<PAGE>
As filed with the Securities and Exchange Commission on December 13, 1999
Registration No. 333-
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
FORM S-1
REGISTRATION STATEMENT
Under The Securities Act of 1933
--------------
PALM, INC.
(Exact name of Registrant as specified in its charter)
--------------
<TABLE>
<S> <C> <C>
Delaware 3571 94-3150688
(State or other jurisdiction of (Primary Standard Industrial (I.R.S. Employer
incorporation or organization) Classification Code Number) Identification Number)
</TABLE>
5400 Bayfront Plaza
Santa Clara, CA 95052-8145
(408) 326-5000
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
--------------
Carl J. Yankowski
Palm, Inc.
5400 Bayfront Plaza
Santa Clara, CA 95052-8145
(408) 326-5000
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
--------------
Copies to:
<TABLE>
<S> <C> <C>
Larry W. Sonsini, Esq. Stephen Yu, Esq. John L. Savva, Esq.
Aaron J. Alter, Esq. Palm, Inc. Steven B. Stokdyk, Esq.
Katharine A. Martin, Esq. 5400 Bayfront Plaza Sullivan & Cromwell
Wilson Sonsini Goodrich & Rosati Santa Clara, CA 95052-8145 1888 Century Park East
Professional Corporation (408) 326-5000 Suite 2100
650 Page Mill Road Los Angeles, CA 90067-1725
Palo Alto, CA 94304 (310) 712-6600
(650) 493-9300
</TABLE>
--------------
Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, 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,
check the following box. [_]
--------------
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
Amount of
Title of Each Class of Proposed Maximum Registration
Securities to be Registered Aggregate Offering Price(1) Fee
- ------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, par value $0.001 per
share.............................. $100,000,000.00 $26,400.00
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(1) Estimated solely for the purpose of computing the amount of the
registration fee pursuant to Rule 457(o) promulgated under the Securities
Act of 1933, as amended.
--------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effectiveness until the Registrant shall
file a further amendment which specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell securities and we are not soliciting offers to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
Subject to Completion. Dated December 13, 1999.
Shares
Palm, Inc.
[PALM, INC. LOGO APPEARS HERE]
Common Stock
-----------
This is an initial public offering of shares of common stock of Palm, Inc.
All of the shares of common stock are being sold by Palm.
Prior to this offering, there has been no public market for the common stock.
Palm has applied to have the common stock quoted on the Nasdaq National Market
under the symbol "PALM".
See "Risk Factors" on page 7 to read about factors you should consider before
buying shares of the common stock.
-----------
Neither the Securities and Exchange Commission nor any other regulatory body
has approved or disapproved of these securities or passed upon the accuracy or
adequacy of this prospectus. Any representation to the contrary is a criminal
offense.
-----------
<TABLE>
<CAPTION>
Per Share Total
--------- -----
<S> <C> <C>
Initial public offering price..................................
Underwriting discount..........................................
Proceeds, before expenses, to Palm.............................
</TABLE>
To the extent that the underwriters sell more than shares of
the common stock, the underwriters have the option to purchase up to an
additional shares from Palm at the initial public offering price
less the underwriting discount.
-----------
The underwriters expect to deliver the shares against payment in New York,
New York on , 2000.
Goldman, Sachs & Co. Morgan Stanley Dean Witter
Merrill Lynch & Co.
Robertson Stephens
-----------
Prospectus dated , 2000.
<PAGE>
[description of artwork to be filed by amendment]
<PAGE>
PROSPECTUS SUMMARY
You should read the following summary together with the more detailed
information regarding our company and the common stock being sold in this
offering and our historical consolidated financial statements and notes to
those statements included elsewhere in this prospectus.
PALM
We are the leading global provider of handheld computing devices. We develop,
design and market our Palm-branded handheld devices, which currently include
our Palm III, Palm V and Internet-enabled Palm VII product families. According
to International Data Corporation, in 1998 we had a 68% market share of the
worldwide personal companion handheld device market, which International Data
Corporation defines as small, pocket-sized devices that feature pen-based input
and synchronize with a personal computer. We believe our emphasis on
simplicity, elegance and ease of use and our focus on consumer needs have
contributed to our success to date. Our devices have also won numerous awards,
including Business Week's "Design of the Decade--Gold Award" and PC Computing's
Most Valuable Product award for "Best Pocket PC" in 1999. We intend to build on
our global market leadership in handheld computing devices through continued
innovation and focus on addressing customer needs.
