no event be more than twenty-seven (27) months from the Offering Date. If on the Purchase Date of any Offering hereunder, as delayed to the maximum extent permissible, the Plan is not registered and in such compliance, no rights granted under the Plan or any Offering shall be exercised and all payroll deductions accumulated during the Offering (reduced to the extent, if any, such deductions have been used to acquire stock) shall be distributed to the participants, without interest. 9. COVENANTS OF THE COMPANY. (a) During the terms of the rights granted under the Plan, the Company shall keep available at all times the number of shares of stock required to satisfy such rights. 6 (b) The Company shall seek to obtain from each federal, state, foreign or other regulatory commission or agency having jurisdiction over the Plan such authority as may be required to issue and sell shares of stock upon exercise of the rights granted under the Plan. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such rights unless and until such authority is obtained. 10. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to rights granted under the Plan shall constitute general funds of the Company. 11. RIGHTS AS A SHAREHOLDER. A participant shall not be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to rights granted under the Plan unless and until the participant's shareholdings acquired upon exercise of rights under the Plan are recorded in the books of the Company. 12. ADJUSTMENTS UPON CHANGES IN STOCK. (a) If any change is made in the stock subject to the Plan, or subject to any rights granted under the Plan (through merger, consolidation, reorganization, recapitalization, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan and outstanding rights will be appropriately adjusted in the class(es) and maximum number of shares subject to the Plan and the class(es) and number of shares and price per share of stock subject to outstanding rights. Such adjustments shall be made by the Board or Committee, the determination of which shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a "transaction not involving the receipt of consideration by the Company.") (b) In the event of: (1) a dissolution or liquidation of the Company; (2) a merger or consolidation in which the Company is not the surviving corporation; (3) a reverse merger in which the Company is the surviving corporation but the shares of the Company's Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise; or (4) any other capital reorganization in which more than fifty percent (50%) of the shares of the Company entitled to vote are exchanged, then, as determined by the Board in its sole discretion (i) any surviving corporation may assume outstanding rights or substitute similar rights for those under the Plan, (ii) such rights may continue in full force and effect, or (iii) participants' accumulated payroll deductions may be used to purchase Common Stock immediately prior to the transaction described above and the participants' rights under the ongoing Offering terminated. 7 13. AMENDMENT OF THE PLAN. (a) The Board at any time, and from time to time, may amend the Plan. However, except as provided in paragraph 12 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the shareholders of the Company within twelve (12) months before or after the adoption of the amendment, where the amendment will: (i) Increase the number of shares reserved for rights under the Plan; (ii) Modify the provisions as to eligibility for participation in the Plan (to the extent such modification requires shareholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3 promulgated under the Securities Exchange Act of 1934, as amended ("Rule 16b-3")); or (iii) Modify the Plan in any other way if such modification requires shareholder approval in order for the Plan to obtain employee stock purchase plan treatment under Section 423 of the Code or to comply with the requirements of Rule 16b-3. It is expressly contemplated that the Board may amend the Plan in any respect the Board deems necessary or advisable to provide eligible employees with the maximum benefits provided or to be provided under the provisions of the Code and the regulations promulgated thereunder relating to employee stock purchase plans and/or to bring the Plan and/or rights granted under it into compliance therewith. (b) Rights and obligations under any rights granted before amendment of the Plan shall not be impaired by any amendment of the Plan, except with the consent of the person to whom such rights were granted, or except as necessary to comply with any laws or governmental regulation, or except as necessary to ensure that the Plan and/or rights granted under the Plan comply with the requirements of Section 423 of the Code. 14. DESIGNATION OF BENEFICIARY. (a) A participant may file a written designation of a beneficiary who is to receive any shares and cash, if any, from the participant's account under the Plan in the event of such participant's death subsequent to the end of an Offering but prior to delivery to the participant of such shares and cash. In addition, a participant may file a written designation of a beneficiary who is to receive any cash from the participant's account under the Plan in the event of such participant's death during an Offering. (b) Such designation of beneficiary may be changed by the participant at any time by written notice. In the event of the death of a participant and in the absence of a beneficiary validly designated under the Plan who is living at the time of such participant's death, the Company shall deliver such shares and/or cash to the executor or administrator of the estate of the participant, or if no such executor or administrator has been appointed (to the knowledge of the Company), the Company, in its sole discretion, may deliver such shares and/or cash to the 8 spouse or to any one or more dependents or relatives of the participant, or if no spouse, dependent or relative is known to the Company, then to such other person as the Company may designate. 15. TERMINATION OR SUSPENSION OF THE PLAN. (a) The Board may suspend or terminate the Plan at any time. Unless sooner terminated, the Plan shall terminate at the time that all of the shares subject to the Plan's share reserve, as increased and/or adjusted from time to time, have been issued under the terms of the Plan. No rights may be granted under the Plan while the Plan is suspended or after it is terminated. (b) Rights and obligations under any rights granted while the Plan is in effect shall not be altered or impaired by suspension or termination of the Plan, except as expressly provided in the Plan or with the consent of the person to whom such rights were granted, or except as necessary to comply with any laws or governmental regulation, or except as necessary to ensure that the Plan and/or rights granted under the Plan comply with the requirements of Section 423 of the Code. 16. EFFECTIVE DATE OF PLAN. The Plan shall become effective upon the adoption of enabling resolutions by the Company's Board of Directors (the "Effective Date"), but no rights granted under the Plan shall be exercised unless and until the Plan has been approved by the shareholders of the Company within 12 months before or after the date the Plan is adopted by the Board or the Committee, which date may be prior to the Effective Date. 9 EX-10.4.2 14 FORM OF EMPLOYEE STOCK PURCHASE PLAN OFFERING Exhibit 10.4.2 BE INCORPORATED EMPLOYEE STOCK PURCHASE PLAN OFFERING ADOPTED BY THE BOARD OF DIRECTORS ON MAY 4, 1999 1. GRANT; OFFERING DATE. (a) The Board of Directors of Be Incorporated, a Delaware corporation (the "Company"), pursuant to the Company's Employee Stock Purchase Plan (the "Plan"), hereby authorizes the grant of rights to purchase shares of the common stock of the Company ("Common Stock") to all Eligible Employees (an "Offering"). The first Offering shall begin simultaneously with the effectiveness of the Company's registration statement under the Securities Act of 1933, as amended, with respect to the initial public offering of the Company's Common Stock (the "Effective Date") and end on July 31, 2001 (the "Initial Offering"). Further, an Offering shall begin on each August 1 and February 1 thereafter, commencing with February 1, 2000, and shall end on the day prior to the second anniversary of each such Offering's Offering Date unless sooner terminated in accordance with the provisions of this Offering or the Plan. The first day of an Offering is that Offering's "Offering Date." (b) Prior to the commencement of any Offering, the Board of Directors (or the Committee described in subparagraph 2(c) of the Plan, if any) may change any or all terms of such Offering and any subsequent Offerings. The granting of rights pursuant to each Offering hereunder shall occur on each respective Offering Date unless, prior to such date (a) the Board of Directors (or such Committee) determines that such Offering shall not occur, or (b) no shares remain available for issuance under the Plan in connection with the Offering. (c) If the Company's accountants advise the Company that the accounting treatment of purchases under these Offerings has changed in a manner the Company determines is detrimental to its best interests, then each Offering commenced under this offering document shall terminate as of the next Purchase Date (after the purchase of stock on such Purchase Date) under such Offering. 2. ELIGIBLE EMPLOYEES. (a) Each employee of either the Company or its designated Affiliates (as defined in the Plan) incorporated in the United States shall be granted rights to purchase Common Stock under the Offering on the Offering Date of such Offering, provided that such employee has been continuously employed by the Company or one of its designated Affiliates throughout the ten-day period immediately prior to and ending on that Offering's Offering Date (an "Eligible Employee"). (b) Notwithstanding subparagraph 2(a) above, the following employees shall not be Eligible Employees or be granted rights under an Offering: (i) part-time or seasonal employees whose customary employment is less than twenty (20) hours per week or five (5) months per calendar year or (ii) five percent (5%) stockholders (including ownership through unexercised options) described in subparagraph 5(c) of the Plan. 3. RIGHTS. (a) Subject to the limitations contained herein and in the Plan, on each Offering Date each Eligible Employee shall be granted the right to purchase the number of shares of Common Stock purchasable with up to fifteen percent (15%) of such Eligible Employee's Earnings (defined as base salary or wages plus overtime) paid during the period of such Offering beginning after such Eligible Employee first commences participation; provided, however, that no Eligible Employee may purchase Common Stock on a particular Purchase Date that would result in more than fifteen percent (15%) of such Eligible Employee's Earnings paid during the period from the date the Eligible Employee first commences participation in the Offering to such Purchase Date having been applied to purchase shares under all ongoing Offerings under the Plan and all other Company plans intended to qualify as "employee stock purchase plans" under Section 423 of the Internal Revenue Code of 1986, as amended (the "Code"). (b) Notwithstanding the foregoing, the maximum number of shares of Common Stock an Eligible Employee may purchase on any Purchase Date in an Offering shall be such number of shares as has a fair market value (determined as of the Offering Date for such Offering) equal to (x) $25,000 multiplied by the number of calendar years in which the right under such Offering has been outstanding at any time, minus (y) the fair market value of any other shares of Common Stock (determined as of the relevant Offering Date with respect to such shares) which, for purposes of the limitation of Section 423(b)(8) of the Code, are attributed to any of such calendar years in which the right is outstanding. The amount in clause (y) of the previous sentence shall be determined in accordance with regulations applicable under Section 423(b)(8) of the Code based on (i) the number of shares previously purchased with respect to such calendar years pursuant to such Offering or any other Offering under the Plan, or pursuant to any other Company plans intended to qualify as "employee stock purchase plans" under Section 423 of the Code, and (ii) the number of shares subject to other rights outstanding on the Offering Date for such Offering pursuant to the Plan or any other such Company plan. (c) The maximum aggregate number of shares available to be purchased by all Eligible Employees under an Offering shall be the number of shares remaining available under the Plan on the Offering Date. If the aggregate purchase of shares of Common Stock upon exercise of rights granted under the Offering would exceed the maximum aggregate number of shares available, the Board shall make a pro rata allocation of the shares available in a uniform and equitable manner. 4. PURCHASE PRICE. The purchase price of the Common Stock under the Offering shall be the lesser of eighty-five percent (85%) of the fair market value of the Common Stock on the Offering Date (eighty-five percent (85%) of the fair market value of the Common Stock on the first day on which the Company's Common Stock is actively traded that immediately follows the Offering Date if an Offering Date does not fall on a day during which the Company's Common Stock is actively traded) or eighty-five percent (85%) of the fair market value of the Common Stock on the Purchase Date (eighty-five percent (85%) of the fair market value of the Common Stock on the first day on which the Company's Common Stock is actively traded that immediately precedes 2 the Purchase Date if a Purchase Date does not fall on a day during which the Company's Common Stock is actively traded), in each case rounded up to the nearest whole cent per share. 5. PARTICIPATION. (a) Except as otherwise provided in this paragraph 5, an Eligible Employee may elect to participate in an Offering at the beginning of the Offering or in the case of an Offering in which an Eligible Employee was eligible to participate at such Offering's commencement, as of any day immediately following a Purchase Date (i.e. August 1, or February 1) during such Offering. An Eligible Employee shall become a participant in an Offering by delivering an agreement authorizing payroll deductions. Such deductions must be in whole dollars, with a minimum dollar amount of ten dollars ($10) per pay period and a maximum amount not expected to exceed fifteen percent (15%) of Earnings over the course of an Offering, or in whole percentages, with a minimum percentage of one percent (1%) and a maximum percentage of fifteen percent (15%) of Earnings over the course of an Offering. A participant may not make additional payments into his or her account. In the absence of the delivery of an agreement authorizing payroll deductions, a participant's initial participation level shall be zero, provided however, that for participant's already enrolled in an offering under the Plan, as of the day prior to the Offering Date of the Initial Offering and similarly as to Offerings thereafter under this offering document, the initial level of participation shall be as provided in the most recent agreement authorizing payroll deductions from the pay of such participant that has been delivered to the Company. The agreement shall be made on such enrollment form as the Company provides, and must be delivered to the Company before the Offering Date to be effective for the remaining portion of that Offering, unless a later time for filing the enrollment form is set by the Board for all Eligible Employees with respect to a given Offering Date. Notwithstanding the foregoing, the time by which an agreement authorizing payroll deductions must be delivered to the Company for determining a participant's initial level of participation in the Initial Offering shall be not later than the end of the second full payroll period following the Offering Date of the Initial Offering. (b) By delivering a notice to the Company on such form as the Company provides, a participant may increase or decrease his or her participation level during the course of an Offering or withdraw from an Offering as follows: (i) a participant may decrease (including to zero) his or her participation level only once (except for a second reduction to zero) during each July 1 to January 31 and February 1 to August 31, at any time except during the ten (10) day period immediately preceding a Purchase Date, (ii) during the course of an Offering a participant may increase or decrease his or her participation level during each July 1 to January 31 and February 1 to August 31, with such change not to take effect until after the Purchase Date that first follows the date such change is delivered to the Company, and (iii) a participant may withdraw from an Offering and receive his or her accumulated payroll deductions from the Offering (reduced to the extent, if any, such deductions have been used to acquire Common Stock for the participant on any prior Purchase Dates), without interest, at any time prior to the end of the Offering, excluding only each ten (10) day period immediately preceding a Purchase Date. 3 6. PURCHASES. Subject to the limitations contained herein, on each Purchase Date, each participant's accumulated payroll deductions (without any increase for interest) shall be applied to the purchase of whole shares of Common Stock, up to the maximum number of shares permitted under the Plan and the Offering. "Purchase Date" shall be defined as each July 31 (excluding July 31, 1999) and January 31 during an Offering. On a Purchase Date each participant's purchases will first be made under the Offering, for which purchases are made on such date, that results in stock being purchased for such participant at the lowest price under all Offerings in which such participant then has been granted rights and under which stock is purchased on such Purchase Date. 7. NOTICES AND AGREEMENTS. Any notices or agreements provided for in an Offering or the Plan shall be given in writing, in a form provided by the Company, and unless specifically provided for in the Plan or this Offering shall be deemed effectively given upon receipt or, in the case of notices and agreements delivered by the Company, five (5) days after deposit in the United States mail, postage prepaid. 8. EXERCISE CONTINGENT ON STOCKHOLDER APPROVAL. The rights granted under an Offering are subject to the approval of the Plan by the stockholders as required for the Plan to obtain treatment as a tax- qualified employee stock purchase plan under Section 423 of the Code and as necessary to comply with the requirements of exemption from potential liability under Section 16(b) of the Securities Exchange Act of 1934, as amended (the "Exchange Act") set forth in Rule 16b-3 promulgated under the Exchange Act. 9. OFFERING SUBJECT TO PLAN. Each Offering is subject to all the provisions of the Plan, and its provisions are hereby made a part of the Offering, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of an Offering and those of the Plan (including interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan), the provisions of the Plan shall control. 4 EX-10.5.1 15 1999 NON-EMPLOYEE DIRECTOR'S PLAN EXHIBIT 10.5.1 BE INCORPORATED 1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN Adopted by the Board of Directors March 30, 1999 Approved By Stockholders _______________, 199___ Effective Date: March 30, 1999 1. PURPOSES. (A) ELIGIBLE OPTION RECIPIENTS. The persons eligible to receive Options are the Non-Employee Directors of the Company. (B) AVAILABLE OPTIONS. The purpose of the Plan is to provide a means by which Non-Employee Directors may be given an opportunity to benefit from increases in value of the Common Stock through the granting of Nonstatutory Stock Options. (C) GENERAL PURPOSE. The Company, by means of the Plan, seeks to retain the services of its Non-Employee Directors, to secure and retain the services of new Non-Employee Directors and to provide incentives for such persons to exert maximum efforts for the success of the Company and its Affiliates. 2. DEFINITIONS. (A) "AFFILIATE" means any parent corporation or subsidiary corporation of the Company, whether now or hereafter existing, as those terms are defined in Sections 424(e) and (f), respectively, of the Code. (B) "ANNUAL MEETING" means the annual meeting of the stockholders of the Company. (C) "BOARD" means the Board of Directors of the Company. (D) "CODE" means the Internal Revenue Code of 1986, as amended. (E) "COMMON STOCK" means the common stock of the Company. (F) "COMPANY" means Be Incorporated, a California corporation. (G) "CONSULTANT" means any person, including an advisor, (i) engaged by the Company or an Affiliate to render consulting or advisory services and who is compensated for such services or (ii) who is a member of the Board of Directors of an Affiliate. However, the term "Consultant" shall not include either Directors of the Company who are not compensated by the Company for their services as Directors or Directors of the Company who are merely paid a director's fee by the Company for their services as Directors. 1. (H) "CONTINUOUS SERVICE" means that the Optionholder's service with the Company or an Affiliate, whether as an Employee, Director or Consultant, is not interrupted or terminated. The Optionholder's Continuous Service shall not be deemed to have terminated merely because of a change in the capacity in which the Optionholder renders service to the Company or an Affiliate as an Employee, Consultant or Director or a change in the entity for which the Optionholder renders such service, provided that there is no interruption or termination of the Optionholder's Continuous Service. For example, a change in status from a Non-Employee Director of the Company to a Consultant of an Affiliate or an Employee of the Company will not constitute an interruption of Continuous Service. The Board or the chief executive officer of the Company, in that party's sole discretion, may determine whether Continuous Service shall be considered interrupted in the case of any leave of absence approved by that party, including sick leave, military leave or any other personal leave. (I) "DIRECTOR" means a member of the Board of Directors of the Company. (J) "DISABILITY" means the inability of a person, in the opinion of a qualified physician acceptable to the Company, to perform the major duties of that person's position with the Company or an Affiliate of the Company because of the sickness or injury of the person. (K) "EMPLOYEE" means any person employed by the Company or an Affiliate. Mere service as a Director or payment of a director's fee by the Company or an Affiliate shall not be sufficient to constitute "employment" by the Company or an Affiliate. (L) "EXCHANGE ACT" means the Securities Exchange Act of 1934, as amended. (M) "FAIR MARKET VALUE" means, as of any date, the value of the Common Stock determined as follows: (I) If the Common Stock is listed on any established stock exchange or traded on the Nasdaq National Market or the Nasdaq SmallCap Market, the Fair Market Value of a share of Common Stock shall be the closing sales price for such stock (or the closing bid, if no sales were reported) as quoted on such exchange or market (or the exchange or market with the greatest volume of trading in the Common Stock) on the last market trading day prior to the day of determination, as reported in The Wall Street Journal or such other source as the Board deems reliable. (N) In the absence of such markets for the Common Stock, the Fair Market Value shall be determined in good faith by the Board and prior to the Listing Date, pursuant to 260.140.50 of Title 10 of the California Code of Regulations. (O) "FOLL OW-ON GRANT" means an Option granted pursuant to subsection 6(c) of the Plan. (P) "INAUGURAL GRANT" means an Option granted pursuant to subsection 6(b) of the Plan. 2. (Q) "INITIAL GRANT" means an Option granted to a Non-Employee Director who meets the specified criteria pursuant to subsection 6(a) of the Plan. (R) "LISTING DATE" means the first date upon which any security of the Company is listed (or approved for listing) upon notice of issuance on any securities exchange or designated (or approved for designation) upon notice of issuance as a national market security on an interdealer quotation system if such securities exchange or interdealer quotation system has been certified in accordance with the provisions of Section 25100(o) of the California Corporate Securities Law of 1968. (S) "NON-EMPLOYEE DIRECTOR" means a Director who is not an Employee. (T) "NONSTATUTORY STOCK OPTION" means an Option not intended to qualify as an incentive stock option within the meaning of Section 422 of the Code and the regulations promulgated thereunder. (U) "OFFICER" means a person who is an officer of the Company within the meaning of Section 16 of the Exchange Act and the rules and regulations promulgated thereunder. (V) "OPTION" means a Nonstatutory Stock Option granted pursuant to the Plan. (W) "OPTION AGREEMENT" means a written agreement between the Company and an Optionholder evidencing the terms and conditions of an individual Option grant. Each Option Agreement shall be subject to the terms and conditions of the Plan. (X) "OPTIONHOLDER" means a person to whom an Option is granted pursuant to the Plan or, if applicable, such other person who holds an outstanding Option. (Y) "PLAN" means this 1999 Non-Employee Directors' Stock Option Plan. (Z) "RULE 16B-3" means Rule 16b-3 promulgated under the Exchange Act or any successor to Rule 16b-3, as in effect from time to time. (AA) "SECURITIES ACT" means the Securities Act of 1933, as amended. 