The Palm operating system and related software, which we refer to as our Palm
platform, have been the cornerstone of our success in the handheld device
market. The Palm platform combines the distinctive look, feel and ease of use
of our Palm OS operating system with HotSync synchronization technology, pen-
based input technology and personal information management applications such as
datebook and address book. Our Palm VII product also includes web-clipping
software that allows Internet content providers and users to send and receive
information via the Internet in a format optimized for handheld devices. In
addition to including the Palm platform in our Palm-branded devices, we license
the Palm platform to manufacturers of information appliances, which we define
as handheld devices that enable users to access and manage information. Most
recently, Nokia and Sony agreed to license the Palm platform for use in their
future products. We intend to establish our Palm platform as the leading
operating system in the rapidly converging markets of handheld computing
devices, information appliances, mobile phones and handheld entertainment
devices.
We have also established a wireless Internet access service, Palm.net, which
supports the Palm VII device and generates revenue from monthly subscription
fees. Palm.net subscribers can obtain wireless access to information such as
real-time stock quotes, news headlines and airline flight schedules. In
addition, our Palm.net service enables mobile users to access an increasing
array of enterprise data and applications. We have also developed our Palm.com
website, which is emerging as an important destination site for our customers,
users and developer community. As part of our Internet strategy, we are
expanding our Internet destination sites to provide new web-clipping
applications and facilitate e-commerce.
We believe that the continued adoption of handheld devices as well as our
strategic focus on Palm platform licensing and Internet services present us
with significant growth opportunities. We will continue our efforts to identify
and respond to customer needs as handheld computing devices become more
sophisticated, reach a broader customer base and become an increasingly
important means of Internet access on a global basis.
As of December 1, 1999, we had sold over 5 million Palm devices worldwide. As
of December 1, 1999, more than 29,000 third-party developers had registered to
create applications based on the Palm platform. Our revenues have increased
from approximately $1 million in fiscal 1995 to $564 million in fiscal 1999. We
outsource the manufacturing of all of our devices to Manufacturers' Services
Limited and Flextronics.
3
<PAGE>
OUR RELATIONSHIP WITH 3COM
We are currently a wholly-owned subsidiary of 3Com Corporation. After the
completion of this offering, 3Com will own approximately % of the
outstanding shares of our common stock, or approximately % if the
underwriters fully exercise their option to purchase additional shares. 3Com
currently plans to complete its divestiture of Palm approximately six months
following this offering by distributing all of the shares of Palm common stock
owned by 3Com to the holders of 3Com's common stock. However, 3Com is not
obligated to complete the distribution, and the distribution may not occur by
the anticipated time or at all.
3Com will, in its sole discretion, determine the timing, structure and all
terms of its distribution of our common stock that it owns. 3Com's distribution
is subject to receiving a private letter ruling from the Internal Revenue
Service that the distribution of its shares of Palm common stock to 3Com
stockholders will be tax-free to the stockholders and that our separation from
3Com qualifies as a reorganization for United States federal income tax
purposes.
Prior to the completion of this offering, we will enter into agreements with
3Com related to the separation of our business operations from 3Com. These
agreements provide for, among other things:
. the transfer from 3Com to us of assets and the assumption by us of
liabilities relating to our business;
. the allocation of intellectual property between us and 3Com; and
. various interim and ongoing relationships between us and 3Com.
The agreements regarding the separation of our business operations from 3Com
are described more fully in the section entitled "Arrangements Between Palm and
3Com" included elsewhere in this prospectus. The terms of these agreements,
which are being negotiated in the context of a parent-subsidiary relationship,
may be more or less favorable to us than if they had been negotiated with
unaffiliated third parties. See "Risk Factors--Risks Related To Our Separation
From 3Com." The assets and liabilities to be transferred to us are described
more fully in our consolidated financial statements and notes to those
statements that are also included elsewhere in this prospectus.
CONCURRENT PRIVATE PLACEMENTS
America Online, Inc., Motorola, Inc. and Nokia have agreed to purchase from
us, in private placements that will occur concurrently with the closing of this
offering, an aggregate number of shares of our common stock equal to up to 4.5%
of our capital stock, which percentage is based on outstanding common stock as
well as options to purchase shares which have been granted as of ,
2000, but not exceeding an aggregate investment of more than $225 million.
These investors will pay a per share purchase price for this common stock
equal to the initial public offering price in this offering.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered....................... shares
Common stock to be outstanding immediately
after this offering....................... shares
Common stock to be held by 3Com immediately
after this offering....................... shares
Use of proceeds............................ For payment of a dividend to 3Com, payment
of other amounts due to 3Com, capital
expenditures, marketing expenses, working
capital and potential investments in, or
acquisitions of, other businesses or
technologies.
Proposed Nasdaq Stock Market symbol........ PALM
</TABLE>
This information is based on shares outstanding as of , 1999, all
of which are owned by 3Com. We will declare a -for-one stock split to
increase the amount of outstanding shares of our common stock to
shares prior to this offering. Unless we specifically state otherwise, the
information in this prospectus does not take into account the issuance of up to
shares of common stock that the underwriters have the option to purchase.
If the underwriters exercise in full their option to purchase additional
shares, shares of common stock will be outstanding after this offering.
The number of shares of our common stock to be outstanding immediately after
this offering listed above does not take into account approximately
shares of our common stock reserved for issuance under our stock plans, of
which options to purchase shares have been granted as of
, 2000 but does include an aggregate of shares to be issued to
America Online, Motorola and Nokia concurrently with the closing of this
offering. In addition, we will assume substantially all of the 3Com options
held by our employees on the date 3Com distributes our common stock, which
options will convert into options to purchase our common stock.
We were incorporated in California in January 1992 as Palm Computing, Inc. In
connection with this offering and our separation from 3Com, we intend to
reincorporate in Delaware and change our name to Palm, Inc. We were acquired by
3Com in June 1997 as part of 3Com's acquisition of U.S. Robotics Corporation.
We had been acquired by U.S. Robotics in September 1995. From June 1997 to the
time of this offering, we have been operated as a wholly-owned subsidiary of
3Com. Our principal executive offices are located at 5400 Bayfront Plaza, Santa
Clara, California 95052-8145, and our telephone number is (408) 326-5000. Our
websites are http://www.palm.com and http://www.palm.net. The information on
these websites is not a part of this prospectus.
In this prospectus, "Palm," "we," "us" and "our" each refers to Palm, Inc.
and its subsidiaries, and not to the underwriters or 3Com. "3Com" refers to
3Com Corporation and its subsidiaries.
Palm, our logo and other trademarks of Palm mentioned in this prospectus are
the property of Palm. All other trademarks or trade names referred to in this
prospectus are the property of their respective owners.
5
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following tables present our summary consolidated financial data. The
data presented in these tables are from "Selected Consolidated Financial Data"
and our historical consolidated financial statements and notes to those
statements included elsewhere in this prospectus. You should read those
sections for a further explanation of the financial data summarized here.
The historical financial information may not be indicative of our future
performance and does not reflect what our financial position and results of
operations would have been had we operated as a separate, stand-alone entity
during the periods presented.
<TABLE>
<CAPTION>
Three Months
Years Ended Ended
---------------------------------------------- -----------------
June 30, May 26, May 25, May 31, May 28, Aug. 28, Aug. 27,
1995(1) 1996(2) 1997 1998 1999 1998 1999
-------- ------- -------- -------- -------- -------- --------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenues................ $ 1,403 $ 7,054 $114,157 $272,137 $563,525 $116,069 $176,505
Gross profit............ 1,229 2,575 36,472 114,388 247,909 53,071 78,181
Operating income
(loss)................. (2,231) (6,777) (13,513) 6,461 48,339 13,131 15,866
Net income (loss)....... (2,166) (3,062) (7,862) 4,171 29,628 8,070 9,658
Unaudited pro forma net
income per share:......
Basic................. $ $
Diluted............... $ $
Shares used in computing
unaudited pro forma net
income per share:
Basic.................
Diluted...............
Supplemental unaudited
pro forma net income
per share:
Basic................. $ $
Diluted............... $ $
Shares used in computing
supplemental unaudited
pro forma net income
per share:
Basic.................
Diluted...............