3. ADMINISTRATION. (A) ADMINISTRATION BY BOARD. The Board shall administer the Plan. The Board may not delegate administration of the Plan to a committee. (B) POWERS OF BOARD. The Board shall have the power, subject to, and within the limitations of, the express provisions of the Plan: (I) To determine the provisions of each Option to the extent not specified in the Plan. 3. (II) To construe and interpret the Plan and Options granted under it, and to establish, amend and revoke rules and regulations for its administration. The Board, in the exercise of this power, may correct any defect, omission or inconsistency in the Plan or in any Option Agreement, in a manner and to the extent it shall deem necessary or expedient to make the Plan fully effective. (III) To amend the Plan or an Option as provided in Section 12. (IV) Generally, to exercise such powers and to perform such acts as the Board deems necessary or expedient to promote the best interests of the Company which are not in conflict with the provisions of the Plan. 4. SHARES SUBJECT TO THE PLAN. (A) SHARE RESERVE. Subject to the provisions of Section 11 relating to adjustments upon changes in stock, the stock that may be issued pursuant to Options shall not exceed in the aggregate one million five hundred thousand (1,500,000) shares of Common Stock. (B) REVERSION OF SHARES TO THE SHARE RESERVE. If any Option shall for any reason expire or otherwise terminate, in whole or in part, without having been exercised in full, the stock not acquired under such Option shall revert to and again become available for issuance under the Plan. (C) SOURCE OF SHARES. The stock subject to the Plan may be unissued shares or reacquired shares, bought on the market or otherwise. 5. ELIGIBILITY. Nondiscretionary Options as set forth in section 6 shall be granted under the Plan to all Non-Employee Directors. 6. NON-DISCRETIONARY GRANTS. (A) INITIAL GRANTS. Without any further action of the Board, each Non- Employee Director shall be granted the following Options on the Listing Date, on the date of approval of the Plan by the Board, each person who is then a Non- Employee Director automatically shall be granted a Nonstatutory Stock Option to purchase one hundred fifty thousand (150,000) shares of Common Stock on the terms and conditions set forth herein. (B) INAUGURAL GRANTS. Each person who is elected or appointed for the first time to be a Non-Employee Director automatically shall, upon the date of his or her initial election or appointment to be a Non-Employee Director by the Board or stockholders of the Company, be granted a Nonstatutory Stock Option to purchase one hundred thousand (100,000) shares of Common Stock on the terms and conditions set forth herein. 4. (C) FOLLOW-ON GRANTS. On the date on which an option granted under this Plan fully vests there automatically shall be granted to the Optionholder, if a Non-Employee Director on that date, a Nonstatutory Stock Option to purchase one hundred thousand (100,000) shares of Common Stock on the terms and conditions set forth herein. 7. OPTION PROVISIONS. Each Option shall be in such form and shall contain such terms and conditions as required by the Plan. Each Option shall contain such additional terms and conditions, not inconsistent with the Plan, as the Board shall deem appropriate. Each Option shall include (through incorporation of provisions hereof by reference in the Option or otherwise) the substance of each of the following provisions: (A) TERM. No Option shall be exercisable after the expiration of ten (10) years from the date it was granted. (B) EXERCISE PRICE. The exercise price of each Option shall be one hundred percent (100%) of the Fair Market Value of the stock subject to the Option on the date the Option is granted. Notwithstanding the foregoing, an Option may be granted with an exercise price lower than that set forth in the preceding sentence if such Option is granted pursuant to an assumption or substitution for another option in a manner satisfying the provisions of Section 424(a) of the Code. (C) CONSIDERATION. The purchase price of stock acquired pursuant to an Option may be paid, to the extent permitted by applicable statutes and regulations, in any combination of (i) cash or check, (ii) delivery to the Company of other Common Stock, (ii) deferred payment or (iv) any other form of legal consideration that may be acceptable to the Board and provided in the Option Agreement; provided, however, that at any time that the Company is incorporated in Delaware, payment of the Common Stock's "par value," as defined in the Delaware General Corporation Law, shall not be made by deferred payment. In the case of any deferred payment arrangement, interest shall be compounded at least annually and shall be charged at the minimum rate of interest necessary to avoid the treatment as interest, under any applicable provisions of the Code, of any amounts other than amounts stated to be interest under the deferred payment arrangement. (D) TRANSFERABILITY. An option shall be transferable by will, by the laws of descent and distribution, or to the extent permitted for registration on Form S-8 under the Securities Act, and prior to the Listing Date as permitted under the Company's qualification or exemption from qualification under the securities laws of the State of California, and shall be exercisable during the lifetime of the Optionholder only by the Optionholder or such transferee. Notwithstanding the foregoing, the Optionholder may, by delivering written notice to the Company, in a form satisfactory to the Company, designate a third party who, in the event of the death of the Optionholder, shall thereafter be entitled to exercise the Option. 5. (E) VESTING GENERALLY. Initial Grants, Inaugural Grants and Follow-on Grants shall provide for vesting of 1/4th of the shares 12 months after the date of the grant and 1/48th of the shares each month thereafter, until fully vested, subject to the condition, however, that throughout the vesting period the Optionholder's Continuous Service has not terminated. (I) Annual Grants shall provide for vesting of 1/12th of the shares each month after the date of the grant. (F) TERMINATION OF CONTINUOUS SERVICE. In the event an Optionholder's Continuous Service terminates (other than upon the Optionholder's death or Disability), the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date of termination) but only within such period of time ending on the earlier of (i) the date three (3) months following the termination of the Optionholder's Continuous Service, or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified in the Option Agreement, the Option shall terminate. (G) EXTENSION OF TERMINATION DATE. If the exercise of the Option following the termination of the Optionholder's Continuous Service (other than upon the Optionholder's death or Disability) would be prohibited at any time solely because the issuance of shares would violate the registration requirements under the Securities Act, then the Option shall terminate on the earlier of (i) the expiration of the term of the Option set forth in subsection 7(a) or (ii) the expiration of a period of three (3) months after the termination of the Optionholder's Continuous Service during which the exercise of the Option would not be in violation of such registration requirements. (H) DISABILITY OF OPTIONHOLDER. In the event an Optionholder's Continuous Service terminates as a result of the Optionholder's Disability, the Optionholder may exercise his or her Option (to the extent that the Optionholder was entitled to exercise it as of the date of termination), but only within such period of time ending on the earlier of (i) the date twelve (12) months following such termination or (ii) the expiration of the term of the Option as set forth in the Option Agreement. If, after termination, the Optionholder does not exercise his or her Option within the time specified herein, the Option shall terminate. (I) DEATH OF OPTIONHOLDER. In the event (i) an Optionholder's Continuous Service terminates as a result of the Optionholder's death or (ii) the Optionholder dies within the three-month period after the termination of the Optionholder's Continuous Service for a reason other than death, then the Option may be exercised (to the extent the Optionholder was entitled to exercise the Option as of the date of death) by the Optionholder's estate, by a person who acquired the right to exercise the Option by bequest or inheritance or by a person designated to exercise the Option upon the Optionholder's death, but only within the period ending on the earlier of (1) the date eighteen (18) months following the date of death or (2) the expiration of the term of such Option as set forth in the Option Agreement. If, after death, the Option is not exercised within the time specified herein, the Option shall terminate. 6. 8. COVENANTS OF THE COMPANY. (A) AVAILABILITY OF SHARES. During the terms of the Options, the Company shall keep available at all times the number of shares of Common Stock required to satisfy such Options. (B) SECURITIES LAW COMPLIANCE. The Company shall seek to obtain from each regulatory commission or agency having jurisdiction over the Plan such authority as may be required to grant Options and to issue and sell shares of Common Stock upon exercise of the Options; provided, however, that this undertaking shall not require the Company to register under the Securities Act the Plan, any Option or any stock issued or issuable pursuant to any such Option. If, after reasonable efforts, the Company is unable to obtain from any such regulatory commission or agency the authority which counsel for the Company deems necessary for the lawful issuance and sale of stock under the Plan, the Company shall be relieved from any liability for failure to issue and sell stock upon exercise of such Options unless and until such authority is obtained. 9. USE OF PROCEEDS FROM STOCK. Proceeds from the sale of stock pursuant to Options shall constitute general funds of the Company. 10. MISCELLANEOUS. (A) STOCKHOLDER RIGHTS. No Optionholder shall be deemed to be the holder of, or to have any of the rights of a holder with respect to, any shares subject to such Option unless and until such Optionholder has satisfied all requirements for exercise of the Option pursuant to its terms. (B) NO SERVICE RIGHTS. Nothing in the Plan or any instrument executed or Option granted pursuant thereto shall confer upon any Optionholder any right to continue to serve the Company as a Non-Employee Director or shall affect the right of the Company or an Affiliate to terminate (i) the employment of an Employee with or without notice and with or without cause, (ii) the service of a Consultant pursuant to the terms of such Consultant's agreement with the Company or an Affiliate or (iii) the service of a Director pursuant to the Bylaws of the Company or an Affiliate, and any applicable provisions of the corporate law of the state in which the Company or the Affiliate is incorporated, as the case may be. (C) INVESTMENT ASSURANCES. The Company may require an Optionholder, as a condition of exercising or acquiring stock under any Option, (i) to give written assurances satisfactory to the Company as to the Optionholder's knowledge and experience in financial and business matters and/or to employ a purchaser representative reasonably satisfactory to the Company who is knowledgeable and experienced in financial and business matters and that he or she is capable of evaluating, alone or together with the purchaser representative, the merits and risks of exercising the Option; and (ii) to give written assurances satisfactory to the Company stating that the Optionholder is acquiring the stock subject to the Option for the Optionholder's own account and not with any present intention of selling or otherwise distributing the stock. 7. The foregoing requirements, and any assurances given pursuant to such requirements, shall be inoperative if (iii) the issuance of the shares upon the exercise or acquisition of stock under the Option has been registered under a then currently effective registration statement under the Securities Act or (iv) as to any particular requirement, a determination is made by counsel for the Company that such requirement need not be met in the circumstances under the then applicable securities laws. The Company may, upon advice of counsel to the Company, place legends on stock certificates issued under the Plan as such counsel deems necessary or appropriate in order to comply with applicable securities laws, including, but not limited to, legends restricting the transfer of the stock. (D) WITHHOLDING OBLIGATIONS. The Optionholder may satisfy any federal, state or local tax withholding obligation relating to the exercise or acquisition of stock under an Option by any of the following means (in addition to the Company's right to withhold from any compensation paid to the Optionholder by the Company) or by a combination of such means: (i) tendering a cash payment; (ii) authorizing the Company to withhold shares from the shares of the Common Stock otherwise issuable to the Optionholder as a result of the exercise or acquisition of stock under the Option; or (iii) delivering to the Company owned and unencumbered shares of the Common Stock. 11. ADJUSTMENTS UPON CHANGES IN STOCK. (A) CAPITALIZATION ADJUSTMENTS. If any change is made in the stock subject to the Plan, or subject to any Option, without the receipt of consideration by the Company (through merger, consolidation, reorganization, recapitalization, reincorporation, stock dividend, dividend in property other than cash, stock split, liquidating dividend, combination of shares, exchange of shares, change in corporate structure or other transaction not involving the receipt of consideration by the Company), the Plan will be appropriately adjusted in the class(es) and maximum number of securities subject both to the Plan pursuant to subsection 4(a) and to the nondiscretionary Options specified in Section 6, and the outstanding Options will be appropriately adjusted in the class(es) and number of securities and price per share of stock subject to such outstanding Options. The Board shall make such adjustments, and its determination shall be final, binding and conclusive. (The conversion of any convertible securities of the Company shall not be treated as a transaction "without receipt of consideration" by the Company.) (B) CHANGE IN CONTROL--DISSOLUTION OR LIQUIDATION. In the event of a dissolution or liquidation of the Company, then all outstanding Options shall terminate immediately prior to such event. (C) CHANGE IN CONTROL--ASSET SALE, MERGER, CONSOLIDATION OR REVERSE MERGER. In the event of (i) a sale of all or substantially all of the assets of the Company, (ii) a merger or consolidation in which the Company is not the surviving corporation or (iii) a reverse merger in which the Company is the surviving corporation but the shares of Common Stock outstanding immediately preceding the merger are converted by virtue of the merger into other property, whether in the form of securities, cash or otherwise, then any surviving corporation or acquiring corporation shall assume any Options outstanding under the Plan or shall substitute similar 8. Options (including an option to acquire the same consideration paid to the stockholders in the transaction described in this subsection 11(c) for those outstanding under the Plan. In the event any surviving corporation or acquiring corporation refuses to assume such Options or to substitute similar Options for those outstanding under the Plan, then with respect to Options held by Optionholders whose Continuous Service has not terminated, the vesting of such Options shall be accelerated in full, and the Options shall terminate if not exercised at or prior to such event. With respect to any other Options outstanding under the Plan, such Options shall terminate if not exercised prior to such event. (D) CHANGE IN CONTROL--SECURITIES ACQUISITION. After the Listing Date, in the event of an acquisition by any person, entity or group within the meaning of Section 13(d) or 14(d) of the Exchange Act, or any comparable successor provisions (excluding any employee benefit plan, or related trust, sponsored or maintained by the Company or an Affiliate) of the beneficial ownership (within the meaning of Rule 13d-3 promulgated under the Exchange Act, or comparable successor rule) of securities of the Company representing at least fifty percent (50%) of the combined voting power entitled to vote in the election of Directors, then with respect to Options held by Optionholders whose Continuous Service has not terminated, the vesting of such Options shall be accelerated in full. 12. AMENDMENT OF THE PLAN AND OPTIONS. (A) AMENDMENT OF PLAN. The Board at any time, and from time to time, may amend the Plan. However, except as provided in Section 11 relating to adjustments upon changes in stock, no amendment shall be effective unless approved by the stockholders of the Company to the extent stockholder approval is necessary to satisfy the requirements of Rule 16b-3 or any Nasdaq or securities exchange listing requirements. (B) STOCKHOLDER APPROVAL. The Board may, in its sole discretion, submit any other amendment to the Plan for stockholder approval. (C) NO IMPAIRMENT OF RIGHTS. Rights under any Option granted before amendment of the Plan shall not be impaired by any amendment of the Plan unless (i) the Company requests the consent of the Optionholder and (ii) the Optionholder consents in writing. (D) AMENDMENT OF OPTIONS. The Board at any time, and from time to time, may amend the terms of any one or more Options; provided, however, that the rights under any Option shall not be impaired by any such amendment unless (i) the Company requests the consent of the Optionholder and (ii) the Optionholder consents in writing. 13. TERMINATION OR SUSPENSION OF THE PLAN. (A) PLAN TERM. The Board may suspend or terminate the Plan at any time. No Options may be granted under the Plan while the Plan is suspended or after it is terminated. 9. (B) NO IMPAIRMENT OF RIGHTS. Suspension or termination of the Plan shall not impair rights and obligations under any Option granted while the Plan is in effect except with the written consent of the Optionholder. 14. EFFECTIVE DATE OF PLAN. The Plan shall become effective on the date the Plan is adopted by the Board but no Option shall be exercised unless and until the Plan has been approved by the stockholders of the Company, which approval shall be within twelve (12) months before or after the date the Plan is adopted by the Board. 15. CHOICE OF LAW. All questions concerning the construction, validity and interpretation of this Plan shall be governed by the law of the State of Delaware, without regard to such state's conflict of laws rules. 10. EX-10.5.2 16 FORM OF NON STATUTORY STOCK OPTION Exhibit 10.5.2 BE INCORPORATED NONSTATUTORY STOCK OPTION (1999 NON-EMPLOYEE DIRECTORS' STOCK OPTION PLAN) ______________, Optionee: Be Incorporated (the "Company"), pursuant to its 1999 Non-Employee Directors' Stock Option Plan (the "Plan") has on ______________ granted to you, the optionee named above, an option to purchase shares of the common stock of the Company ("Common Stock"). This option does not qualify and will not be treated as an "incentive stock option" within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended (the "Code"). The grant hereunder is in connection with and in furtherance of the Company's compensatory benefit plan for participation of the Company's Non- Employee Directors (as defined in the Plan). The details of your option are as follows: 1. The total number of shares of Common Stock subject to this option is _________ (___________). Subject to the limitations contained herein, this option shall be exercisable in accordance with the Plan. 2. The exercise price of this option is ________________ ($_________) per share, being the Fair Market Value (as defined in the Plan) of the Common Stock on the date of grant of this option. 3. (a) This option may be exercised, to the extent specified in the Plan, by delivering a notice of exercise (in a form designated by the Company) together with the exercise price to the Secretary of the Company, or to such other person as the Company may designate, during regular business hours, together with such additional documents as the Company may then require pursuant to Section 9(c) of the Plan. This option may not be exercised for any number of shares which would require the issuance of anything other than whole shares. (b) By exercising this option you agree that the Company may require you to enter an arrangement providing for the cash payment by you to the Company of any tax withholding obligation of the Company arising by reason of the exercise of this option or the lapse of any substantial risk of forfeiture to which the shares are subject at the time of exercise. 4. Any notices provided for in this option or the Plan shall be given in writing and shall be deemed effectively given upon receipt or, in the case of notices delivered by the Company to you, five (5) days after deposit in the United States mail, postage prepaid, addressed 1. to you at the address specified below or at such other address as you hereafter designate by written notice to the Company. 5. By exercising this option you agree that the Company (or a representative of the underwriter(s)) may, in connection with the first underwritten registration of the offering of any securities of the Company under the Securities Act, require that you not sell, dispose of, transfer, make any short sale of, grant any option for the purchase of, or enter into any hedging or similar transaction with the same economic effect as a sale, any shares of Common Stock or other securities of the Company held by you, for a period of time specified by the underwriter(s) (not to exceed one hundred eighty (180) days) following the effective date of the registration statement of the Company filed under the Securities Act. You further agree to execute and deliver such other agreements as may be reasonably requested by the Company and/or the underwriter(s) that are consistent with the foregoing or that are necessary to give further effect thereto. In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to your shares of Common Stock until the end of such period. 