</TABLE>
<TABLE>
<CAPTION>
August 27, 1999
-----------------------
Pro Forma
Actual As Adjusted(3)
-------- --------------
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents............................... $ 37,138 $
Working capital......................................... 91,074
Total assets............................................ 201,346
Stockholder's net investment............................ 113,295
</TABLE>
- -------
Notes:
(1) Our fiscal year end was June 30 prior to our acquisition by 3Com.
(2) Fiscal 1996 includes only eleven months of operating results.
(3) Pro forma as adjusted amounts give effect to the following actions as
though these actions had been taken as of August 27, 1999:
. our sale of shares of common stock in this offering at an assumed
initial public offering price of $ per share and after deducting an
assumed underwriting discount and estimated offering expenses payable by
us;
. our sale of shares of common stock to America Online, Motorola and
Nokia concurrently with the closing of this offering at an assumed
offering price of $ per share;
. retention of most of our accounts receivable and accounts payable by 3Com
at the time of our separation;
. payment of a dividend to 3Com equal to its tax basis in us, which was
approximately $ million at , 2000; and
. repayment of an intercompany payable to 3Com, which was approximately $49
million at August 27, 1999.
6
<PAGE>
RISK FACTORS
You should carefully consider the risks described below and the other
information in this prospectus before investing in our common stock. Our
business could be seriously harmed by any of these risks. The trading price of
our common stock could decline due to any of these risks, and you may lose all
or part of your investment.
Risks Related to Our Business
If we fail to develop and introduce new products and services rapidly and
successfully, we will not be able to compete effectively and our business will
suffer.
We operate in a highly competitive, quickly changing environment, and our
future success depends on our ability to develop and introduce new products and
services that our customers and end users choose to buy. If we are unsuccessful
at developing and introducing new products and services that are appealing to
end users, our business and operating results would be seriously harmed.
The development of new products and services can be very difficult and
requires high levels of innovation. The development process is also lengthy and
costly. If we fail to anticipate our end users' needs and technological trends
accurately or are otherwise unable to complete the development of products and
services quickly, we will be unable to introduce new products and services into
the market on a timely basis, if at all. For example, our most recently
introduced handheld device product, the Palm VII device, took more than two
years to develop. In addition, because the Palm VII device requires Internet
services and applications to support it, we must also continue to develop new
services to maintain and broaden its user appeal.
Because the sales and marketing life cycle of our handheld devices is
generally 12 to 18 months or less, we must:
. continue to develop updates to our Palm platform, new handheld devices
and new Internet services, or our existing products and services will
quickly become obsolete;
. manage the timing of new product introductions so that we minimize the
impact of customers delaying purchases of existing products in
anticipation of new product releases;
. manage the levels of existing and older product and component
inventories to minimize inventory write-offs; and
. adjust the prices of our existing products in order to increase customer
demand for these products.
If we do not correctly anticipate demand for our products, our operating
results will suffer.
Historically, we have seen steady increases in demand for our products and
have generally been able to increase production to meet that demand. However,
the demand for our products depends on many factors and will be difficult to
forecast. We expect that it will become more difficult to forecast demand as we
introduce and support multiple handheld device products and as competition in
the market for our products intensifies. Significant unanticipated fluctuations
in demand could cause the following problems in our operations:
. If demand increases beyond what we forecast, we would have to rapidly
increase production at our third-party manufacturers. We would depend on
suppliers to provide additional volumes of components and those
suppliers might not be able to increase production rapidly enough to
meet unexpected demand. Even if we are able to procure enough
components, our third-party manufacturers might not be able to produce
enough of our devices as fast as we need them. The inability of either
our manufacturers or our suppliers to increase production rapidly enough
could cause us to fail to meet customer demand.
7
<PAGE>
. Rapid increases in production levels to meet unanticipated demand could
result in higher costs for manufacturing and supply of components and
other expenses. These higher costs could lower our profit margins.
Further, if production is increased rapidly, manufacturing yields could
decline, which may also lower our margins.
. If forecasted demand does not develop, we could have excess production
resulting in higher inventories of finished products and components,
which would use cash and could lead to write-offs of some or all of the
excess inventories. Lower than forecasted demand could also result in
excess manufacturing capacity at our third-party manufacturers and
failure to meet some minimum purchase commitments, each of which could
result in lower margins.
Our quarterly operating results are subject to fluctuations and seasonality,
and if we fail to meet the expectations of securities analysts or investors,
our share price may decrease significantly.