6. This option is subject to all the provisions of the Plan, a copy of which is attached hereto and its provisions are hereby made a part of this option, including without limitation the provisions of Section 7 of the Plan relating to option provisions, and is further subject to all interpretations, amendments, rules and regulations which may from time to time be promulgated and adopted pursuant to the Plan. In the event of any conflict between the provisions of this option and those of the Plan, the provisions of the Plan shall control. Dated the _________ day of _______, 19__. Very truly yours, Be Incorporated By: --------------------------------------- Duly authorized on behalf of the Board of Directors Attachments: 1999 Non-Employee Directors' Stock Option Plan 2. The undersigned: (a) Acknowledges receipt of the foregoing option and the attachments referenced therein and understands that all rights and liabilities with respect to this option are set forth in the option and the Plan; (b) Acknowledges that as of the date of grant of this option, it sets forth the entire understanding between the undersigned optionee and the Company and its affiliates regarding the acquisition of stock in the Company and supersedes all prior oral and written agreements on that subject with the exception of (i) the options previously granted and delivered to the undersigned under stock options plans of the Company, and (ii) the following agreements only: None ---------------------------------------- (Initial) Other ---------------------------------------- ---------------------------------------- ---------------------------------------- ----------------------------------------- Optionee ----------------------------------------- Address ----------------------------------------- ----------------------------------------- 3. EX-10.6.1 17 OFFICE LEASE DATED 6/24/94 Exhibit 10.6.1 OFFICE LEASE PARTIES 1. THIS LEASE, dated for reference purposes only, June 24, 1994, is made by and between MENLO STATION DEVELOPMENT, a general partnership (herein "Landlord") and BEINCORPORATED (herein "Tenant"). PREMISES 2. Landlord leases to Tenant and Tenant hires from Landlord for the term, at the rental and upon the conditions in this Office Lease (herein "Lease") the space consisting of the entire third floor of approximately Ten Thousand Six Hundred Seventy Five (10,675) square feet (herein "Premises") of the building commonly known as 800 E1 Camino Real, Menlo Park, San Mateo County, California and located substantially as shown on Exhibit A attached hereto, reserving and excepting to Landlord the use of the roof, exterior walls, stairways, elevators, utility closets, bathrooms, and other common areas and area beneath and above the Premises together with the right from time to time to install, maintain, use, repair and replace pipes, ducts, conduits and wires leading through the Premises in locations which will not materially interfere with Tenant's use thereof and which serve other parts of the building and/or other tenants therein. Except for the painting of the interior of the Premises by Landlord, at Landlord's sole cost and expense, it is understood and agreed that the Premises are being leased "AS-IS" Any additional tenant improvements including, but not limited to, all heating ventilating, and air conditioning distribution within the Premises, all electrical systems within the Premises, suspended ceilings, interior walls and partitions, and floor, window and wall coverings shall be done by Tenant at Tenant's sole cost and expense. No such work shall be commenced without Landlord's written consent as set forth herein. Landlord shall clean the carpets in the Premises prior to occupancy. it is understood and agreed that the Ten Thousand Six Hundred Seventy Five (10,675) square feet area set forth above shall be used for all rent calculation purposes, and that neither party shall have a claim against the other for any non material variance of that figure. TERM 3. (a) The term of the Lease shall be a period of twenty four (24) months, commencing upon the date of commencement set forth in paragraph 3(b) hereof, expiring (unless sooner terminated) at midnight on the last day of the twenty fourth (24th) full calendar month thereafter, herein called the "lease term" or "term". (b) The term of this Lease shall commence on August 1, 1994. Tenant shall give Landlord ten (10) days prior written notice of Tenant's intention to take possession of the Premises and Tenant shall deliver to Landlord the insurance certificates required by Paragraph 18 hereof prior to taking possession of the Premises. Tenant shall, prior to opening the Premises for business, provide to Landlord a copy of its business license issued by the City of Menlo Park. (c) Notwithstanding said commencement date, if for any reason Landlord cannot deliver possession of the Premises to Tenant on said date, Landlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Lease or the obligations of Tenant hereunder or extend the term hereof, but in such case Tenant shall not be obligated to pay rent until possession is tendered to Tenant; provided however, that if Landlord shall not have delivered possession of the Premises by September 1, 1994, Tenant may, at Tenant's option, by written notice to Landlord within ten (10) days thereafter, cancel this Lease, in which event the parties shall be discharged from all obligations hereunder. (d) Landlord shall permit Tenant to occupy the Premises or a portion thereof commencing July 1, 1994 for the purpose of installing Tenant's improvements, fixtures, furniture and equipment and such occupancy shall be subject to all the provisions of this Lease. Landlord shall also permit Tenant to use and occupy the Premises for the purposes described herein on or after July 15, 1994 so long as Tenant pays the prorata share of the Direct Expenses described in 1. Paragraph 6(b) below. Said early possession shall not advance the commencement or termination dates set forth above. RENEWAL 4. (a) In the event Tenant shall not then be in default hereunder and shall have made all previous rental payments in a timely manner (no more than one payment in each calendar year being delinquent), Tenant shall have the right, not earlier than eight (8) months prior to the date of the expiration of the term of this Lease and not later than five (5) months prior to the date of the expiration of the term of this Lease, to renew the term of this Lease for a further term of twelve (12) months from the date of expiration of the term of this Lease. (b) Such election shall be made by Tenant by serving upon Landlord a notice in writing to the effect that Tenant elects to renew and extend the term of this Lease for such extended term. (c) In the event Tenant shall elect to renew this Lease and shall serve notice of such election, and upon the expiration of the term of this Lease, a memorandum of such renewal shall be executed between the parties, whereby Landlord shall let unto Tenant, and the Tenant shall hire from Landlord, the Premises for the term of twelve (12) months from the date of expiration of the term of this Lease. (d) The base rental for the Premises during the extended term shall be $18,681.00 per month. All other terms and conditions of the original lease agreement shall apply to the extended term. HOLDOVER 5. (a) Holding over after the expiration of the term or extended term, of this Lease, or any oral extension thereof, with the consent of Landlord shall be a tenancy from month to month at the rental rate payable during the last month of the stated term hereof. All other provisions of this Lease except any relating to the term and any option to extend or expand shall be applicable to the month to month tenancy. (b) If Tenant remains in possession without Landlord's consent after a valid termination of the Lease in accordance with the provisions of this lease, by lapse of time or otherwise, Tenant shall pay Landlord for each day of such retention one-fifteenth (1/15th) of the amount of the monthly rental for the last month prior to such termination and Tenant shall also pay all costs, expenses and damages sustained by Landlord by reason of such retention, including, without limitation, claims made by a succeeding tenant resulting from Tenant's failure to surrender the Premises. RENT 6. (a) During the initial term hereof, Tenant agrees to pay to Landlord as minimum base rent for the Premises the following sums: Months Monthly Base Rent ------ ----------------- 1 - 12 $ 12,250.00 ($1.15/sq.ft. NNN) 13 - 24 $ 18,681.00 ($1.75/sq.ft. NNN) Rent for the first month of this Lease in the amount of Twelve Thousand Two Hundred Fifty Dollars ($12,250.00) shall be paid on execution of this Lease and delivered to Landlord together with the security deposit referred to in Paragraph 9(a). Said rental shall be paid, without prior notice or demand and without deduction or offset, in lawful money of the United States of America at 800 E1 Camino Real, Suite 175, Menlo Park, California 94025 or at such other place as Landlord may from time to time designate in writing. (b) As additional rent Tenant shall pay to Landlord a proportionate share (as defined below) of direct expenses incurred by Landlord in the administration, operation and maintenance of the building of which Premises are a part (herein "Direct Expenses"). Tenant's proportionate share shall be the same percentage of Direct Expenses as the total number of leasable square feet in the Premises bears to the total number of leasable square feet in the building of which the Premises are a part. It is agreed that Tenant's proportionate share is 26.69% of the total. Landlord reserves the right to reallocate Direct Expenses equitably among the tenants to take into consideration vacancies, excessive usage by one or more tenant, and 2. direct payment by a tenant for a maintenance item as set forth below. In no event, however, shall real property taxes, casualty insurance and similar fixed costs items attributable to vacant space be allocated to any tenant. Direct Expenses shall include, without limitation, real property taxes and assessments (general and special), in lieu real property taxes, rent taxes, gross receipt taxes (whether assessed against the Landlord or assessed against the Tenant and collected by Landlord, or both, water and sewer charges, insurance (including earthquake and rental loss) premiums, utilities, janitorial services, trash removal, labor, costs incurred in the management of the building including salaries and employer taxes thereon, air conditioning and heating operation and maintenance, elevator maintenance, supplies, materials, equipment and tools, including maintenance, cost and upkeep of all parking and common areas and the landscaping therein. Direct Expenses shall not include depreciation on the building, capital improvements or replacements, loan payments or real estate broker's commissions. Landlord agrees to use its best efforts to secure all services, materials and supplies at competitive prices commensurate with level of maintenance and service provided similar buildings in the area. It is further agreed that management of the building shall include, but not be limited to, rent collection, preparation and review of operating budgets, supervision of maintenance employees, and negotiation of maintenance and supply contracts. The costs of management shall be charged on an hourly basis and not on a percentage of rental revenue basis. Landlord estimates that Direct Expenses during the remainder of the first calendar year of the Lease term hereunder will be Six Thousand Seven Hundred Twenty Five and 25/100 Dollars ($6,725.25) per month. Accordingly, during the remainder of 1994, Tenant shall pay to Landlord Six Thousand Seven Hundred Twenty Five and 25/100 Dollars ($6,725.25) per month on account of Tenant's additional rent attributable to Direct Expenses. It is agreed that should Landlord's estimates of Direct Expenses set forth above change between the date this Lease is executed and the date the term of this Lease commences, that Landlord shall have the right to alter said estimate by giving written notice to Tenant no later than ten (10) days after Landlord receives Tenant's certificate required by Paragraph 3(b) above. Said estimates shall also be adjusted should Tenant contract directly for any items of maintenance or supplies included in the estimates for Direct Expenses. Landlord, however, shall have the right to approve the contract to insure that the maintenance schedule proposed and the contractor are acceptable. Landlord shall not unreasonably withhold its consent. On or before December 1st of each year, Landlord shall estimate the projected Direct Expenses (per month) for the following calendar year and notify the Tenant thereof. Commencing January 1 of the following calendar year and monthly thereafter for the remainder of the year, Tenant shall pay to Landlord its projected proportionate share of the Direct Expenses. Annually, on the first day of March of each calendar year (or as soon thereafter as Landlord can reasonably make the determination), Landlord shall determine and provide Tenant with an itemized statement of the actual amount of Direct Expenses incurred by Landlord during the twelve month period ending on December 31st of the previous year. If Tenant's cumulative total of monthly payments on account of Direct Expenses is less than Tenant's proportionate share of the actual Direct Expenses during the particular twelve month period, Tenant shall pay the difference to Landlord within thirty (30) days after the date of Landlord's statement. If Tenant's proportionate share of actual Direct Expenses is less than the cumulative total of Tenant's monthly payments on account of Direct Expenses during any such twelve month period, the difference shall be credited against amounts thereafter becoming due from Tenant for subsequent payments on account of Direct Expenses or will be paid within thirty (30) days after the date of Landlord's statement. 7. Intentionally Omitted. LATE CHARGES 8. Tenant agrees that all rental or other payments not paid within ten (10) calendar days of the due date shall be considered delinquent and agrees to pay a late charge equal to ten percent (10%) of the delinquent payment. Rent mailed and bearing a U. S. Postal Service postmark of the fifth (5th) of a month shall not be considered delinquent. Additionally, any delinquent payments not paid within thirty (30) days of the original due date shall bear interest at 3. the lower of the maximum rate then allowed by law or two points over the reference ("prime") rate charged by the San Francisco Main Branch of the Bank of America. SECURITY DEPOSIT 9. (a) Tenant has deposited with Landlord the sum of Eighteen Thousand Six Hundred Eighty One Dollars ($18,681.00) to be held by Landlord as security for the faithful performance by Tenant of all the terms, covenants and conditions of this Lease. If Tenant defaults with respect to any material provision of this Lease, including, but not limited to the provisions relating to the payment of rent, Landlord may (but shall not be required to) use, apply or retain all or any part of this security deposit for the payment of any rent or any other sum in default, or for the payment of any amount which Landlord may spend or become obligated to spend by reason of Tenant's default, or to compensate Landlord for any other loss or damage which Landlord may suffer by reason of Tenant's default. If any portion of said deposit is so used or applied, Tenant shall, within five business (5) days after written demand therefor, deposit cash with Landlord in an amount sufficient to restore the security deposit to its original amount and Tenant's failure to do so shall be a material breach of this Lease. Landlord shall not be required to keep this security deposit separate from its general funds, and Tenant shall not be entitled to interest on such deposit. If Tenant elects to renew this Lease, Tenant shall increase the security deposit to an amount equal to the monthly rental of the extended term of this Lease. (b) If Landlord's interest in this Lease is terminated Landlord shall transfer said deposit to Landlord's successor in interest. USE OF PREMISES 10. (a) Tenant shall use the Premises for general office purposes and shall not use or permit the Premises to be used for any other purpose without the prior written consent of Landlord, which consent shall not be unreasonably withheld. (b) Tenant shall not do or permit anything to be done in or about the Premises nor bring or keep anything therein which will: (i) increase the existing rate of or affect any fire or other insurance upon the building or any of its contents, or (ii) cause cancellation of any insurance policy covering said building or any part thereof or any of its contents, or (iii) in any way obstruct or interfere with the rights of other tenants or occupants of the building or injure or annoy them. Tenant shall not use or allow the Premises to be used for any improper, immoral, or unlawful purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises. Tenant shall not commit or suffer to be committed any waste in or upon the Premises. Landlord agrees to impose the restrictions contained in this subparagraph (b) of Paragraph 10 in all its leases for the building of which the Premises are a part. COMPLIANCE WITH LAW 11. Tenant shall not use the Premises or permit anything to be done in or about the Premises which will in any way conflict with any law, statute, ordinance or governmental rule or regulation now in force or which may hereafter be enacted or promulgated. Tenant shall, at its sole cost and expense, promptly comply with all laws, statutes, ordinances, and governmental rules, regulations or requirements now in force or which may hereafter be in force except that Tenant shall not be required to make structural changes not related to or affected by Tenant's improvements or acts. Tenant shall also comply with the requirements of any board of fire insurance underwriters or other similar bodies now or hereafter constituted relating to or affecting the condition, use or occupancy of the Premises, excluding structural changes not related to or affected by Tenant's improvements or acts. The judgment of any court of competent jurisdiction or the admission of Tenant in any action against Tenant, whether Landlord be a party thereto or not, that Tenant has violated any law, statute, ordinance or governmental rule, regulation or requirement, shall be conclusive of that fact as between the Landlord and Tenant. 4. ALTERATIONS AND ADDITIONS 12. (a) Tenant shall not make or allow any alterations, additions or improvements of or to the Premises without Landlord's prior written consent, which consent shall not be unreasonably withheld. Any such alterations, additions or improvements, including, but not limited to, wall covering, paneling and built-in cabinet work, but excepting movable furniture, vaults, safes and other trade fixtures, shall become a part of the realty, shall belong to Landlord and shall be surrendered with the Premises at expiration or termination of the Lease. If Landlord consents to any such alterations, additions or improvements by Tenant, they shall be made by Tenant at Tenant's sole cost and expense, and any contractor or person selected by Tenant to perform the work shall first be approved of, in writing, by Landlord, which approval shall not be unreasonably withheld. Landlord further reserves the right to require all plans for structural improvements and alterations to be prepared or approved by its project structural engineer. No such work shall be allowed to commence until three (3) days have elapsed from the date of Landlord's consent. Upon expiration, or sooner termination, of the term hereof, Tenant shall, upon written demand by Landlord given at least thirty (30) days prior to the end of the term, promptly remove any alterations, additions or improvements made by Tenant and designated by Landlord to be removed. Landlord shall not make any unreasonable demands for such removal. Tenant agrees to remove its vaults, safes and files upon termination of this Lease and return the Premises to Landlord with either the slab floor ready for floor covering or with such floor covering in place as Landlord may approve. In no event, however, shall Tenant be required to install any floor covering on termination of this Lease. Such removal and repair of any damage to the Premises caused by such removal shall be at Tenant's sole cost and expense. (b) Neither Tenant nor Landlord shall be allowed nor shall Landlord allow any other tenant to place any name or sign on any portion of the building exterior. Provided however, Landlord may permit Tenant and other tenants to place painted business names or signs approved by Landlord on the glass portion of the ground floor of the building, and further provided that Landlord shall not allow the building to be named for any tenant but reserves the right to name the project of which the building is a part and to place the street address on the building in a reasonable and customary manner. Tenant shall have the right to install a building standard sign on the left half of the third line of the building monument sign at Tenant's sole cost and expense. All exterior signs shall be located at locations approved by the City of Menlo Park. LIENS 13. Tenant shall keep the Premises and the property in which the Premises are situated free from any liens arising out of any work performed, materials furnished or obligations incurred by Tenant. Landlord may require Tenant to provide Landlord, at Tenant's sole cost and expense, a lien and completion bond in an amount equal to one and one-half (1-1/2) times the estimated cost of any improvements, additions, or alterations by Tenant, to insure Landlord against liability for mechanics' and materialmen's liens and to insure completion of the work. Landlord shall also have the right to post and maintain on the Premises such notices of nonresponsibility as may be required by law to protect Landlord's rights herein. REPAIRS 14. (a) By taking possession of the Premises, Tenant shall be deemed to have accepted the Premises as being in good sanitary order, condition and repair. Tenant shall at Tenant's sole cost and expense, keep the Premises and every part thereof in good condition and repair except for damage from causes beyond the reasonable control of Tenant and ordinary wear and tear. Tenant shall upon the expiration or sooner termination of this Lease surrender the Premises to the Landlord in good condition, ordinary wear and tear and damage from causes beyond the reasonable control of the Tenant excepted. Except for the repainting of the interior of the Premises to match the previously repainted exterior, unless specifically provided in an addendum to this Lease, Landlord shall have no obligation to alter, remodel, improve, repair, decorate or paint the Premises or any part thereof and the parties hereto affirm that Landlord has made no representations to Tenant respecting the condition of the Premises or the building except as specifically herein set forth. (b) Notwithstanding the above provisions of Paragraph 14(a), Landlord shall repair and maintain the structural portions of the building, including, but not limited to, the plumbing, air conditioning, heating and electrical systems, installed or furnished by Landlord, in accordance with the applicable laws, statutes, ordinances, and rules and regulations of 5. governmental agencies having jurisdiction over Landlord, unless such maintenance and repairs are caused in part or in whole by the act, neglect, fault or omission of any duty by the Tenant, its agents, servants, employees or invitees, in which case Tenant shall pay to Landlord the reasonable cost of such maintenance and repairs. Tenant shall give Landlord written notice of any required repairs or maintenance. Landlord shall not be liable for any failure to repair or to perform any maintenance unless such failure shall persist for an unreasonable time after written notice. Except as provided in Paragraph 23 hereof, there shall be no abatement of rent and no liability of Landlord by reason of any injury to or interference with Tenant's business arising from the making of any necessary repairs, alterations or improvements to any portion of the building or the Premises or to fixtures, appurtenances and equipment therein, provided Landlord has acted reasonably in the performance of such work. Tenant waives the right to make repairs at Landlord's expense under any law, statute or ordinance now or hereafter in effect. ASSIGNMENT AND SUBLETTING 15. (a) Tenant shall not, voluntarily or by operation of law, assign, or transfer Tenant's interest under this Lease or in the Premises nor sublease all or any part of the Premises or allow any other person or entity (except Tenant's employees, agents and invitees) to occupy or use all or any part of the Premises without the prior written consent of Landlord. Landlord's consent shall not be unreasonably withheld. Without in any way limiting Landlord's right to refuse to give consent under this Paragraph 15, Landlord's refusal to give consent shall not be deemed unreasonably withheld if: (i) The character, reputation and financial responsibility of the proposed new Tenant or sub-tenant is not reasonably satisfactory in Landlord's judgment, or in any event, not at least equal to those possessed by Tenant or represented to be possessed by Tenant as of the date of the execution of this Lease and/or the date of the requested consent. In connection with any such assignment or subletting Tenant shall deliver to Landlord certified financial statements of Tenant and the new proposed tenant or sub-tenant showing their then financial condition as required hereunder. (ii) The proposed new tenant or sub-tenant fails to agree in writing to assume and be bound by all the terms and provisions of this Lease. (b) Additionally, as a condition to Landlord's consent to an assignment or subletting it is hereby agreed that there shall be paid to Landlord the following: To the extent any rental or other payments under such sublease or assignment exceed the base rental payments payable under the terms of this Lease plus the assignment or subleasing commissions, and other costs of assigning or subleasing, and tenant improvement costs, all amortized over the initial term of the sublease or remainder of the lease term, 100% of such excess (the total of such excess is referred to herein as "Excess Payments") shall be paid to Landlord as such Excess Payments become due and payable under the terms of the assignment or subletting. (c) If Tenant hereunder is a corporation or at any time becomes a corporation which, under the then current laws of the State of California, is not deemed a public corporation, or is an unincorporated association or partnership, the transfer, or assignment directly or indirectly of any stock or interest in such corporation, association or partnership in the aggregate in excess of forty-nine percent (49%) during the term hereof shall be deemed an assignment within the meaning and provisions of Paragraph 15. Tenant shall immediately report in writing any such transfer or assignment of any stock or interest to Landlord. (d) In the event Tenant proposes to transfer, assign, or sublet any of Tenant's interests herein or enter into any license or concession agreement or effectuate any change of ownership, Tenant shall thirty (30) days prior to the proposed transaction supply to Landlord the following in writing: (i) The name and address of the proposed assignee, transferee, or sub-lessee. (ii) All details as to the proposed assignment, subletting or change of ownership including without limitation all of the terms and conditions thereof including all sums or considerations to be paid. (iii) A financial statement certified by an officer dated within thirty (30) days of the date of notification of the proposed transferee, assignee, sub-lessee, or the 6. person or persons or entities which will be involved in the proposed or change of ownership. (iv) Within ten (10) days of any assignment or sub-lease Tenant shall deliver to Landlord true, correct and complete copies of all agreements, assignments, subleases and material documents pertaining thereto, including any sales agreements. Anything contained in this Paragraph 15 to the contrary notwithstanding, no transfer, assignment, sub-letting of any of Tenant's interests herein shall be effective unless all of the above provisions are complied with within the time limits provided. (e) Any additional documentation reasonably required by Landlord shall be prepared and executed by Tenant and its assignee or sub-lessee or transferee as part of the assignment or subletting or transfer before it shall be effected. (f) Anything contained herein to the contrary notwithstanding, regardless of whether or not Lessor's consent is required, no sub-letting or assignment or transfer of any of Tenant's interests hereunder shall be deemed to release Tenant or any guarantor from any liability under the terms of this Lease, nor, after any such consent shall Landlord's failure to give Tenant or guarantor notice of default under any of the terms and conditions of this Lease release Tenant or guarantor from any liability hereunder. A consent to one assignment, subletting, occupation or use shall not be deemed a consent to any subsequent assignment, subletting, occupation or use. Any such purported assignment, subletting, or permission to occupy or use without such consent from Landlord shall be void and shall, at the option of Landlord, constitute a default under this Lease. HOLD HARMLESS 16. (a) Tenant shall indemnify Landlord against and hold Landlord and Landlord's property harmless from any and all liability, claims, loss, damages, or expense, including counsel fees and costs, arising by reason of the death or injury of any person, including Tenant or any person who is an employee, agent, or customer of Tenant, or by reason of damage to or destruction of any property, including property owned by Tenant or any person who is an employee, agent, or customer of Tenant, caused or allegedly caused by: (i) Any cause whatsoever while such person or property is in or on said Premises or in any way connected with said Premises or with any personal property on said Premises; (ii) Some condition of said Premises for which Tenant is responsible or for which Landlord is responsible and Landlord has not been given notice thereof and reasonable time to correct; (iii) Some act or omission on said Premises of Tenant or any person in, on, or about said premises with the permission of Tenant; or (iv) Any matter connected with Tenant's occupation and use of said Premises, including, but not limited to any claims or damages related to the use, storage, or disposal of hazardous wastes, toxic substances, or related materials ("hazardous materials"). Hazardous materials shall include, but not be limited to, substances defined as "hazardous substances", "hazardous materials", or "toxic substances" in the Comprehensive Environmental Response, Compensation and Liability Act of 1980, as amended; the Hazardous Materials Transportation Act; the Resource Conservation and Recovery Act; and those substances defined as "hazardous wastes" in Section 25117 of the California Health and Safety Code; in the regulations adopted and publications promulgated pursuant to such laws; and in the Hazardous Material Storage Ordinance of the City of Menlo Park, if any, as amended. Landlord warrants to Tenant that to its best knowledge no such hazardous materials are currently present in the Premises and hereby agrees to indemnify Tenant from any liability for such hazardous materials that might later be discovered to have existed in the Premises as of the date of execution of this Lease. (b) Tenant hereby assumes all risk of damage to property or injury to persons, in, upon or about the Premises, from any cause other than Landlord's negligence or misconduct, and Tenant hereby waives all claims in respect to such injury or damage against Landlord. 7. Landlord and its agents shall not be liable for any damage to property entrusted to employees of the building, nor for loss or damage to any property by theft or otherwise, nor from any injury to or damage to persons or property resulting from any cause whatsoever, unless caused by or due to the negligence of Landlord, its agents, or employees. (c) If any action or proceeding is brought by reason of any such claim as defined in Paragraph 16(a) and (b) above in which Landlord is named as a party, Tenant shall defend Landlord therein at Tenant's expense by counsel reasonably satisfactory to Landlord. (d) Landlord and its agents and employees shall not be liable for interference with the light or other incorporeal hereditaments, or loss of business by Tenant. Notwithstanding the above, Landlord agrees that it will not construct or cause to be constructed any structure adjacent to and connected with the building of which the Premises are a part. Tenant shall give prompt notice to Landlord in case of fire, or accidents in the premises or in the buildings or of alleged defects in the building, fixtures or equipment. RELEASE FROM LIABILITY/WAIVER OF SUBROGATION 17. If their respective insurers permits, and when any required special endorsements are obtained, Landlord and Tenant hereby mutually waive their respective rights of recovery against each other for any loss insured by fire, extended coverage and other property insurance and public liability policies existing for the benefit of the respective parties. INSURANCE 18. (a) Tenant shall, at Tenant's expense, obtain and keep in force during the term of this Lease a policy of comprehensive public liability insurance insuring Landlord and Tenant against claims occurring in, on or about the Premises and all areas appurtenant thereto. The limit of said insurance shall not, however, limit the liability of Tenant hereunder. Tenant may carry said insurance under a blanket policy, providing however, said insurance by Tenant shall name Landlord as an additional insured. If Tenant fails to procure and maintain said insurance, Landlord may, but shall not be required to, procure and maintain same, but at the expense of Tenant. Insurance required hereunder, shall be in companies rated A+, Class X or better in "Best's Insurance Guide". Tenant shall deliver to Landlord prior to occupancy of the Premises copies of policies of liability insurance required herein or certificates evidencing the existence and amount of such insurance with loss payable clauses satisfactory to Landlord. No policy shall be cancellable or subject to reduction of coverage except after fifteen (15) days prior written notice to Landlord. The minimum acceptable amount of comprehensive liability insurance is $3,000,000 against claims in any occurrence, and property damage insurance in an amount of not less than $1,000,000 per occurrence, or combined single limit of $4,000,000 comprehensive liability and property damage insurance. The above stated minimum levels of coverage are subject to amendment by Landlord upon ninety (90) days written notice should the economic conditions, in the discretion of Landlord, warrant adjustment thereof. (b) Landlord shall carry and maintain, during the entire term, including extensions hereof fire and all risk insurance insuring the Premises and the building of which they are a part for their full replacement cost. Said insurance policy or policies shall cover at least the following risks: fire, smoke damage, windstorm, hail, explosion, riot, riot attending a strike, civil commotion, malicious mischief, vandalism, aircraft, earthquake and sprinkler leakage. Additionally, such policy or policies shall have a loss of rents endorsement. Landlord may, at its option, also maintain a general liability policy in a minimum amount of One Million Dollars ($1,000,000.00). The premiums for such policy or policies shall be included in the Direct Expenses referred to in Paragraph 6(b). Any loss payable under such insurance shall be payable to Landlord and any Lender holding an encumbrance on the Premises. The proceeds from any such policy or policies for damages to the Premises shall be used for the repair of the Premises except as set forth in Paragraph 23. SERVICES AND UTILITIES 19. (a) If Tenant is not in default hereunder, Landlord shall furnish to the Premises during the hours of 6:30 a.m. to 8:00 p.m., Monday through Friday, 8:00 a.m. to 4:00 p.m. on Saturdays, holidays excepted, electricity for normal lighting and fractional horsepower office machines, heat and air conditioning required in Landlord's judgment for the comfortable use and occupation of the Premises, and janitorial service. Landlord reserves the right to reallocate utility charges to Tenant and other tenants of the building of which the Premises are a 8. part if Landlord determines the allocation provided in Paragraph 6(b) is substantially unfair considering the usage Df the Premises by Tenant and the usage of other space in the building by other tenants. Landlord shall maintain and light the common stairs, common entries, and toilet rooms in the building. Landlord shall not be liable for and Tenant shall not be entitled to, any reduction of rental by reason of Landlord's failure to furnish any of the foregoing when such failure is caused by accident, breakage, repairs, strikes, lockout or other labor disturbances or labor disputes of any character, or by any other cause, similar or dissimilar, beyond the reasonable control of Landlord. Landlord shall not be liable for a loss of or injury to property, however occurring, through or in connection with or incidental to furnishing or its failure to furnish any of the foregoing for reasons beyond its control. Wherever heat generating machines or equipment are used in the Premises which affect the temperature otherwise maintained by the air conditioning system, Landlord reserves the right to install supplementary air conditioning units in the Premises and the cost thereof, including the cost of installation, and the cost of operation and maintenance thereof shall be paid by Tenant to Landlord upon demand by Landlord. (b) Tenant will not, without written consent of Landlord, use any apparatus or device in the Premises, including, but without limitation thereto, electronic data processing machines, punch card machines, and machines using in excess of 120 volts, which will increase the amount of electricity usually furnished or supplied for the use of the Premises as general office space. Tenant shall not connect with electric current except through approved electrical outlets in the Premises or such additional electrical outlets as may be installed by a licensed electrical contractor in conformance with the then applicable building codes, any apparatus or device, for the purpose of using electric current. If Tenant requires water, gas or electric current in excess of that usually furnished or supplied for the use of the Premises as general office space, Tenant shall first procure the written consent of Landlord (which Landlord may refuse) to the use thereof and Landlord may cause a separate water, gas or electrical current meter to be installed in the Premises to measure the amount of water, gas and electric current consumed for any such use. The cost of installation, maintenance and repair of any such meters shall be paid by Tenant. Tenant agrees to pay to Landlord promptly upon demand, for all such water, gas and electric current consumed as shown by said meters, at the rates charged for such services by the local public utility furnishing the same, plus any additional expense incurred in keeping account of the water and electric current so consumed. If a separate meter is not installed, such excess cost for such water, gas and electric current will be established and adjusted from time to time by an estimate made by a utility company or electrical engineer. Additionally, in the event Tenant requires the air conditioning system to be operational beyond the hours set forth in Paragraph 19(a) above, Tenant shall maintain written records of such additional usage and shall pay to Landlord, as additional rent, $17.50 per hour of such extra usage (said rate to be adjusted only if there is a material increase in electric utility rates over the rates existing as of the date of this lease). (c) Should any supplier of utility services or governmental agencies regulating these services render any special assessments for or restriction upon these services, it is agreed that these assessments or restrictions will be fairly shared by each tenant in proportion to its share of direct expenses as set forth in Paragraph 6(b) hereof. PROPERTY TAXES 20. Tenant shall pay before delinquency, all taxes levied or assessed and which become payable during the term hereof upon all Tenant's leasehold improvements, equipment, furniture, fixtures and personal property located in the Premises, except that which has been paid for by Landlord and is the standard of the building. If any of the Tenant's leasehold improvements, equipment, furniture, fixtures and personal property are assessed and taxed with the building, Tenant shall pay to Landlord its share of such taxes within ten (10) days after delivery to Tenant by Landlord of a statement in writing setting forth the amount of such taxes applicable to Tenant's property. RULES AND REGULATIONS 21. Tenant shall faithfully observe and comply with the rules and regulations attached to this Lease, as well as such rules and regulations that Landlord shall from time to time promulgate, which rules and regulations shall be uniform for all tenants and occupants of the building of which the Premises are a part. Landlord reserves the right from time to time to make all reasonable modifications to said rules, provided such changes do not impose any new 9. economic burdens upon Tenant. The additions and modifications to those rules shall be binding to Tenant upon delivery of a copy of them to Tenant. Landlord shall not be responsible to Tenant for the nonperformance of any of said rules by any other tenants or occupants. ENTRY BY LANDLORD 22. (a) Landlord reserves the right to enter the Premises at any reasonable time to inspect the Premises, to provide any service for which Landlord is obligated hereunder, to submit the Premises to prospective purchasers or tenants, to post notice of non-responsibility, and to alter, improve, maintain or repair the Premises and any portion of the building of which the Premises are a part that Landlord deems necessary reasonably or desirable, all without abatement of rent. Except in the cases of emergencies and to post notices of nonresponsibility, Landlord shall give telephone notice twenty four (24) hours in advance, unless Tenant waives such notice, prior to entering the Premises. Landlord may erect scaffolding and other necessary structures where reasonably required by the character of the work to be performed, but shall not block entrance to the Premises nor interfere with Tenant's business, except as reasonably required for the particular activity by Landlord. Landlord shall not be liable in any manner for any inconvenience, disturbance, loss of business, nuisance, interference with quiet enjoyment, or other damage arising out of Landlord's entry on the Premises as provided in this paragraph, except damage, if any, resulting from the negligence of Landlord or its authorized representatives. (b) Landlord shall retain a key with which to unlock all doors into, within and about the Premises, excluding Tenant's vaults, safes and files. In an emergency, Landlord shall have the right to use any means which Landlord deems reasonably necessary to obtain entry to the Premises without liability to Tenant, except for any failure to exercise due care for Tenant's property. Any such entry to the Premises by Landlord shall not be construed or deemed to be forcible or unlawful entry into or a detainer of the Premises or an eviction of Tenant from the Premises or any portion thereof. DESTRUCTION/RECONSTRUCTION 23. (a) If ten percent (10%) or less of the Premises and the building of which the same are a part is damaged by an uninsured peril, Landlord shall promptly and diligently proceed to repair and restore the same to substantially the same condition as existed prior to such damage or destruction; provided, however, that should such damage be caused by the act, negligence or fault or omission of any duty with respect to the same by Tenant, its agents, servants, employees or invitees, Tenant and not Landlord shall be so obligated to repair and restore. If the Premises are damaged by an uninsured peril rendering more than ten percent (10%) of the Premises unusable for the conduct of Tenant's business, Landlord may, upon written notice, given to Tenant within thirty (30) days after the occurrence of such damage, elect to terminate this Lease; provided, however, Tenant may, within thirty (30) days after receipt of such notice, elect to make any required repairs and/or restoration, in which event this Lease shall remain in full force and effect, and Tenant shall thereafter diligently proceed with such repairs and/or restoration. (b) If the Premises are damaged or destroyed by fire or other insured peril, Landlord shall promptly and diligently proceed to repair and restore the same to substantially the same condition as existed prior to such damage or destruction; provided, however, that Landlord shall not be obligated to repair and restore until either the insurer acknowledges that the loss is covered by insurance and sufficient proceeds of such insurance are available to Landlord to pay the costs (including a reasonable allowance for contractor's profit and overhead not to exceed ten percent (10%) of the repairs and/or restoration) or the Tenant agrees to pay such costs to Landlord. If the existing laws do not permit the restoration, either party can terminate this Lease immediately by giving notice to the other party. If the cost of restoration exceeds the amount of insurance proceeds, and Tenant has not agreed to pay the cost of repairs and/or restoration to Landlord, Landlord can elect to terminate this Lease by giving notice to Tenant within fifteen (15) days after determining that the restoration cost will exceed the insurance proceeds. In the case of destruction to the Premises, if Landlord elects to terminate this Lease, Tenant, within fifteen (15) days after receiving Landlord's notice to terminate, can agree to pay to Landlord the difference between the amount of insurance proceeds and the cost of restoration in which case Landlord shall restore the Premises. Landlord shall give Tenant satisfactory evidence that all sums contributed by Tenant 10. as provided in this paragraph 23 have been expended by Landlord in paying the cost of restoration. If Landlord elects to terminate this Lease and Tenant does not elect to contribute toward the cost of restoration as provided herein, this Lease shall terminate, and all of the proceeds of the insurance shall be paid to Landlord; provided, however, that in the event such proceeds shall include any amounts paid for damage to or destruction of property belonging to Tenant, Landlord shall within ten (10) days of receipt, pay over such amounts to Tenant in the following manner: Out of the gross proceeds paid by insurance to Landlord, Landlord shall retain an amount equivalent to the current replacement value of the building and improvements owned by Landlord; after Landlord has been so paid from the insurance proceeds, if there remains a balance of such insurance proceeds which represent payment for damages to or destruction of improvements added by Tenant after the date of Tenant's occupancy of the Premises, then, to the extent of any remaining balance of the insurance proceeds and to the extent of Tenant's direct costs of making such added improvements, Landlord shall be obligated to pay over to Tenant such remaining insurance proceeds. During any such repairs or restoration described in this paragraph 23, rent shall abate in proportion to the area of the Premises rendered unusable by such damage or destruction; provided, however, that if Landlord acts reasonably Landlord shall have no liability by reason of injury to or interference with Tenant's business or property arising from the making of any repairs, alterations, or improvements in or to any portion of the Premises or in or to fixtures, appurtenances and equipment therein; and further provided, that if the damage was caused by the fault or neglect of Tenant, its agents or employees, there shall be no such abatement of rent. If the Premises are destroyed or substantially damaged within one year of the end of this Lease term or extensions thereof, Landlord or Tenant shall each have the option to cancel the Lease, and all insurance proceeds on the real property shall be paid to Landlord. In the event Tenant shall have paid all or a portion of the costs of any repairs or restorations for which Landlord subsequently receives insurance proceeds, then to the extent that such insurance proceeds and Tenant's payments exceed Landlord's cost of repair and/or restoration, Landlord shall reimburse Tenant to the extent of Tenant's payments. (c) Landlord shall not be required to repair any damage by fire or other cause, or to make any repairs or replacements of any panels, decoration, office fixtures, railings, floor coverings, partitions, or any other property installed in the Premises by Tenant unless Landlord receives insurance proceeds therefor. DEFAULT 24. Occurrence of any of the following events shall constitute a default and breach of this Lease by Tenant. (a) The vacating and abandonment of the Premises by Tenant. (b) The failure by Tenant to make any payment of rent or any other payment required of Tenant hereunder, as and when due, if such failure continues for three (3) days after written notice thereof by Landlord to Tenant. (c) The failure by Tenant to observe or perform any of the covenants, conditions or provisions of this Lease other than described in Paragraph 24(b) above, where such failure continues for thirty (30) days after written notice thereof by Landlord to Tenant; provided however, that if Tenant's default is such that more than thirty (30) days are reasonably required for its cure, then Tenant shall not be deemed to be in default if Tenant