Our operating results are difficult to predict. Our future quarterly
operating results may fluctuate significantly and may not meet the expectations
of securities analysts or investors. If this occurs, the price of our stock
would likely decline. Factors that may cause fluctuations in our operating
results include the following:
. Seasonality. Historically, our revenues have usually been weaker in the
first and third quarters of each fiscal year and have, from time to
time, been lower than the preceding quarter. This weakness is due to the
fact that our devices are highly consumer-oriented, and consumer buying
is traditionally lower in these quarters. As our licensing revenues
grow, we expect that they will contribute to the fluctuations in our
quarterly results because the products offered by our licensees are also
primarily consumer-oriented. In addition, we attempt to time our new
product releases to coincide with relatively higher consumer spending in
the second and fourth fiscal quarters, which contributes to these
seasonal variations.
. Increases in Operating Expenses. As we expand our operations, we expect
that our operating expenses, particularly our sales, marketing and
research and development costs, will continue to increase. We also
expect to make significant expenditures, including using a portion of
the proceeds from this offering, to expand our Internet services through
increased marketing activities and investments in network expansion
related to our subscription-based Internet access service. These
Internet services expenditures as well as a significant portion of our
sales, marketing and research and development costs are fixed, at least
in the short term. If revenues decrease and we are unable to reduce
those costs rapidly, our operating results would be negatively affected.
In addition, we will add new fixed costs to build an independent
business and administration infrastructure after we separate from 3Com.
Over the next several quarters we expect expenses to grow more rapidly
than revenues, which will hurt our quarterly operating results.
. Product Mix. Our profit margins differ among the handheld device, Palm
platform licensing and Internet services parts of our business. In
addition, the product mix of our device sales affects profit margins in
any particular quarter. As our business evolves and the mix of revenues
from devices, licenses and services varies from quarter to quarter, our
operating results will likely fluctuate.
. New Product Introductions. As we introduce new products and services,
the timing of these introductions will affect our quarterly operating
results. We may have difficulty predicting the timing of new product and
service introductions and the user acceptance of these new products and
services. If products and services are introduced earlier or later than
anticipated, or if user acceptance is unexpectedly high or low, our
quarterly operating results may fluctuate unexpectedly. In addition, we
typically increase sales and marketing expenses to support new product
introductions.
8
<PAGE>
. Use of Purchase Orders with Customers. We rely on one-time purchase
orders rather than long-term contracts with our distributor customers.
Because we cannot predict with certainty incoming purchase orders,
decreases in orders or failure to fulfill orders may cause our operating
results to fluctuate.
We rely on third-party manufacturers to produce our handheld devices, and our
operations could be adversely affected by our inability to control their
operations.
We outsource all of our manufacturing to Manufacturers' Services Limited and
Flextronics. We depend on these third-party manufacturers to produce sufficient
volume of our products in a timely fashion and at satisfactory quality levels.
If our third-party manufacturers fail to produce quality products on time and
in sufficient quantities, our reputation and results of operations would
suffer. We depend on Flextronics to manufacture some of our device products at
its facilities in Mexico, California and Malaysia, and the rest of our device
products are manufactured by Manufacturers' Services Limited at its Utah
facility. The cost, quality and availability of third-party manufacturing
operations are essential to the successful production and sale of our handheld
devices. Our reliance on third parties exposes us to the following risks
outside our control:
. unexpected increases in manufacturing costs;
. interruptions in shipments if one of our manufacturers is unable to
complete production;
. inability to control quality of finished device products;
. inability to control delivery schedules;
. unpredictability of manufacturing yield;
. potential lack of adequate capacity; and
. potential inability to secure adequate volumes of components.
We have only limited experience working with Manufacturers' Services Limited,
which recently purchased 3Com's Utah facility. If we are unable to manage our
relationship with Manufacturers' Services Limited successfully, our ability to
manufacture our products would be harmed and our results of operations would
suffer.
We do not have a manufacturing agreement with Flextronics, upon whom we rely
to manufacture a significant number of our device products. We presently order
our products on a purchase order basis from Flextronics. The absence of a
manufacturing agreement means that, with little or no notice, Flextronics could
refuse to continue to manufacture all or some of the units of our devices that
we require or change the terms under which it manufactures our device products.