commences such cure within said thirty (30) day period and thereafter diligently prosecutes such cure to completion. (d) The making by Tenant of any general assignment or general arrangement for the benefit of creditors or the filing by or against Tenant of a petition to have Tenant adjudged bankrupt, or a petition, or reorganization or arrangement under any law relating to bankruptcy (unless in the case of a petition filed against Tenant, the same is dismissed within sixty (60) days); or the appointment of a trustee or a receiver to take possession of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where possession is not restored to Tenant within thirty (30) days; or the attachment, execution or other judicial seizure of substantially all of Tenant's assets located at the Premises or of Tenant's interest in this Lease, where such seizure is not discharged in thirty (30) days. 11. REMEDIES 25. Landlord shall have the following remedies if Tenant commits a default. These remedies are not exclusive; they are cumulative and in addition to any remedies now or later allowed by law. (a) Landlord may continue this Lease in full force and effect, as long as Landlord does not terminate Tenant's right to possession, and Landlord shall have the right to collect rent when due. During the period Tenant is in default, Landlord may enter the Premises and relet them, or any part of them, to third parties for Tenant's account. Tenant shall be liable to Landlord for all costs Landlord incurs in reletting the Premises, including, without limitation, broker's commissions and expenses of remodelling the Premises reasonably required by the reletting. Reletting may be for a period shorter or longer than the remaining term of the Lease. Tenant shall pay to Landlord the rent due under this Lease as and when due, less the rent Landlord receives from any reletting. No act by Landlord allowed by this Paragraph shall terminate this Lease unless Landlord notifies Tenant in writing that Landlord elects to terminate Tenant's right to possession of the Premises. If Tenant obtains Landlord's consent, Tenant shall have the right to assign or sublet its interest in this Lease, but Tenant shall not be released from liability. Landlord's consent to a proposed assignment or subletting shall not be unreasonably withheld. (b) Landlord may terminate Tenant's right to possession of the Premises at any time. No act by Landlord other than giving written notice to Tenant shall terminate this Lease. Acts of maintenance, efforts to relet the Premises, or the appointment of a receiver on Landlord's initiative to protect Landlord's interest under this Lease shall not constitute a termination of Tenant's right to possession. On termination, Landlord has the right to recover from Tenant: (i) The worth, at the time of the award of the unpaid rent that had been earned at the time of termination of this Lease; (ii) The worth, at the time of the award of the amount by which the unpaid rent that would have been earned after the date of termination of this Lease until the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; (iii) The worth, at the time of the award of the amount by which the unpaid rent for the balance of the term after the time of award exceeds the amount of the loss of rent that Tenant proves could have been reasonably avoided; and (iv) Any other amount, and court costs, necessary to compensate Landlord for all detriment proximately caused by Tenant's default. "The worth, at the time of the award", as used in (i) and (ii) of this subparagraph, is to be computed by allowing interest at the maximum rate allowed by law. "The worth, at the time of the award", as referred to in (iii) of this subparagraph, is to be computed by discounting the amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of the award, plus one percent (1%). EMINENT DOMAIN 26. If more than twenty-five percent (25%) of the Premises is taken or appropriated by any public or quasi-public authority under powers of eminent domain, either party hereto shall have the right at its option, to terminate this Lease. If less than twenty-five percent (25%) of the Premises is taken (or neither party elects to terminate as above provided if more than twenty-five percent (25%) is taken), the Lease shall continue, and the rental thereafter to be paid shall continue, but the rental thereafter to be paid shall be equitably reduced. If more than twenty five percent (25%) of the building of which the Premises are a part is so taken or appropriated, whether or not any part of the Premises is involved, Landlord shall have the right, at its option, to terminate this Lease in accordance with the foregoing provision. Whether or not the Lease is terminated by reason of any such taking or appropriation, Landlord shall be entitled to the entire award and compensation for the taking which is paid or made by the public or quasi-public agency, and Tenant shall have no claim against said award; except for amounts paid directly to Tenant for its moving expenses, interruption to its business or damage to personal property or trade fixtures. A voluntary sale by Landlord to any public body or agency having the 12. power of eminent domain, either under threat of condemnation or while the condemnation proceedings are pending shall be deemed to be a taking under the power of eminent domain for the purposes of this Paragraph. ESTOPPEL CERTIFICATE 27. Tenant shall at any time and from time to time, upon not less than ten (10) days prior written notice from Landlord, execute, acknowledge, and deliver to Landlord a statement in writing, (a) certifying that this Lease is unmodified and in full force and effect (or, if modified, stating the nature of such modifications and certifying that this Lease as so modified, is in full force and effect), and the date to which the rental and other charges are paid in advance, if any, and (b) acknowledging that there are not, to Tenant's knowledge, any uncured defaults on the part of the Landlord hereunder, or specifying such defaults if any are claimed. Any such statement may be relied upon by any prospective purchaser or encumbrancer of all or any portion of the real property of which the Premises are a part. SUBORDINATION 28. Tenant agrees upon request of Landlord and any present or future holder of any deed of trust affecting the Premises to subordinate this Lease and its rights hereunder to the lien of any mortgage, deed of trust or other encumbrance, together with any conditions, renewals, extensions, or replacements thereof, now or hereafter placed, charged or enforced against the Landlord's interest in this Lease and the leasehold estate thereby created, the Premises or the land, building or improvements included therein or of which the Premises are a part, and deliver (but without cost to Tenant) at any time and from time to time upon demand by Landlord such documents as may be required to effectuate such subordination, and in the event that Tenant shall fail, neglect or refuse to execute and deliver any such document within ten (10) days after receipt of written notice so to do and the receipt by Tenant of the document to be executed by it, Tenant hereby appoints Landlord, its successors and assigns, the attorney-in-fact of Tenant irrevocably to execute and deliver any and all such documents for and on behalf of Tenant; provided, however, that Tenant shall not be required to effectuate such subordination, nor shall Landlord be authorized to effect such subordination on behalf of Tenant, unless the mortgagee or trustee named in such mortgage, deed of trust or other encumbrance shall first agree in writing, for the benefit of Tenant, that so long as Tenant is not in default under any of the provisions, covenants or conditions of this Lease on the part of Tenant to be kept and performed, that neither this Lease nor any of the rights of Tenant hereunder shall be terminated or modified or be subject to termination or modification, nor shall Tenant's possession of the Premises be disturbed or interfered with, by any trustee's sale or by an action or proceeding to foreclose said mortgage, deed of trust or other encumbrance. In the event any proceedings are brought for foreclosure, or in the event of the exercise of the power of sale under any mortgage or deed of trust made by the Landlord covering the Premises, the Tenant shall attorn to the purchaser upon any such foreclosure or sale and recognize such purchaser as the Landlord under this Lease. In the event that the mortgagee or beneficiary of any such mortgage or deed of trust elects to have this Lease prior to its mortgage or deed of trust, then and in such event upon such mortgagee or beneficiary giving written notice to Tenant to that effect, this Lease shall be deemed prior to such mortgage or deed of trust whether this Lease is dated or recorded prior to or subsequent to the date of recordation of such mortgage or deed of trust. Tenant acknowledges that this Lease is subordinate to that certain Declaration of Covenants, Conditions and Restrictions dated March 11, 1981 and recorded March 23, 1981 as Document No. 26228-AS in the Official Records of San Mateo County, California. PARKING 29. Tenant shall have the right to use in common with other Tenants or occupants of the building parking facilities provided by Landlord for Tenants of the building, subject to the rules and regulations, of Landlord for such parking facilities which may be established or altered by Landlord at any time or from time to time during the term hereof. Landlord agrees not to allocate or reserve any other parking for any other tenant but reserves the right to impose uniform restrictions on all or a portion of the remaining parking facilities. 13. AUTHORITY 30. Corporate Authority. If Tenant is a corporation, each individual executing this Lease on behalf of said corporation represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said corporation, in accordance with a duly adopted resolution of the Board of Directors of said corporation or in accordance with the bylaws of said corporation, and that this Lease is binding upon said corporation in accordance with its terms. Partnership Authority. If Tenant is a partnership, each individual executing this Lease on behalf of said partnership represents and warrants that he is duly authorized to execute and deliver this Lease on behalf of said partnership and that this Lease is binding upon said partnership and its partners in accordance with its terms. GENERAL PROVISIONS 31. General Provisions. (a) Clauses, plats and riders, if any, signed by the Landlord and the Tenant and endorsed on or affixed to this Lease are a part hereof. (b) The waiver by either party of any term, covenant or condition herein contained shall not be deemed to be a waiver of such term, covenant or condition on any subsequent breach of the same or any other terms, covenant or condition herein contained. The subsequent acceptance of rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of the Tenant to pay the particular rental so accepted, regardless of Landlord's knowledge of such preceding breach at the time of the acceptance of such rent. Likewise, the subsequent payment of rent hereunder by Tenant shall not be deemed to be a waiver of any preceding breach by Landlord of any term, covenant, or condition of this Lease regardless of Tenant's knowledge of such preceding breach at the time of the payment of such rent. (c) All notices and demands which may or are required to be given by either party to the other hereunder shall be in writing. All notices and demands by the Landlord to the Tenant shall be sufficient if delivered in person or sent by United States Mail, postage prepaid, addressed to the Tenant at the Premises or to such other place as Tenant may from time to time designate in a written notice to the Landlord. All notices and demands by the Tenant to the Landlord shall be sufficient if delivered in person or sent by United States Mail, postage prepaid, addressed to the Landlord at 800 E1 Camino Real, Suite 175, Menlo Park, California 94025 or to such other person or place as the Landlord may from time to time designate in a notice to the Tenant. Any such notice is effective at the time of delivery or if mailed, two (2) business days after mailing. (d) If there be more than one Tenant, the obligations hereunder imposed upon Tenants shall be joint and several. (e) The paragraph titles to the paragraphs of this Lease are not a part of this Lease and shall have no effect upon the construction or interpretation of any part hereof. (f) Time is of the essence of this Lease and each of its provisions in which performance is a factor. (g) The time in which any act provided by this Lease is to be done is computed by excluding the first day and including the last, unless the last day is a Saturday, Sunday, or holiday, and then it is also excluded. The term "holiday" shall mean all holidays specified in Sections 6700 and 6701 of the Government Code. (h) The covenants and conditions herein contained, subject to the provisions as to assignment, apply to and bind the heirs, successors, executors, administrators and assigns of the parties hereto. (i) Neither Landlord nor Tenant shall record this Lease or a short form memorandum hereof without the prior written consent of the other party. (j) Upon Tenant paying the rent reserved hereunder and observing and performing all of the covenants, conditions and provisions on Tenant's part to be observed and 14. performed hereunder, Tenant shall have quiet possession of the Premises for the entire term hereof, subject to all the provisions of this Lease. (k) This Lease contains all of the agreements of the parties hereto with respect to any matter covered or mentioned in this Lease. No prior agreements or understandings pertaining to any such matters shall be effective for any purpose. No provision of this Lease shall be amended or added except by an agreement in writing signed by the parties hereto or their respective successors in interest. This Lease shall not be effective or binding on any party until fully executed by both parties hereto. (l) If either party shall be delayed or prevented from the performance of any act required by this Lease by reason of acts of God, strikes, lockouts, labor troubles, inability to procure materials, restrictive governmental laws, or regulations or other cause, without fault and beyond the reasonable control of the party obligated (financial inability excepted), performance of such act shall be excused for the period of the delay; and the period for the performance of any such act shall be extended for a period equivalent for the period of such delay, provided, however, nothing in this section shall excuse Tenant from the prompt payment of any rental or other charge required of Tenant except as may be expressly provided elsewhere in this Lease. (m) In the event of any action or proceeding brought by either party against the other under this Lease, the prevailing party shall be entitled to recover all costs and expenses including the fees of its attorneys in such action or proceeding in such amount as the court may adjudge reasonable as attorney's fees. (n) In the event of any sale of the building, Landlord shall be and is hereby entirely freed and relieved of all liability under any and all of its covenants and obligations contained in or derived from this Lease arising out of any act, occurrence or omission occurring after the consummation of such sale and the purchaser, at such sale or any subsequent sale of the Premises shall be deemed, without any further agreement between the parties or their successors in interest or between the parties and any such purchaser, to have assumed and agreed to carry out all of the covenants and obligations of the Landlord under this Lease. (o) Tenant shall not use the name of the building or of the development in which the building is situated for any purpose other than as an address of the business to be conducted by the Tenant in the Premises. (p) Any provision of this Lease which shall prove to be invalid, void or illegal shall in no way affect, impair or invalidate any other provision hereof and such other provision shall remain in full force and effect. (q) No remedy or election hereunder shall be deemed exclusive but shall, wherever possible, be cumulative with all other remedies at law or in equity. (r) This Lease shall be governed by the laws of the State of California. (s) Tenant shall not conduct any auction, on or at the Premises or building without Landlord's prior written consent. (t) Nothing contained in this Lease shall be deemed or construed by the parties or by any third person to create the relationship of principal and agent or of partnership or of joint venture or of any association between Landlord and Tenant, and neither the method of computation of rent nor any other provisions contained in this Lease nor any acts of the parties shall be deemed to create any relationship between Landlord and Tenant other than the relationship of Landlord and Tenant. (u) (i) The language in all parts of this Lease shall in all cases be simply construed according to its fair meaning and not strictly for or against Landlord or Tenant. Unless otherwise provided in this Lease, or unless the context otherwise requires, the following definitions and rules of construction shall apply to this Lease. (ii) In this Lease the neuter gender includes the feminine and masculine, and the singular number includes the plural, and the word "person" includes corporation, partnership, firm, or association wherever the context so requires. (iii) "Shall", "will", and "agrees" are mandatory, "may" is permissive. 15. (iv) All references to the Term of this Lease or the Lease Term shall include any extensions of such Term. (v) Parties shall include the Landlord and Tenant named in this Lease. (vi) As used herein, the word "sublessee" shall mean and include, in addition to a sublessee and subtenant, a licensee, concessionaire, or other occupant or user of any portion of the leased Premises or buildings or improvements thereon. BROKERS 32. Each party warrants to the other that it has had no dealings with any real estate broker or agent in connection with the negotiation of this Lease other than Blickman Turkus Commercial Real Estate and Cornish and Carey Commercial Real Estate, and it knows of no other real estate broker or agent who is entitled to a commission in connection with this Lease. Each party agrees to indemnify and hold the other harmless from any cost, expense, or liability for any compensation, commissions, or charges claimed by any other broker or agent who alleges he is owed a compensation through it. LIST OF EXHIBITS 33. The following is a complete list of the documents attached hereto and made a part of this Lease: EXHIBIT NUMBER DESCRIPTION A Floor Plan B Rules and Regulations The parties hereto have executed this Lease and on the dates specified immediately adjacent to their respective signatures. LANDLORD: MENLO STATION DEVELOPMENT, a General Partnership By THE CORTANA CORPORATION, Managing General Partner By /s/ David A. Wollenberg Date 6-10-94 ------------------------- --------------------------- By Date ------------------------- --------------------------- TENANT: BE INCORPORATED By /s/ Jean-Louis Gassee Date 6-10-94 ------------------------- --------------------------- By Date ------------------------- --------------------------- 16. EXHIBIT A [THIRD FLOOR PLAN APPEARS HERE] EXHIBIT B Rules and Regulations 1. No sign, placard, picture, advertisement, name or notice shall be inscribed, displayed or printed or affixed on or to any part of the outside or inside of the Building without the written consent of Landlord first had and obtained and Landlord shall have the right to remove any such sign, placard, picture, advertisement, name or notice without notice to and at the expense of Tenant. All approved signs or lettering on doors shall be printed, painted, affixed or inscribed at the expense of Tenant by a person approved of by Landlord. Landlord will provide and maintain an alphabetical directory board in the ground floor lobby of the Building. It shall display only the names and office numbers of tenants of the Building. Should Landlord permit additional names to be listed, it reserves the right to make a reasonable charge for each such additional name. Tenant shall not place anything or allow anything to be placed near the glass of any window, door, partition or wall which may appear unsightly from outside the Premises; provided, however, that Landlord may furnish and install a Building standard window covering at all exterior windows. Tenant shall not without prior written consent of Landlord cause or otherwise sunscreen any window. 2. The sidewalks, halls, passages, exits, entrances, elevators and stairways shall not be obstructed by any of the tenants or used by them for any purpose other than for ingress and egress from their respective Premises. 3. Tenant shall not alter any lock or install any new or additional locks or any bolts on any doors or windows of the Premises. Landlord will not permit entrance to Tenant's offices by use of pass key controlled by Landlord to any person at any time without written permission by Tenant, except employees, contractors, or service personnel directly supervised or employed by Landlord. 4. The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed and no foreign substance of any kind whatsoever shall be thrown therein and the expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the Tenant who, or whose employees or invitees shall have caused it. 5. Tenant shall not overload the floor of the Premises or in any way deface the Premises or any part thereof. 6. No furniture, freight or equipment of any kind shall be brought into the Building without the prior notice to Landlord and all moving of the same into or out of the Building shall be done at such time and in such manner as Landlord shall designate. Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy equipment brought into the Building and also the times and manner of moving the same in and out of the Building. Safes or other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight. Landlord will not be responsible for loss of or damage to any such safe or property from any cause and all damage done to the Building by moving or maintaining any such safe or other property shall be repaired at the expense of Tenant. 7. Tenant shall not use, keep or permit to be used or kept any foul or noxious gas or substance or compression motors in the Premises, or permit or suffer the Premises to be occupied or used in a manner offensive or objectionable to the Landlord or other occupants of the building by reason of noise, odors and/or vibrations, or interfere in any way with other tenants or those having business therein, nor shall any animals or birds be brought in or kept in or about the Premises or the Building. 8. No cooking except by microwave ovens and electric coffee makers shall be done or permitted by any Tenant on the Premises, nor shall the Premises be used for the storage of 1 merchandise, for washing clothes, for lodging, or for any improper, objectionable or immoral purposes. 9. Tenant shall not use or keep in the Premises or the Building any kerosene, gasoline or inflammable or combustible fluid or material, or use any method of heating or air conditioning other than that supplied by Landlord. 10. Landlord will direct electricians as to where and how telephone and telegraph wires are to be introduced. No boring or cutting for wires will be allowed without the consent of the Landlord. The location of telephones, call boxes and other office equipment affixed to the Premises shall be subject to the approval of Landlord. 11. On Saturdays, Sundays and legal holidays, and on other days between the hours of 7:00 p.m. and 7:00 a.m. the following day, access to the Building, or to the halls, corridors, elevators or stairways in the Building, or to the Premises may be refused unless the person seeking access is known to the person or employee of the Building in charge and has a pass or is properly identified. The Landlord shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person. In case if invasion, mob, riot, public excitement, or other commotion, the Landlord reserves the right to prevent access to the Building during the continuance of the same by closing of the doors or otherwise, for the safety of the tenants and protection of property in the Building and the Building. 12. Landlord reserves the right to exclude or expel from the Building any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of the rules and regulations of the Building. 13. No vending machine or machines of any description shall be installed, maintained or operated upon the Premises without the written consent of the Landlord. 14. Tenant shall not disturb or solicit any occupant of the Building and shall cooperate to prevent same. 15. Without the written consent of Landlord, Tenant shall not use the name of the Building in connection with or in promoting or advertising the business of Tenant except as Tenant's address. 16. Landlord shall have the right to control, operate and maintain the public portions of the Building, and the public facilities, and heating and air conditioning, as well as facilities furnished for the common use of the tenants, in such manner as it deems reasonable for the benefit of the tenants generally. 17. All entrance doors in the Premises shall be left locked when the Premises are not in use, and all doors Opening to public corridors shall be kept closed except for normal ingress and egress from the Premises. 18. No object shall be thrown out of the windows of the Building or down the stairways or other passages. 19. Tenant, its employees, agents, customers and invitees shall have the right to use parking space provided by Landlord but not so as to unreasonably interfere with the similar parking rights of other tenants in the same or neighboring building. Landlord reserves the right to promulgate such additional parking rules and regulations as may be necessary for operation of the Premises. 20. The Landlord shall not be liable for any damages from the stoppage of elevators for necessary or desirable repairs or improvements, or delays of any sort or duration in connection with the elevator service. 21. No Tenant shall employ, without the consent of Landlord, any person or persons other than the janitor of Landlord for the purpose of cleaning Tenant's premises. Landlord shall not, however, be liable for any damage done to or loss of property by any Tenant caused, or allegedly caused, by the janitor or any other cause whatsoever not specified in Tenant's lease. 2 22. Any request of a Tenant for service or any other matter connected with the Building must be made to and at the Landlord's office and not to an individual employee of Landlord. Employees of Landlord shall perform no work or do anything outside their regular daily duties except on order of Landlord's office. No employee of Landlord shall admit any person, Tenant or otherwise, to any office in the Building without specific instructions from the Landlord. 23. Landlord reserves the right to amend these rules and regulations and to make such other and further rules and regulations for the Building as may from time to time, in the judgment of Landlord, be required for the orderly and safe conduct of building operations. 3 EX-10.6.2 18 AMENDMENT OF OFFICE LEASE Exhibit 10.6.2 AMENDMENT TO OFFICE LEASE This Amendment, dated for reference purposes only, April 10, 1997, is made by and between MENLO STATION DEVELOPMENT, a general partnership (herein "Landlord"), and BE INCORPORATED, (herein "Tenant"). WHEREAS, the parties hereto have executed an Office Lease dated June 10, 1994 (herein "Lease") whereby Landlord leased to Tenant the third floor of the building commonly known as 800 E1 Camino Real, Menlo Park, San Mateo County, California; and WHEREAS, said Lease was amended by a letter agreement dated December 18, 1995; and WHEREAS, pursuant to the terms of said Lease, as amended, the term expires on July 31, 1997; and WHEREAS, Tenant desires to extend the term of said Lease and add additional space and Landlord is agreeable to same; NOW THEREFORE, the parties hereto hereby agree as follows: 1. Effective on the "Delivery Date" as said term is defined herein, the Premises shall include the entire fourth floor of .approximately Nine Thousand Nine Hundred (9,900) square feet of the building commonly known as 800 E1 Camino Real, Menlo Park, San Mateo County, California. Therefore, effective on the Delivery Date, the total rentable square feet of the Premises will be Twenty Thousand Five Hundred Seventy Five (20,575) square feet. 2. The Delivery Date shall be the date that Landlord delivers possession of the fourth floor to Tenant, which Delivery Date is estimated to be between November 1, 1997 and February 28, 1998. Notwithstanding the above, if for any reason Landlord cannot deliver possession of the fourth floor to Tenant on or before February 28, 1998, Landlord shall not be subject to any liability therefor, nor shall such failure affect the validity of this Amendment or the obligations of Tenant hereunder but in such case Tenant shall not be obligated to pay rent on the fourth floor until possession is delivered to Tenant. 3. The extended term of the Lease with respect to the third floor shall be extended, effective August 1, 1997 to the Delivery Date. Thereafter, the term of this Lease shall be for a period of 48 months, (plus the partial month, if any, immediately following the Delivery Date), commencing upon the Delivery Date and expiring (unless sooner terminated, at 11:59 PM on the last day of the Forty Eighth (48th) full calendar month thereafter. 4. Tenant shall pay to Landlord as minimum base rent for the Premises the sum of Twenty Nine Thousand Seven Hundred Eighty Three and 25/100 Dollars ($29,783.25) per month commencing August 1, 1997 through the Delivery Date. Commencing on the Delivery Date, Tenant shall pay to Landlord as minimum base rent for the Premises (which on the Delivery Date includes the fourth floor), the sum of Fifty Seven Thousand Four Hundred Four 1. and 25/100 Dollars ($57,404.25) per month through the end of the twelfth (12th) full calendar month following the Delivery Date. Rent for any period that is less than one (1) month shall be prorated on the basis of a 30 day month. The minimum base rent for each succeeding twelve month period shall be as follows: Months Monthly Base Rent ------ ----------------- 13-24 $58,433.00 25-36 $59,461.75 37-48 $60,490.50 49-60 $61,519.25 It is agreed that with the addition of the fourth floor, Tenant's proportionate share of the Direct Expenses will be 51.44% of the total. Tenant therefore agrees to pay as additional rent its proportionate share of the Direct Expenses as set forth in paragraph 6 (b) of the Lease beginning on the Delivery Date. 5. On or before the Delivery Date, Tenant shall increase the security deposit to a total of Fifty Seven Thousand Four Hundred . Four and 25/100 Dollars ($57,404.25). 6. Landlord shall deliver the fourth floor of the Premises to Tenant on the Delivery Date in a "broom clean" condition with the wall touched up with paint as necessary, carpet cleaned, and all building systems in good working order and condition. 7. Landlord shall be responsible for compliance with the Americans with Disability Act requirements unless Tenant triggers the requirements by applying for permits for any alterations to the Premises. 8. As of the Delivery Date, Tenant shall have the right to install a building standard sign on the building monument at Tenant's sole cost and expense in the area currently used by VeriFone/EIT. 9. At any time after November 1, 1997, through the Delivery Date, Tenant shall have the right, on 30 days written notice, to lease Suite 210 in the building commonly known as 800 E1 Camino Real, Menlo Park, San Mateo County, California at a minimum monthly rent of Four Thousand Four Hundred Twenty Four and 94/100 Dollars ($4,424.94) on an "As Is" basis provided Tenant pays for the following costs: a. The costs of installing a temporary demising wall between Suite 210 and 200. b. The costs of changing the locks to Suite 210. c. The cost of moving VeriFone employees and equipment, including, but not limited, the cost of uninstalling equipment and phone lines out of Suite 210 and reinstalling the same in Suite 200. 2. Tenant shall also pay its proportionate share of the Direct Expenses for Suite 210 pursuant to the provisions of paragraph 6 (b) of the Lease. It is agreed that Tenant's proportionate share of the Direct Expenses for Suite 210 is 3.97% of the total. 10. Except as set forth herein, the remaining terms of the Lease, as previously amended, are hereby ratified and confirmed. The parties hereto have executed this Amendment to Office Lease and on the dates specified immediately adjacent to their respective signatures. LANDLORD: MENLO STATION DEVELOPMENT, a general partnership By THE CORTANA CORPORATION, Managing General Partner By /s/ David A. Wollenberg Date 4/18/97 ------------------------------- ------------------------ David A. Wollenberg, President TENANT BE INCORPORATED By /s/ Jean-Louis Gassee Date 4/10/97 -------------------------------- ------------------------ By Date -------------------------------- ------------------------ EX-10.7 19 EMPLOYMENT AGREEMENT: WESLEY SAIA Exhibit 10.7 BE - -- June 22, 1998 Mr. Wesley Saia 1420 Escalona Drive Santa Cruz, Ca 95060 Dear Wes: This letter outlines the terms and conditions of your employment as Chief Financial Officer of Be Incorporated and replaces your Employment Agreement dated October 12, 1994. By signing this letter you agree with the terms and conditions of this Agreement and release the Company from any obligations contained in the agreement dated October 12, 1994. EQUITY IN BE INCORPORATED - ------------------------- On April 26, 1996 you were granted an Incentive Stock Option to purchase 250,000 shares of common stock. For past services provided to the Company since your hire date of November 7, 1994, these shares are considered fully vested. On March 31, 1998 you were granted an additional Incentive Stock Option to purchase 250,000 shares of common stock of the Company with the terms and conditions as shown in your Incentive Stock Option Agreement dated March 31, 1998. TERMINATION OF EMPLOYMENT - ------------------------- If your employment is terminated without cause or resulting from a change in control you will be paid (6) six months salary and the company will provide all company paid benefits for a period of six months from the date of the written notice. If you agree with the terms and conditions of this Agreement, please indicated by signing in the space below. Sincerely, /s/ Jean-Louis Gassee Jean-Louis Gassee Agreed to and accepted by: /s/ Wesley S. Saia ________________________________________________________________________________ President & CEO Be Incorporated (650) 462-4101 (650) 462-4129 Fax 800 El Camino Real, Suite 300 e-mail: jlg@be.com Menlo Park, California 94025 EX-10.8 20 EMPLOYMENT AGREEMENT: ROY GRAHAM Exhibit 10.8 BE - -- March 12, 1999 Mr. Roy Graham 1030 Crossbow Court San Jose, CA 95120 Dear Roy: I am pleased to offer you the position of Executive Vice President of Sales & Marketing reporting to me. In this position your compensation will be divided into two components: a base salary component and a bonus component. Your base salary will be two hundred sixteen thousand dollars ($216,000) per year. Your target bonus is fifty four thousand ($54,000) for the first year of employment. Your salary and bonus shall be paid twice per month and is subject to withholding for federal, state, and other applicable taxes. Your compensation will be subject to periodic review by the management and the Board of Directors, usually once a year. For the first year of employment, you will receive 100% of your targeted bonus of $54,000. After that, your bonus will paid subject to accomplishment goals as set forward by management and the Board of Directors which is still to be determined. Further, we will recommend to Be's Board of Directors that you be granted an option to purchase 660,000 shares of common stock which will vest as follows. 160,000 options to purchase shares of common stock will vest immediately upon your date of hire. The remaining 500,000 options to purchase shares of common stock will vest over a four year vesting schedule starting from the date of your employment. Vesting will be annual vesting for the first year and monthly vesting for the following three years. As an employee of Be, you and your dependents will be entitled to Be medical and dental benefits as made available to all Be employees. Information on the details of our plans will be delivered to you separately. When you report to work, you will be expected to execute our standard company agreement relative to patents, inventions and confidential information. This is an offer for "at will" employment and doe not constitute an offer or guarantee of employment for any period of time. Your employment and compensation can be terminated at any time for any reason or for no reason, subject to the terms hereof and your rights to compensation hereunder. This letter constitutes the full and entire understanding and agreement between the parties with respect to the subject of employment, and supersedes any prior discussions. This offer is effective though March 19, 1999. It will expire if not accepted in writing by that date. We look forward to your acceptance. Please sign and return this letter upon acceptance. Sincerely, /s/ Jean-Louis Gassee Jean-Louis Gassee Chief Executive officer ACCEPTED: /s/ Roy Graham 1. EX-10.9 21 EMPLOYMENT AGREEMENT: JEAN CALMON Exhibit 10.9 Employment Contract ------------------- Commercial and Administrative Director -------------------------------------- Between the undersigned: - ----------------------- BE EUROPE SARL, a limited liability company registered with the trade and companies register of Nanterre under the number B 408 061 844, whose registered office is at Bureau 336, Immeuble Olivetti, rue de l'Ancien Marche, 92800 Puteaux, Registered with the URSSAF of Paris under No 920 701 714 080 01 011, represented by Mr. Jean-Louis GASSEE, acting as "Managing Director", having ----------------- full powers for the purposes of the present agreement hereinafter referred to as the "THE COMPANY" on the one hand, --------------- and: - --- Mr. Jean CALMON born on 24 October 1945 in Vallon (Allier), French citizen, national insurance number 1 45 10 03 297 014, residing at 11 bis, avenue de Madrid, 92200 Neuilly-sur-Seine, on the other hand. ----------------- IT IS AGREED THAT Article I Engagement - --------------------- 1.1 THE COMPANY agrees by virtue of the present contract to employ Mr. Jean CALMON, who accepts the position, as COMMERCIAL AND ADMINISTRATIVE DIRECTOR, for and indefinite period, Position 3.3 (Convention collective des bureaux d'etudes techniques, des cabinets d'ingenieurs conseils et societes de conseils), as from Friday 9 October 1998, at 9 a.m. (subject to the results of the medical visit prior to the taking up of employment). 1.2 Mr. Jean CALMON attests that there is no restriction or prohibition to his taking up the said employment. 1.3 Mr. Jean CALMON has management status ("Cadre") and will be entitled to all benefits and advantages provided to employees of his grade & level by THE COMPANY. Article II Position - -------------------- 2.1 In his capacity as COMMERCIAL and ADMINISTRATIVE DIRECTOR, Mr. Jean CALMON will be responsible for the proper organization and running of THE COMPANY's commercial, marketing and administrative divisions, within the territories described in Appendix I, under the direct ---------- authority and control of the Managing Director ("Gerant") of THE COMPANY (hereinafter "THE MANAGEMENT") or any other person the Managing Director may substitute. Mr. Jean CALMON is notably for these purposes, within the territories and within the scope of the general objectives set by THE MANAGEMENT in charge of: - the global commercialization of the products and services included within the scope of THE COMPANY's activities; - the development of THE COMPANY's clientele; - maintaining commercial relations of THE COMPANY at their best in particular by making every effort to rapidly solution any problem; - following the policy set out by THE MANAGEMENT, management and co- ordination of the activities of the other employees of THE COMPANY placed under his authority and control, for them to perform their best work; - the hiring of employees, exclusively based on THE MANAGEMENT's prior consent; - ensuring THE COMPANY day to day operations at their best and performing any and all permanent or limited missions included within the scope of his prerogatives. 2.2 Mr. Jean CALMON is more generally in charge of the harmonious running of the commercial and marketing divisions and of the respect of the legislation in force and of the optimization of the means of actions of THE COMPANY. 2.3 Mr. Jean CALMON must verify whether the discipline is respected by the employees placed under his authority and control. However, Mr. Jean CALMON is not entitled to sanction or dismiss any employee unless he obtains prior consent of THE MANAGEMENT so as to the principle and the procedure to implement. 2.4 Mr. Jean CALMON implements the general policy decided by THE MANAGEMENT and proposes any and all actions likely to improve THE COMPANY operations which entails his acceptance of any necessary displacement both in France and abroad. Except any and all professional travels, Mr. CALMON shall be based at the registered office of THE COMPANY. Article III Remuneration - ------------------------- Mr. Jean CALMON's remuneration has fixed and variable elements. 3.1 Mr. Jean CALMON will receive an fixed gross annual salary of FF.827,496, i.e. FF; 68,958 gross per month over 12 months. ---------- ------ 3.2 Mr. Jean CALMON will also receive a commission, which will depend on whether the objectives assigned by THE MANAGEMENT based on quantitative and qualitative criteria are achieved The objectives assigned to Mr. CALMON will be set by THE MANAGEMENT for each financial year of THE COMPANY and will be indicated in a separate letter, addressed to Mr. CALMON in the beginning of the financial year concerned. The commission amount for a given financial year will be of one third of the fixed salary for same financial year if 100% of the objectives assigned by THE MANAGEMENT is met. 3.3 Mr. CALMON shall benefit from a monthly drawing on his commission for an amount of 75% of the said commission related to the calendar month in point. Sums will be regularized at the end of the financial year of THE COMPANY. 3.4 Notwithstanding the above paragraph, Mr. Jean CALMON's commission will be 100% guaranteed for the period up to December 31, 1998. 3.5 Mr. CALMON's remuneration shall be revised on an annual basis. Article IV - Working time - ------------------------- 4.1 The normal working time in THE COMPANY is fixed to 39 hours per week. 4.2 Given the responsibilities entrusted to Mr. Jean CALMON and the freedom the latter benefits to organize his work, it is expressly provided that the aforesaid remuneration is independent from the time Mr. Jean CALMON actually devotes to conduct his functions and therefore covers any and all overtime. Article V - General obligations - ------------------------------- 5.1 Mr. CALMON undertakes to devote all of his activity, ability, experience and expertise exclusively to THE COMPANY. Accordingly, and except where he has obtained prior consent of THE MANAGEMENT, he undertakes not to become involved with another activity, whether directly or indirectly or through a person interposed, irrespective of whether the said other activity is for his own account or for the account of a third party. 5.2 Mr. CALMON is bound to absolute confidentiality with regard to any and all information, documents and facts of which he is informed as part or as a consequence of his functions In particular, Mr. CALMON is bound to absolute confidentiality in respect of any trade document, knowledge, products, software, services, research, designs, formulas, test data, customer lists, business plans, marketing plans, strategies (including pricing strategies) and generally any and all financial, commercial, technical and administrative documents and information (i) communicated to him by THE COMPANY or by any other company of the Group which THE COMPANY belongs to and in particular BE INCORPORATED or (ii) pertaining to any business, clients, consultants of THE COMPANY or BE INCORPORATED or any other company of the Group which THE COMPANY belongs to. This obligation of absolute confidentiality is not limited and will remain in full force after the expiration of the present employment contract for whatever reason and regardless of which party terminates. 5.3 Without prior consent of THE MANAGEMENT and in any event Mr. Jean CALMON is not allowed to take any and all initiatives which would result in the usual commercial policy of THE COMPANY being disrupted or which could result in THE COMPANY being held financially responsible Article VI - Business expenses - ------------------------------ Mr. Jean CALMON shall obtain reimbursement of the reasonable business expenses incurred in the performance of his functions upon submission of substantiating documents according to the policy of THE COMPANY. Article VII - Sickness - Holidays - --------------------------------- 7.1 In the event of Mr. Jean CALMON being absent from work by virtue of illness or accident he will be required to inform THE COMPANY without delay and provide the latter with relevant supporting certification within 48 hours. 7.2 Requests for absence other than the taking of annual leave must be submitted 8 days prior to the relevant date to THE COMPANY except in exceptional circumstances. 7.3 PAID ANNUAL LEAVE will be granted under the applicable usual legal conditions for an annual period of 25 days (five weeks), the date of the said annual leave being defined by THE MANAGEMENT. Article VIII - Retirement "fund" - -------------------------------- Mr. Jean CALMON will be registered with the complementary retirement fund to which THE COMPANY has subscribed. Article IX - Expiration of the contract - --------------------------------------- 9.1 The termination of the present Agreement is subject the rules set by French law and the applicable collective bargaining agreement. 9.2 In particular, each party will have to respect a three months notice period except in case of substantial fault or "force majeure". 9.3 In the case where termination of the employment contract is at the initiative of the employer and the reason for such termination is not a substantial fault or serious negligence, THE COMPANY will pay to Mr. CALMON an indemnity equivalent to three months remuneration - i.e. equivalent to the remuneration received by Mr. CALMON for the three months preceding the termination -. This specific indemnity shall be added to that provided in the collective bargaining agreement applicable to THE COMPANY business. Article X - Return of the document to THE COMPANY - ------------------------------------------------- At the expiration of the present contract, for whatever reason and regardless of which party terminates, Mr. Jean CALMON undertakes, without any restriction or reserve, to return to THE COMPANY any and all documents, products, etc., he may have kept and furthermore expressly agrees that his responsibility would be engaged in the case where he takes the said documents, products, etc., with him, irrespective of whether it is for personal or professional reasons. Article XI - Personal situation - ------------------------------- Mr. Jean CALMON undertakes to keep THE COMPANY informed of any and all modifications of his personal situation such as address, marital status, etc. XIII - Collective bargaining agreement - -------------------------------------- All other details concerning the current employment contract will be regulated by the relevant collective bargaining agreement in force with respect of the activity THE COMPANY runs. Article XIV - Jurisdiction and Governing Law - -------------------------------------------- The present agreement shall be governed by the laws of France and the French courts will have exclusive jurisdiction with respect to all litigation which may arise between the parties. Signatories /s/ Jean Calmon /s/ Jean Louis Gassee Jean Calmon Jean Louis Gassee APPENDIX I Territories The territories are: France; European Union Africa Middle East EX-10.10 22 STOCK PURCHASE AGREEMENT DATED 5/1/98 EXHIBIT 10.10 STOCK PURCHASE AGREEMENT BETWEEN STARCODE SOFTWARE, INC. AND THE SHAREHOLDERS OF STARCODE SOFTWARE, INC. AND BE INCORPORATED TABLE OF CONTENTS