If Flextronics were to stop manufacturing our devices, we may be unable to
replace the lost manufacturing capacity on a timely basis and our results of
operations could be harmed. In addition, if Flextronics were to change the
terms under which they manufacture for us, our manufacturing costs could
increase and our profitability could suffer.
We depend on our suppliers, many of which are the sole source for our
components, and our production would be seriously harmed if these suppliers are
not able to meet our demand and alternative sources are not available.
Our products contain components, including liquid crystal displays, touch
panels, memory chips and microprocessors, that are procured from a variety of
suppliers. The cost, quality and availability of components are essential to
the successful production and sale of our device products. In particular, some
components, such as displays, power supply integrated circuits, digital signal
processors, Motorola microprocessors and several radio frequency and discrete
components, come from sole or single source suppliers. Alternative sources are
not currently available for these single source components. If suppliers are
unable to meet our demand for sole source components and if we are unable to
obtain an alternative source or if the price for an alternative source is
prohibitive, our ability to maintain timely and cost-effective production of
our handheld computing device products
9
<PAGE>
would be seriously harmed. In addition, because we rely on one-time purchase
orders with our suppliers, we cannot predict with certainty our ability to
procure components in the longer term. For example, we recently had to modify
the design of our Palm VII device as a result of our inability to obtain
adequate supplies of the radio crystals that our original design required
because of limited supply and unexpectedly high demand from cellular telephone
manufacturers. We are also aware of a current shortage in the availability of
memory chips, and we have modified the design of our Palm VII device because of
this shortage. If either the shortage in radio crystals or memory chips or any
other key component persists or worsens, we will likely not be able to deliver
sufficient quantities of our products to satisfy demand.
We do not know if the Palm platform licensing and Internet services parts of
our business will be able to generate significant revenue in the future, and we
will continue to rely on our handheld device products as the primary source of
our revenue for the foreseeable future.
Our future growth and a significant portion of our future revenue depend on
the commercial success of our Palm handheld devices, which comprise the primary
product line that we currently offer. Palm handheld devices accounted for
approximately 99% of our revenues in the three months ended August 27, 1999. We
expanded our Palm platform licensing and Internet services parts of our
business only recently, and these parts of our business have not yet generated
a material portion of our revenues. If revenues from our device business do not
grow, our other business activities will not be able to compensate for this
shortfall.
A significant portion of our revenues currently comes from a small number of
distributors, and any decrease in revenues from these distributors could harm
our business.
A significant portion of our revenues comes from only a small number of
distributors. Ingram Micro represented approximately 35% of our revenues in the
three months ended August 27, 1999 and 24% of our revenues in fiscal 1999. Tech
Data represented approximately 4% of our revenues in the three months ended
August 27, 1999 and 14% of our revenues in fiscal 1999. We expect that the
majority of our revenues will continue to depend on sales of our handheld
devices to a small number of distributors. Any downturn in the business of
these customers could seriously harm our revenues and results of operations.
We rely on distributors, retailers and resellers to sell our products, and
disruptions to these channels would harm our business.
Because we sell a significant portion of our products to distributors,
retailers and resellers, we are subject to many risks, including risks related
to their inventory levels and support for our products. In particular, our
distributors, retailers and resellers maintain significant levels of our
products in their inventories. If distributors, retailers and resellers attempt
to reduce their levels of inventory or if they do not maintain sufficient
levels to meet customer demand, our sales could be negatively impacted. If we
reduce the prices of our products to these customers, we may have to compensate
them for the difference between the higher price they paid to buy their
inventory and the new lower prices. In addition, like other manufacturers, we
are exposed to the risk of product returns from distributors, either through
their exercise of contractual return rights or as a result of our strategic
interest in assisting distributors in balancing inventories.
Our distributors, retailers and resellers also sell products offered by our
competitors. If our competitors offer our distributors, retailers and resellers
more favorable terms, those distributors, retailers and resellers may de-
emphasize or decline to carry our products. In the future, we may not be able
to retain or attract a sufficient number of qualified distributors, retailers
and resellers. Further, distributors, retailers and resellers may not
recommend, or continue to recommend, our products. If we are unable to maintain
successful relationships with distributors, retailers and resellers or to
expand our distribution channels, our business will suffer.