PAGE 1. DESCRIPTION OF TRANSACTION........................................................................ 1 1.1 Sale and Transfer of Shares.............................................................. 1 1.2 Purchase Price........................................................................... 2 1.3 Closing.................................................................................. 2 2. REPRESENTATIONS AND WARRANTIES BY STARCODE AND THE SHAREHOLDERS................................... 3 2.1 Organization, Powers and Qualification................................................... 3 2.2 Subsidiaries; Interests in Other Companies............................................... 3 2.3 Capitalization........................................................................... 3 2.4 Authority; Binding Nature of Agreement................................................... 4 2.5 Financial Statements..................................................................... 4 2.6 Liabilities.............................................................................. 4 2.7 Schedules of Properties, Contracts and Other Data........................................ 4 2.8 Taxes.................................................................................... 6 2.9 Title to Assets.......................................................................... 6 2.10 Legal Proceedings, Etc................................................................... 6 2.11 Brokers and Finders...................................................................... 6 2.12 Compliance with Laws, Etc................................................................ 6 2.13 Patents, Trademarks, Licenses, Etc....................................................... 6 2.14 Condition of Properties.................................................................. 7 2.15 Absence of Changes....................................................................... 7 2.16 Other Negotiations....................................................................... 8 2.17 Employee Proprietary Information and Inventions Agreements............................... 8 2.18 Accuracy of Representations and Warranties............................................... 8 2.19 Compliance with Immigration Reform and Control Act of 1986 ("IRCA")...................... 8 2.20 Real Property Holding Corporation........................................................ 8 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SHAREHOLDERS..................................... 9 3.1 Ownership of StarCode Shares............................................................. 9 3.2 Full Capacity; Binding Agreement......................................................... 9 3.3 Brokers and Finders...................................................................... 9 3.4 Legal Representation..................................................................... 9
i. TABLE OF CONTENTS (CONTINUED)
PAGE 3.5 Accuracy of Representations and Warranties............................................... 9 3.6 Taxes.................................................................................... 10 3.7 Compliance with Immigration Reform and Control Act of 1986 ("IRCA")...................... 10 4. REPRESENTATIONS AND WARRANTIES OF BE.............................................................. 10 4.1 Organization, Powers and Authority....................................................... 10 4.2 Brokers and Finders...................................................................... 11 4.3 Accuracy of Representation and Warranties................................................ 11 5. SURVIVAL AND INDEMNIFICATION...................................................................... 11 5.1 Survival of Representations, Etc......................................................... 11 5.2 Indemnification by the Shareholders...................................................... 11 5.3 Reliance................................................................................. 12 6. MISCELLANEOUS..................................................................................... 12 6.1 Post-Closing Covenant.................................................................... 12 6.2 Further Assurances....................................................................... 12 6.3 Notices.................................................................................. 12 6.4 Governing Law............................................................................ 13 6.5 Expenses................................................................................. 13 6.6 Parties-in-Interest...................................................................... 13 6.7 Entire Agreement......................................................................... 13 6.8 Waiver................................................................................... 13 6.9 Attorneys' Fees.......................................................................... 13 6.10 Severability............................................................................. 13 6.11 Schedules................................................................................ 14 6.12 Headings................................................................................. 14 6.13 Counterparts............................................................................. 14
ii. LIST OF EXHIBITS AND SCHEDULES StarCode Shareholders Exhibit A Escrow Agreement Exhibit B Noncompetition Agreement Exhibit C Employment Agreement Exhibit D Employee Proprietary Information and Inventions Agreement Exhibit E General Release Exhibit F StarCode Financial Statements Exhibit G Exceptions to Representations and Warranties Schedule 2.0 Real and Personal Property Interests Schedule 2.7(a) Leases and Agreements Schedule 2.7(b) Licenses, Permits and Other Instruments Schedule 2.7(c) Collective Bargaining Agreements and Other Agreements and Contracts Schedule 2.7(d) Copyrights, Patents, Trademarks, etc. Schedule 2.7(e) Instruments, Agreements and Arrangements Evidencing Borrowing Schedule 2.7(f) Insurance Policies Schedule 2.7(g) Material Contracts Schedule 2.7(h) Banks and Accounts Schedule 2.7(i) Litigation and Proceedings Schedule 2.7(j) Consents and Approvals Schedule 2.7(k) StarCode Guarantors/Contracts Schedule 6.1
iii. STOCK PURCHASE AGREEMENT This STOCK PURCHASE AGREEMENT ("Agreement") dated May 1, 1998 is by and among BE INCORPORATED, a California Corporation ("Be"), 800 El Camino Real, Suite 300, Menlo Park, CA 94025; STARCODE SOFTWARE, INC., a California Corporation ("StarCode"), 1755 East Bayshore Road, Suite 16-A, Redwood City, California 94063; Carlin Wiegner, an individual resident in Menlo Park, California ("C. Wiegner"); Robert A. Biorn, Trustee for Andrew R. Wollenberg ("A. Wollenberg Trustee"); Robert A. Biorn, Trustee for Blake E. Wollenberg ("B. Wollenberg Trustee"); Carey Heckman, an individual resident in Palo Alto, California ("Heckman"); Michael Klingbeil, an individual resident in Palo Alto, California ("Klingbeil"); Kevin McBride, an individual resident in Dallas, Texas ("McBride"); Mary McDermott, an individual resident in Dallas, Texas ("McDermott"); Edward Wiegner, an individual resident in Vero, Florida ("E. Wiegner"); and David Wollenberg, an individual resident in Atherton, California ("Wollenberg") (each a "Shareholder," and collectively, the "Shareholders"). RECITALS The shares of capital stock of StarCode owned by Shareholders listed on EXHIBIT A attached hereto (collectively, the "Shares") constitute all of the issued and outstanding shares of capital stock of StarCode. Each of the Shareholders desires to sell, and Be desires to purchase, all of the Shares for the consideration and on the terms set forth in this Agreement. AGREEMENT The parties to this Agreement, intending to be legally bound, agree as follows: 1. DESCRIPTION OF TRANSACTION. 1.1 SALE AND TRANSFER OF SHARES. Upon the terms and subject to the conditions set forth in this Agreement: (A) C. Wiegner hereby sells, assigns and transfers to Be, and Be hereby purchases from C. Wiegner, the 327,000 shares owned by C. Wiegner; (B) A. Wollenberg Trustee hereby sells, assigns and transfers to Be, and Be hereby purchases from A. Wollenberg Trustee, the 7,500 shares owned by A. Wollenberg Trustee; (C) B. Wollenberg Trustee hereby sells, assigns and transfers to Be, and Be hereby purchases from B. Wollenberg Trustee, the 7,500 shares owned by B. Wollenberg Trustee; (D) Klingbeil hereby sells, assigns and transfers to Be, and Be hereby purchases from Klingbeil, the 200,000 shares owned by Klingbeil; 1. (E) Heckman hereby sells, assigns and transfers to Be, and Be hereby purchases from Heckman, the 25,000 shares owned by Heckman; (F) McBride hereby sells, assigns and transfers to Be, and Be hereby purchases from McBride, the 23,364 shares owned by McBride; (G) McDermott hereby sells, assigns and transfers to Be, and Be hereby purchases from McDermott, the 23,364 shares owned by McDermott; (H) E. Wiegner hereby sells, assigns and transfers to Be, and Be hereby purchases from E. Wiegner, the 366,400 shares owned by E. Wiegner; and (I) Wollenberg hereby sells, assigns and transfers to Be, and Be hereby purchases from Wollenberg, the 10,000 shares owned by Wollenberg. 1.2 PURCHASE PRICE. (A) The aggregate purchase price payable by Be for the Shares (the "Purchase Price") shall be Four Hundred Forty-Four Thousand Six Hundred Twenty- Two Dollars ($444,622) payable as set forth below. Each Shareholder listed on EXHIBIT A shall be paid his or her pro rata share (based on the liquidation rights of the stock held by Shareholders) of the Purchase Price as set forth on EXHIBIT A. (B) The portion of the Purchase Price equaling Seventy Thousand Dollars ($70,000) (the "Escrow Funds") shall be delivered by Be to the Escrow Agent (as defined in EXHIBIT B attached hereto) on the Closing Date (as defined in Section 1.3) by wire transfer of immediately available funds. Pursuant to this Section 1.2, Be, the Shareholders and an escrow agent shall enter into the Escrow Agreement in substantially the form attached hereto as EXHIBIT B. (C) The remainder of the Purchase Price shall be paid by Be to the Shareholders at the Closing (as defined in Section 1.3) by wire transfer of immediately available funds to an account or accounts to be designated by the Shareholders. 1.3 CLOSING. (A) The closing of the sale of the Shares to Be (the "Closing") shall take place at the Palo Alto office of Cooley Godward LLP, at 10:00 a.m. on April 30, 1998 (the "Closing Date") or at such other place or time as the parties may agree. (B) At the Closing: (I) All outstanding options to acquire stock of StarCode shall have been exercised in full or cancelled prior to the Closing. Each holder of a certificate or certificates representing StarCode capital stock issued and outstanding shall surrender such certificate(s) to Be. 2. (II) Be shall pay the Purchase Price less the amount of the Escrow Funds by check or wire transfer to the Shareholders. (III) Be shall pay the following assumed liabilities of StarCode by check or wire transfer to the appropriate parties: (A) debt in the amount of $64,378; (B) bonuses to employees in the aggregate amount of $16,000; (C) the reasonable, documented legal and accounting fees and expenses incurred by StarCode and the Shareholders in connection with the transactions contemplated by this Agreement through the date of the Closing not to exceed $20,000; and (D) all salary amounts and accrued vacation amounts due and owing to employees or ex-employees of StarCode as of the Closing, which are itemized in Schedule 2.0 attached hereto. (IV) C. Wiegner and Klingbeil shall execute and deliver to Be a Noncompetition Agreement in substantially the form attached hereto as EXHIBIT C. (V) Each of C. Wiegner, Klingbeil, Michael McBride, Bryce Matthews and Justin Rowe shall execute and deliver an Employment Agreement in substantially the forms attached hereto as EXHIBIT D and an Employee Proprietary Information and Inventions Agreement in substantially the form attached hereto as EXHIBIT E. (VI) Each Shareholder shall execute and deliver to Be and StarCode a General Release in substantially the form attached hereto as EXHIBIT F. (VII) The Shareholders shall resign from their positions as directors and officers of StarCode. 2. REPRESENTATIONS AND WARRANTIES BY STARCODE AND THE SHAREHOLDERS. Except as set forth on Schedule 2.0, StarCode and the Shareholders jointly and severally represent and warrant to Be as follows: 2.1 ORGANIZATION, POWERS AND QUALIFICATION. StarCode is a corporation duly organized and validly existing under the laws of the State of California and has all requisite corporate power and authority to own its properties and assets and carry on its business as now conducted. StarCode is qualified to do business and is in good standing as a foreign corporation in each jurisdiction in which the failure to qualify would have a material adverse effect on its business and financial condition. StarCode has delivered to Be copies of StarCode's Articles of Incorporation and Bylaws as currently in effect. 2.2 SUBSIDIARIES; INTERESTS IN OTHER COMPANIES. StarCode does not own, directly or indirectly, voting stock or interests in any corporation, partnership, joint venture, business trust or other business entity. 2.3 CAPITALIZATION. The authorized capital of StarCode consists of one million three hundred sixty-three thousand one hundred forty-two (1,363,142) shares of common stock, of which four hundred thousand (400,000) shares are issued and outstanding (as set forth on EXHIBIT A), and six hundred thirty-six thousand eight hundred fifty-eight (636,858) shares of preferred stock, of which five hundred ninety thousand one hundred twenty-eight (590,128) 3. shares are issued and outstanding (as set forth on EXHIBIT A). All such issued and outstanding shares and options of capital stock are duly and validly authorized and issued, are fully paid and nonassessable and are free from preemptive rights and have been issued in compliance with all applicable securities laws of the United States and all states. Except as set forth herein, there are no options, warrants, conversion privileges or other rights outstanding to acquire any shares of the capital stock of StarCode. 2.4 AUTHORITY; BINDING NATURE OF AGREEMENT. The Board of Directors of StarCode has authorized the execution, delivery and performance of this Agreement by StarCode, and has authorized the transactions contemplated by this Agreement. StarCode has the power and authority to execute, deliver and perform this Agreement and the Agreement is valid, binding and enforceable against StarCode in accordance with its terms. 2.5 FINANCIAL STATEMENTS. StarCode has delivered to Be (i) StarCode's unaudited balance sheet as of December 31, 1997 and unaudited statement of profit and loss for the twelve months ended December 31, 1997 and (ii) StarCode's unaudited balance sheet as of March 31, 1998 and unaudited statement of profit and loss for the three months ended March 31, 1998 (collectively, the "StarCode Financial Statements"), copies of which are attached hereto as EXHIBIT G. To the best of StarCode's knowledge, the StarCode Financial Statements are complete and correct in all material respects, and present fairly the financial condition and position of StarCode as of the respective dates thereof; provided, however, that the StarCode Financial Statements are subject to normal recurring year-end audit adjustments (which are not expected to be material). All information for all periods covered by the StarCode Financial Statements contains all adjustments, consisting only of normally recurring accruals, necessary for a fair presentation of the results for such periods. 2.6 LIABILITIES. Except as set forth on Schedule 2.0, StarCode has no material liabilities (known or unknown, matured or not, contingent or otherwise) other than as disclosed in the StarCode Financial Statements, except current liabilities incurred in the ordinary course of business subsequent to the date of the StarCode Financial Statements which have not been, either in any case or in the aggregate, materially adverse. At the Closing, StarCode's liabilities, other than the liabilities set forth in Section 1.3(b)(iii), shall be less than $10,000. 2.7 SCHEDULES OF PROPERTIES, CONTRACTS AND OTHER DATA. Attached to and made a part of this Agreement are the following described schedules of properties, contracts and other data of or pertaining to StarCode ("Schedules"): (A) Schedule 2.7(a) describes all real estate or material fixed assets owned by StarCode, in each case free and clear of all mortgages, liens, or other encumbrances except as otherwise stated in the Schedule. (B) Schedule 2.7(b) describes all leases or agreements under which StarCode is lessee of, or holds or operates any interest in or right to use real or personal property owned by any third party. (C) Schedule 2.7(c) describes all licenses, permits and other instruments under which StarCode has acquired or has granted a right to use or distribute any business system, 4. name or mark, patent, copyright, technology, know-how, intellectual property, or other intangible property of StarCode or any third party. (D) Schedule 2.7(d) describes all collective bargaining agreements to which StarCode is a party and all other agreements and contracts pertaining to terms and conditions of employment by StarCode, either written or oral, including but not limited to employment agreements, employment letter offers, consulting agreements, stock option plans, pension or profit sharing plans, bonus plans, and group health, life and disability insurance plans, to which StarCode is a party or under which the employees of StarCode have rights by virtue of being employees of StarCode. The independent contractor agreements between StarCode and the individuals listed on Schedule 2.7(d) have effectively transferred ownership to StarCode of all work performed by such individuals for StarCode at any time. (E) Schedule 2.7(e) describes specifically all patents and patents pending, trademarks, trademark registrations, trade names, service marks, and copyrights, and describes generally and briefly all trade secrets, know-how, technology and other intellectual property owned by, registered in the name of, or otherwise the property of StarCode. (F) Schedule 2.7(f) describes all existing instruments, agreements or arrangements pursuant to which StarCode has borrowed any money, incurred any other indebtedness, established a line of credit or guaranteed the indebtedness or obligation of another person, corporation or other entity. (G) Schedule 2.7(g) describes all policies of life, casualty, liability or other forms of insurance owned by StarCode, each policy being in full force and effect with premiums paid as noted on the Schedule. (H) Schedule 2.7(h) describes all other material contracts, agreements, commitments and instruments not described on the foregoing Schedules, either written or oral, to which StarCode is a party. (I) Schedule 2.7(i) describes all banks in which StarCode has an account or a safe deposit box, the respective account numbers of such accounts, and the names of all persons authorized to draw on such accounts or who have access to such accounts. (J) Schedule 2.7(j) describes all litigation or proceedings pending (or, to the best knowledge of StarCode, threatened) to which StarCode is (or would become) a party. (K) Schedule 2.7(k) describes (except for the consents of the Board of Directors of StarCode and of its shareholders) all consents and approvals, including approvals of government agencies, required for the execution and delivery of this Agreement by StarCode and the consummation of the transactions contemplated by this Agreement. StarCode has made available to Be true and complete copies of all documents described in the above Schedules. Except to the extent described in the Schedules, StarCode has performed all of the obligations required to be performed by it to date and is not in default in any material respect under any of the agreements, contracts, instruments or documents described in the Schedules, nor, to the best knowledge of StarCode, is any other party to such agreements, contracts, 5. instruments or documents in default thereunder in any material respect. 2.8 TAXES. StarCode has filed all federal, state, local and other tax returns and reports, if any, required to be filed by it and such returns are true and correct in all material respects. StarCode has paid all taxes, if any, shown to be due and payable on said returns and reports and has withheld with respect to employees all federal and state income taxes, FICA, FUTA and other taxes and charges required to be withheld. StarCode has established reserves adequate for the payment of all taxes for the period from March 31, 1998 through the Closing Date, and StarCode will disclose the dollar amount of such reserves to Be on or prior to the Closing Date. 2.9 TITLE TO ASSETS. StarCode has good and marketable title to all of its owned assets as described in the balance sheet contained in the StarCode Financial Statements and the schedules described in Section 2.7, free and clear of all mortgage, pledges, liens, security interests, conditional sale agreements, royalties, charges, encumbrances, claims and restrictions of every kind and nature except as otherwise set forth in Schedules 2.7(a), 2.7(b), 2.7(c), 2.7(e), 2.7(f), 2.7(g), 2.7(h) and 2.7(i). 2.10 LEGAL PROCEEDINGS, ETC. Except as set forth on Schedule 2.7(i), (i) there is no legal, administrative, arbitration or other proceeding or governmental investigation pending (or, to the best knowledge of StarCode, threatened) to which StarCode is (or would become) a party, (ii) nor does StarCode know of facts which would give rise to a claim which, if asserted, would have a material adverse affect on its business, (iii) nor is StarCode subject to any outstanding judgment, order or decree of any court or administrative agency. 2.11 BROKERS AND FINDERS. Neither StarCode nor any of its officers, directors or employees has employed any broker or finder or incurred any liability for any brokerage fees, commissions or finder's fees in connection with the transactions contemplated by this Agreement. 2.12 COMPLIANCE WITH LAWS, ETC. StarCode has complied with the provisions of its Articles of Incorporation, as amended or restated, and Bylaws, and has complied with all statutes, laws, ordinances, regulations and other requirements applicable to StarCode where the failure to comply would have a material adverse effect on the business of StarCode. The execution and delivery of this Agreement and the consummation of the transactions contemplated will not (i) conflict with, or result in any breach or violation by StarCode of, or constitute a default by StarCode under, its Articles of Incorporation, as amended or restated, or Bylaws, or, any statute, law, ordinance, regulation or other requirement applicable to StarCode or (ii) except as stated in this Agreement or the Schedules hereto, result in any breach or violation of, termination of or default under any agreement or instrument to which StarCode is a party or by which it is bound. 2.13 PATENTS, TRADEMARKS, LICENSES, ETC. StarCode owns or holds valid, unrestricted, enforceable and exclusive rights for the use of all patents, trademarks, trademark registrations, trade names, service marks, copyrights, trade secrets, know-how, technology and other intellectual property (i) described on Schedules 2.7(c) and 2.7(e) or (ii) used by StarCode in the conduct of its business (except to the extent such rights have been licensed, assigned or 6. otherwise transferred to others, as described on such Schedules), and the conduct by StarCode of its business does not conflict with or infringe upon any United States patents issued on or before the Closing, or any trademarks, trade names, copyrights, licenses to use the same or other rights or property of others. StarCode holds or has obtained all necessary U.S. government export licenses necessary to export its products to those countries in which it is distributing its products. StarCode holds or has obtained all other governmental permits, licenses, consents, approvals and waivers necessary for the lawful conduct of its business as now conducted. There are no rights or restrictions in any agreements, licenses, franchises or other instruments to which StarCode is a party or by which it is bound which would prevent StarCode from carrying on its current business or any business that StarCode currently proposes to conduct. 