10
<PAGE>
We believe our distributors, retailers and resellers are experiencing
heightened competition from Internet-based suppliers that distribute directly
to end-user customers. We also sell our products directly to end-user customers
from our Palm.com website. These actions could cause conflict among our
channels of distribution, which could seriously harm our revenues and results
of operations.
If we are unable to compete effectively with existing or new competitors, our
resulting loss of competitive position could result in price reductions, fewer
customer orders, reduced margins and loss of market share.
We compete in the handheld device, operating system software and Internet
services markets. The markets for these products and services are highly
competitive and we expect competition to increase in the future. Some of our
competitors or potential competitors have significantly greater financial,
technical and marketing resources than we do. These competitors may be able to
respond more rapidly than us to new or emerging technologies or changes in
customer requirements. They may also devote greater resources to the
development, promotion and sale of their products than we do.
. Our handheld computing device products compete with a variety of smart
handheld devices, including keyboard-based devices, sub-notebook
computers, smart phones and two-way pagers. Our principal competitors
include Casio, Compaq, Hewlett-Packard, Psion, Sharp and Palm platform
licensees such as TRG and Handspring, which was formed by two of our
original founders.
. Our Palm platform competes primarily with operating systems such as
Microsoft's Windows CE for palm-sized personal computers and Symbian's
EPOC for wireless devices.
. Our Internet services compete with a variety of alternative technologies
and services, such as those based on different industry standards for
wireless Internet access, information appliances that provide Internet
connectivity and other traditional and developing methods.
We expect our competitors to continue to improve the performance of their
current products and services and to introduce new products, services and
technologies. Successful new product introductions or enhancements by our
competitors could reduce the sales and market acceptance of our products and
services, cause intense price competition or make our products obsolete. To be
competitive, we must continue to invest significant resources in research and
development, sales and marketing and customer support. We cannot be sure that
we will have sufficient resources to make these investments or that we will be
able to make the technological advances necessary to be competitive. Increased
competition could result in price reductions, fewer customer orders, reduced
margins and loss of market share. Our failure to compete successfully against
current or future competitors could seriously harm our business, financial
condition and results of operations.
If we fail to effectively respond to competition from products introduced by
licensees of our Palm platform or if our licensees fail to sell products based
on the Palm platform, our results of operations may suffer as the revenues we
receive from license fees may not compensate for the loss of revenues from our
device products.
The success of our business depends on both the sale of handheld device
products and the licensing of our Palm platform. However, licensees of our Palm
platform offer products that compete directly or indirectly with our handheld
computing devices. For example, licensees such as Nokia, Sony or QUALCOMM may
use our Palm platform in devices such as mobile phones or other similar
products that can compete indirectly with our handheld devices. In addition,
while we expect to receive licensing revenue from Handspring and TRG, our
device products compete directly for users and distributors with their devices.
If revenues from our handheld devices suffer because of competition from
licensees of our Palm platform, our results of operations would suffer and our
ability to implement our business model would be seriously challenged. In
addition, our licensees may not be successful in selling products based on the
Palm platform, which could harm our business and results of operations.
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Our Palm platform and handheld devices may contain errors or defects, which
could result in the rejection of our products and damage to our reputation, as
well as lost revenues, diverted development resources and increased service
costs and warranty claims.
Our Palm platform and our devices are complex and must meet stringent user
requirements. We must develop our software and hardware products quickly to
keep pace with the rapidly changing handheld device market. Products and
services as sophisticated as ours are likely to contain undetected errors or
defects, especially when first introduced or when new models or versions are
released. We have in the past experienced delays in releasing some models and
versions of our products until problems were corrected. Our products may not be
free from errors or defects after commercial shipments have begun, which could
result in the rejection of our products, damage to our reputation, lost
revenues, diverted development resources and increased customer service and
support costs and warranty claims. Any of these results could harm our
business.
If we fail to manage expansion effectively, our business, financial condition
and prospects could be seriously harmed.
Our ability to successfully offer our products and implement our business
plan in a rapidly evolving market requires an effective planning and management
process. We continue to increase the scope of our operations domestically and
internationally and have grown our shipments and headcount substantially. Our
handheld device shipments grew from approximately 461,000 units in fiscal 1997
to approximately 2 million units in fiscal 1999. At November 30, 1997, we had a
total of approximately 220 employees and at November 26, 1999, we had a total
of approximately 630 employees. In addition, we plan to continue to hire a
significant number of employees this year. This growth has placed, and our
anticipated growth in future operations will continue to place, a significant
strain on our management systems and resources.