2.14 CONDITION OF PROPERTIES. All of the properties of StarCode are in good operating condition and repair, subject only to ordinary wear and tear which is not such as to render the properties less than substantially fit for the purposes for which they are being used. 2.15 ABSENCE OF CHANGES. Since March 31, 1998: (A) StarCode has carried on its business in a manner in accordance with past practices and in a manner which is to the best of StarCode's knowledge and belief reasonable and prudent. (B) StarCode has not engaged in any transaction out of the ordinary course of business including the purchase, sale, assignment, license or other disposition or transfer of property. (C) StarCode has not made capital expenditures of a material nature, or satisfied or discharged any material liabilities, except in the ordinary course of business, or incurred any liabilities, or, to the best of StarCode's knowledge, incurred any contingent liabilities, except in the ordinary course of business. (D) StarCode has not taken any action or, to the extent the same is within its reasonable control, permitted any action to be taken inconsistent with preserving its existing business organization and relations with employees, customers, suppliers and others with whom it has a business relationship and with protecting its rights and properties. (E) StarCode has not entered into any employment contracts or paid any special bonuses or special remuneration to any officers, directors or employees other than commissions and bonuses in the ordinary course of business. (F) StarCode has conducted its business in compliance with all material laws and regulations applicable to StarCode. (G) StarCode has not encumbered or permitted to be encumbered any of its properties or assets except in the ordinary course of business. (H) StarCode has not declared or paid any dividends or made any other distributions with respect to its capital stock. 7. (I) StarCode has not purchased, redeemed, retired or otherwise acquired its own capital stock (J) StarCode has not issued, sold, encumbered or given any option or right to purchase any of its capital stock or other securities. (K) Except for beta copy use licenses, StarCode has not licensed, assigned, transferred or conveyed to any third party any property or right necessary to the conduct of its current business, including any manufacturing rights or rights to access the computer source code related to any of its products. (L) StarCode has not entered into any other transactions which would result in the transfer by StarCode of assets or rights for other than full and fair consideration. (M) StarCode has not suffered any material damage, destruction or loss to its assets or business, whether or not covered by insurance. 2.16 OTHER NEGOTIATIONS. Except for the transaction contemplated by this Agreement there is no existing commitment to sell all or a significant part of the assets or the stock of StarCode, there is no outstanding offer to sell all or a substantial part of the assets or stock of StarCode, and there are no pending negotiations for the sale of all or a substantial part of the assets or stock of StarCode. 2.17 EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENTS. All of StarCode's employees, both current and past, and all current and past consultants who had access to, worked with, prepared, modified or developed any portion of the intellectual property described on Schedule 2.7(e) have executed an employee proprietary information and inventions agreement or an independent contractor agreement in the forms of such agreements previously provided to counsel for Be. 2.18 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of StarCode contained in this Agreement, including the attached Schedules of StarCode, contain no untrue statement of a material fact and do not omit or misstate a material fact necessary in order to make the statements contained therein not misleading in light of the circumstances in which they are made. 2.19 COMPLIANCE WITH IMMIGRATION REFORM AND CONTROL ACT OF 1986 ("IRCA"). StarCode has not engaged in any activity nor is it aware of any practice with respect to its employees that is in violation of IRCA including but not limited to, the anti-discrimination provisions, the verification of employment eligibility procedures and the document fraud provisions. StarCode warrants that it has complied with the applicable provisions of IRCA with respect to its employees. 2.20 REAL PROPERTY HOLDING CORPORATION. StarCode is not a real property holding corporation within the meaning of Internal Revenue Code Section 897(c)(2) and any regulations promulgated thereunder. 8. 3. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE SHAREHOLDERS. Each Shareholder severally and not jointly represents and warrants to Be and StarCode as of the date of this Agreement and as of the Closing Date with respect to such Shareholder as follows: 3.1 OWNERSHIP OF STARCODE SHARES. Such Shareholder is the owner of the number of shares of common stock of StarCode, free and clear of all liens and encumbrances, listed opposite Shareholder's name on EXHIBIT A. These shares and options constitute such Shareholder's entire interest in the capital stock of StarCode, and Shareholder has no other options, warrants, conversion privileges or other rights to acquire any shares of the capital stock of StarCode. In addition, except as set forth on Schedule 2.0, such Shareholder has no claims against StarCode of any nature, including claims for compensation, profit sharing or other benefits, other than salary benefits and reimbursement for normal business expenses/or the most recent pay period. 3.2 FULL CAPACITY; BINDING AGREEMENT. Each of the Shareholders is of sound mind and full capacity to enter into this Agreement. Each of the Shareholders has the absolute and unrestricted right, power and authority to perform his obligations under this Agreement including the contemplated assignment, transfer and delivery of the Shares to Be in accordance with this Agreement. Upon execution and delivery by all of the parties thereto, this Agreement constitutes the legal, valid and binding obligation of each Shareholder, in each case enforceable against him in accordance with its terms, except as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights; and (ii) general principles of equity or public policy that restrict the availability of equitable remedies. Each of C. Wiegner and Klingbeil severally and not jointly hereby represents to Be that he (x) has the absolute and unrestricted right, power and authority to perform his obligations under the Noncompetition Agreement; and (y) upon execution and delivery by all of the parties thereto, the Noncompetition Agreements constitutes his legal, valid and binding obligations, enforceable against him in accordance with its terms, except as limited by (A) applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights and (B) general principles of equity or public policy that restrict the availability of equitable remedies. 3.3 BROKERS AND FINDERS. Shareholder has not employed any broker or finder or incurred any liability/or any brokerage fees, commissions or finder's fees in connection with the transactions contemplated by this Agreement. 3.4 LEGAL REPRESENTATION. Shareholder has either consulted with Shareholder's own legal counsel and other advisors and representatives regarding the transactions contemplated by this Agreement or, having had the opportunity to consult with such persons regarding such transactions, has chosen not to do so. 3.5 ACCURACY OF REPRESENTATIONS AND WARRANTIES. The representations and warranties of the Shareholder contained in this Agreement contain no untrue statement of a material fact and do not omit or misstate a material fact necessary in order to make the 9. statements contained therein not misleading in the light of the circumstances in which they are made. 3.6 TAXES. Shareholder agrees that Shareholder will pay any income taxes due from any compensation or consulting fees paid to Shareholder by StarCode. 3.7 COMPLIANCE WITH IMMIGRATION REFORM AND CONTROL ACT OF 1986 ("IRCA"). If Be employs Shareholder as a consultant, such employment will not be in violation of IRCA, and Shareholder shall present valid documents to Be necessary for verification of employment eligibility under IRCA. 4. REPRESENTATIONS AND WARRANTIES OF BE. Be represents and warrants to StarCode and the Shareholders at and as of the date of this Agreement and as of the Closing Date as follows: 4.1 ORGANIZATION, POWERS AND AUTHORITY. Be is a corporation duly organized and validly existing under the laws of the State of California and has all requisite corporate power and authority to execute, deliver and perform this Agreement. The Board of Directors of Be has authorized the execution, delivery and performance of this Agreement by Be, and has authorized the transactions contemplated by the Agreement. Be has duly executed and delivered the Agreement. The Agreement is valid, binding and enforceable against Be in accordance with its terms, except as limited by (i) applicable bankruptcy, insolvency, reorganization, moratorium or other laws of general application affecting enforcement of creditors' rights; and (ii) general principles of equity or public policy that restrict the availability of equitable remedies. The execution and delivery of this Agreement by Be does not, and the consummation of the transactions contemplated hereby will not, (x) conflict with, or result in any violation or breach of any provision of the Articles of Incorporation or Bylaws of Be, (y) result in any violation or breach of, or constitute (with or without notice or lapse of time, or both) a default (or give rise to a right of termination, cancellation or acceleration of any obligation or loss of any material benefit) under any of the terms, conditions or provisions of any note, bond mortgage, indenture, lease, contract or other agreement, instrument or obligation to which Be is a party or by which any of its properties or assets may be bound or (z) conflict with or violate any permit, concession, franchise, license, judgment, order, decree, statute, law, ordinance, rule or regulation applicable to Be or any of its properties or assets, except in the case of (y) and (z) for any such conflicts, violations, defaults, terminations, cancellations or accelerations which would not be reasonably likely to have a material adverse effect on Be. No consent, approval, order or authorization of, or registration, declaration or filing with, any third party, including governmental entities, is required by or with respect to Be in connection with the execution and delivery of this Agreement or the consummation of the transactions contemplated hereby. There is no action, suit, proceeding, claim, arbitration or investigation pending, or to the best knowledge of Be, threatened, against Be which in any manner challenges or seeks to prevent, enjoin, alter or materially delay any of the transactions contemplated by this Agreement. 10. 4.2 BROKERS AND FINDERS. Be has not employed any broker or finder or incurred any liability for any brokerage fees, commissions or finder's fees in connection with the transactions contemplated by this Agreement. 4.3 ACCURACY OF REPRESENTATION AND WARRANTIES. The representations and warranties of Be contained in this Agreement, contain no untrue statement of a material fact and do not omit or misstate a material fact necessary in order to make the statements contained therein not misleading in the light of the circumstances in which they are made. 5. SURVIVAL AND INDEMNIFICATION. 5.1 SURVIVAL OF REPRESENTATIONS, ETC. (A) The representations and warranties made by StarCode, Shareholders and Be shall survive and shall expire on the first anniversary of the date of this Agreement; provided, however, that if, at any time prior to the first anniversary of the date of this Agreement, Be (acting in good faith) delivers to Shareholders and the Escrow Agent (as defined in EXHIBIT B) a written notice alleging the existence of an inaccuracy in or a breach of any of the representations, warranties or covenants made by StarCode or Shareholders, as applicable (and setting forth in reasonable detail the basis for Be's belief that such an inaccuracy or breach may exist) and asserting a claim for recovery under Section 5.2, based on such alleged inaccuracy or breach, then the claim asserted in such notice shall survive the first anniversary of the date of this Agreement until such time as such claim is fully and finally resolved. (B) The representations, warranties, covenants and obligations of StarCode and Shareholders, and the rights and remedies that may be exercised by Be, shall not be limited or otherwise affected by or as a result of any information furnished to, or any investigation made by or knowledge of, Be or any of their representatives. (C) For purposes of this Agreement, each statement or other item of information set forth in the Schedules shall be deemed to be a representation and warranty made by StarCode and Shareholders in this Agreement. 5.2 INDEMNIFICATION BY THE SHAREHOLDERS. Subject to the terms of this Section 5.2, in the event the purchase of the Shares occurs, each of the Shareholders jointly (in proportion to their portion of the aggregate purchase price for the StarCode stock as set forth on EXHIBIT A) shall indemnify and hold harmless Be from and against and shall reimburse Be with respect to any and all loss, damage, liability, cost and expense, including reasonable attorneys' fees, incurred by Be by reason of or arising out of or in connection with the breach of any covenant or the inaccuracy of any representation or warranty of StarCode or the Shareholders contained in Sections 2 and 3 of this Agreement, whether or not involving a third party. In the event of one or more breaches of any covenant or the inaccuracy of any representation or warranty of StarCode or the Shareholders, Be shall be entitled to obtain indemnity from the Escrow Funds for Be's damages resulting from such breach. Except for losses, damages, liabilities, costs and expenses, including reasonable attorneys' fees, incurred by Be by reason of or arising out of or in connection with fraud on the part of StarCode or the Shareholders, the total liability of the Shareholders under this Agreement shall be limited 11. to the Escrow Funds and Be agrees that it shall look solely to the Escrow Funds for the satisfaction of its claims against the Shareholders under this Agreement, and Be further agrees that no Shareholder shall be personally liable with respect to such claims beyond the interest of such Shareholder in the Escrow Funds. This Section 5 sets forth the sole and exclusive remedy of Be after the Closing with respect to any representation, warranty, covenant or agreement made by StarCode or the Shareholders under this Agreement. Notwithstanding anything to the contrary set forth in this Agreement, Shareholders shall not be liable for any payment in respect of indemnification pursuant to this Section 5 until such time as the total liability under this Section 5 in the aggregate reaches $10,000 but then the Shareholders shall be liable for any such liability in excess of $10,000, except that this indemnification cap shall not apply to breaches arising out of or in connection with fraud on the part of StarCode or the Shareholders. In the event Be becomes aware of a third-party claim which Be believes may result in a demand against the Escrow Funds, Be shall notify the Shareholders of such claim, and the Shareholders shall be entitled, at their expense, to participate in any defense of such claim. Be shall have the right in its sole discretion to settle any such claim; provided, however, that except with the consent of the Shareholders holding a majority of the Escrow Funds, which consent shall not be unreasonably withheld, no settlement of any such claim with third party claimants shall alone be determinative of the amount of any claim against the Escrow Funds. In the event that the Shareholders have consented to any such settlement and acknowledged that the claim is a valid claim against the Escrow Funds, the Shareholders shall have no power or authority to object to the amount of any claim by Be against the Escrow Funds with respect to such settlement. 5.3 RELIANCE. No disclosure by any party to this Agreement nor any investigation made by or in behalf of any party with respect to another party shall be deemed to affect the party's reliance on the respective representations and warranties contained in this Agreement and shall not effect a waiver of that party's rights to indemnity as herein provided or the breach of any said representations and warranties. 6. MISCELLANEOUS. 6.1 POST-CLOSING COVENANT. Be will use reasonable commercial efforts to remove the Shareholders as guarantors of obligations of StarCode on or before forty-five (45) days following the Closing and will indemnify such Shareholders against any loss, damage, liability, expense or cost that such Shareholder incurs as a result of such Shareholder being a guarantor of obligations of StarCode. All such Shareholders and the contracts under which they are acting as guarantors are listed on SCHEDULE 6.1 attached hereto. 6.2 FURTHER ASSURANCES. Each party will, upon request of the other, execute and deliver all instruments and documents of further assurance or otherwise, and perform all acts and things, which may be required to carry out its obligations hereunder and to consummate and complete the transactions contemplated by this Agreement. 6.3 NOTICES. Any notice, request, instruction or other document to be given hereunder by any party hereto shall be in writing and shall be delivered personally or sent by courier or 12. express delivery service, by facsimile or by registered or certified mail, postage prepaid, return receipt requested; if to StarCode addressed to the President at the address set forth on page one of this Agreement, with a copy to Thomas Furlong, at Gray Cary Ware & Freidenrich, 400 Hamilton Avenue, Palo Alto, California 94301; if to Be addressed to the President, at the address set forth on page one of this Agreement, with a copy to Andrei M. Manoliu, at Cooley Godward LLP, Five Palo Alto Square, 3000 El Camino Real, Palo Alto, California 94306; if to a Shareholder addressed to the address of the Shareholder listed opposite the Shareholder's name on EXHIBIT A, or such other addresses as any party may designate by written notice to the other parties. Any party may change the name and address for receipt of its notices hereunder with notice to the other parties. 6.4 GOVERNING LAW. This Agreement shall be governed and construed in accordance with the laws of the State of California as such laws are applied to agreements entered into and to be performed entirely within California between California residents. 6.5 EXPENSES. If the stock purchase is not closed, each party shall pay its respective expenses in connection with this transaction. Nothing in this Section 6.5 is intended to affect any rights to indemnity under Section 5. 6.6 PARTIES-IN-INTEREST. This Agreement shall be binding upon and inure to the benefit of the parties hereto, their respective heirs, administrators, executors, successors and assigns; provided, however, that this Agreement may not be assigned by any of the parties hereto. 6.7 ENTIRE AGREEMENT. This Agreement (including its Schedules and Exhibits) and the confidentiality provisions of the Letter of Intent between the parties dated April 7, 1998 constitute and contain the entire Agreement of the parties and supersede any and all prior negotiations, correspondence, understandings and agreements between the parties respecting its subject matter. 6.8 WAIVER. Any of the terms and conditions of this Agreement, and any inaccuracies in any of the representations or warranties contained herein, may be waived at any time and from time to time, in writing, by such parties as are entitled to the benefit of such terms, conditions, warranties or representations. Such waiver shall not constitute or be deemed a waiver of any other terms, conditions or inaccuracies. 6.9 ATTORNEYS' FEES. If suit or action is filed by any party to enforce this Agreement or otherwise with respect to the subject matter of this Agreement, the prevailing party shall be entitled to recover from the nonprevailing party all costs of such suit, including reasonable attorneys' fees incurred in preparation for and prosecution of such suit or action as fixed by the trial court, and if any appeal is taken from the decision of the trial court, reasonable attorneys' fees as fixed by the appellate court. 6.10 SEVERABILITY. In the event that any one or more of the provisions contained in this Agreement shall be invalid, illegal, or unenforceable in any respect for any reason, the validity, legality and enforceability of any such provision in every other respect and of the remaining provisions of this Agreement shall not be in any way impaired. 13. 6.11 SCHEDULES. The Schedules referred to in this Agreement shall be the Schedules described as such, and attached to this Agreement upon the execution and delivery. 6.12 HEADINGS. The headings of the sections and subsections contained in this Agreement are for reference purposes only and shall not affect the meaning or interpretation of this Agreement. 6.13 COUNTERPARTS. This Agreement may be executed in several counterparts and all of such counterparts shall constitute one and the same instrument with the same force and effect as if all the parties had executed the same document. 14. IN WITNESS WHEREOF, the parties have executed this STOCK PURCHASE AGREEMENT as of the date first written above. BE INCORPORATED STARCODE SHAREHOLDERS /s/ Jean-Louis Gassee /s/ Robert Biorn - -------------------------- ----------------------------- Authorized Signature Authorized Signature Jean-Louis Gassee Robert A. Biorn, Trustee for Andrew R. Wollenberg - -------------------------- ------------------------------------------------- Printed Name Printed Name President & CEO /s/ Robert Biorn - -------------------------- ----------------------------- Title Authorized Signature CONFIRMED: Robert A. Biorn, Trustee for Blake E. Wollenberg ------------------------------------------------ STARCODE SOFTWARE, INC. Printed Name /s/ Carlin Wiegner /s/ Carey Heckman - -------------------------- ----------------------------- Authorized Signature Authorized Signature Carlin Wiegner Carey Heckman - -------------------------- ----------------------------- Printed Name Printed Name President & CEO /s/ Michael Klingbeil - -------------------------- ----------------------------- Title Authorized Signature Michael Klingbeil ----------------------------- Printed Name /s/ Kevin McBride ----------------------------- Authorized Signature Kevin McBride ----------------------------- Printed Name /s/ Mary McDermott ----------------------------- Authorized Signature Mary McDermott ----------------------------- Printed Name 15. /s/ Carlin Wiegner ------------------------------ Authorized Signature Carlin Wiegner ------------------------------ Printed Name /s/ Edward Wiegner ------------------------------ Authorized Signature Edward Wiegner ------------------------------ Printed Name /s/ David Wollenberg ------------------------------ Authorized Signature David Wollenberg ------------------------------ Printed Name 16. EXHIBIT A STARCODE SHAREHOLDERS EXHIBIT B FORM OF ESCROW AGREEMENT EXHIBIT C FORM OF NONCOMPETITION AGREEMENT EXHIBIT D FORM OF EMPLOYMENT AGREEMENT EXHIBIT E FORM OF EMPLOYEE PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT EXHIBIT F FORM OF GENERAL RELEASE EXHIBIT G STARCODE FINANCIAL STATEMENTS SCHEDULES EX-21.1 23 LIST OF SUBSIDIARIES Exhibit 21.1 Be Incorporated Subsidiaries: (1) Be Europe, SARL (2) Starcode Software, Inc. EX-23.1 24 CONSENT OF PRICEWATERHOUSECOOPERS LLP EXHIBIT 23.1 Consent of PricewaterhouseCoopers LLP Independent Accountants We hereby consent to the use in this Registration Statement on Form S-1 of our report dated April 2, 1999 relating to the financial statements which includes an explanatory paragraph regarding the ability to continue as a going concern, and our report dated April 2, 1999 on the financial statement schedule of Be Incorporated and its subsidiaries and of our report dated April 9, 1999 relating to the financial statements of StarCode Software, Inc., which appear in such Registration Statement. We also consent to the references to us under the headings, "Experts" and "Selected Financial Data" in such Registration Statement. /s/ PricewaterhouseCoopers LLP San Jose, California May 5, 1999 1 EX-27.1 25 FINANCIAL DATA SCHEDULE
5 This schedule contains summary financial information extracted from the Company's Financial Statements for the twelve month period ending December 31, 1998 included in the Company's Registration Statement on Form S-1 filed May 5, 1999 and is qualified in its entirety by reference to such statements. 1,000 12-MOS DEC-31-1998 DEC-31-1998 3,394 8,254 477 0 0 12,452 943 (540) 13,634 2,750 0 38,005 0 5 (27,905) 13,634 1,199 1,199 2,161 2,161 15,740 0 (159) (16,861) 0 (16,861) 0 0 0 (16,861) (5.80) (5.80)
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