We expect that we will need to continue to improve our financial and
managerial controls, reporting systems and procedures. For example, we intend
to implement an enterprise-wide supply chain management system that we
anticipate will cost up to $7 million to implement. If we experience delays or
cost overruns in implementing this system or if this system is not as effective
as we anticipate, we could experience significant difficulties in managing our
supply chain. While we are currently implementing stand-alone versions of most
of the transaction processing systems historically used by 3Com, we may decide
to purchase new systems in the future that more closely match our business
needs and incur significant additional expenses in connection with those
systems. In addition, we will need to continue to expand, train and manage our
work force worldwide. Furthermore, we expect that we will be required to manage
multiple relationships with various customers and other third parties. In
particular, after our separation from 3Com, we will have to implement a new
administrative and managerial infrastructure. Our future success depends on the
implementation of this infrastructure after our separation.
The market for the delivery of Internet services through handheld devices is
new and rapidly evolving, and our business could suffer if this market does not
develop or we fail to address this market effectively.
The market for the delivery of Internet services through handheld devices is
new and rapidly evolving. In addition, our Internet services strategy has been
developed only recently, and we must continue to adapt it to compete in the
rapidly evolving Internet services market. We only recently introduced our
Palm.net service, a subscription-based wireless access service that enables
Palm VII users to access web-clipped content on the Internet. Other competitors
have introduced or developed, or are in the process of introducing or
developing, products that facilitate the delivery of Internet services through
handheld devices. We cannot assure you that individuals currently using
competing products to access the Internet remotely, such as portable personal
computers and wireless telephones, will widely adopt handheld devices as a
means of accessing Internet services. Accordingly, it is extremely difficult to
predict which products will be successful in this market or the
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future size and growth of this market. In addition, given the limited history
and rapidly evolving nature of this market, we cannot predict the price that
wireless subscribers will be willing to pay for these products and services.
These risks could affect our ability to support the Palm.net service on a large
scale and price the service at a level that produces expected returns.
Our Internet services business will suffer if our telecommunications carrier
raises its rates, discontinues doing business with us or does not deliver
acceptable service.
The future success of our Internet services business substantially depends on
the capacity, affordability, reliability and security of our telecommunications
networks. Only a small number of telecommunications providers offer the network
services we require. We currently rely on BellSouth to provide all of our Palm
VII wireless network services pursuant to an agreement. Our agreement with
BellSouth permits each party to terminate the agreement on an annual basis. If
BellSouth failed to provide us with service at rates acceptable to us or at
all, we may not be able to provide Internet access to our users. In addition,
our Palm VII products are configured around the frequency standard used by
BellSouth. If we needed to switch to another telecommunications carrier, we
would have to redesign significant portions of our software and hardware to
permit transmission on a different frequency and service to users of existing
Palm VII products would be disrupted. If we were required to redesign these
elements, our Internet services part of our business could be adversely
affected. If BellSouth delivers unacceptable service, the quality of our
Internet services would suffer and we would likely lose users who are
dissatisfied with our service. In addition, BellSouth provides service only in
the continental United States. We intend to expand our network services to
support Internet services internationally, but doing so will require us to
enter into new relationships with telecommunications providers abroad. Many
international telecommunications providers use different standards and transmit
data on different frequencies than BellSouth, which will require us to redesign
significant portions of our software and hardware.
Our reputation and ability to generate revenues will be harmed if demand for
our Internet services exceeds our telecommunications and network capacity.
We may from time to time experience increases in our Internet services usage
which exceed our available telecommunications capacity and the capacity of our
third-party network servers. As a result, users may be unable to register or
log on to our service, may experience a general slow-down in their Internet
access or may be disconnected from their sessions. Excessive user demand could
also result in system failures of our third-party network servers' networks.
Inaccessibility, interruptions or other limitations on the ability to access
our service due to excessive user demand, or any failure of our third-party
network servers to handle user traffic, would have a material adverse effect on
our reputation and our revenues.
We plan to expand our direct e-commerce operation, and our business and
financial condition could be harmed if this operation is not successful.
We may not be able to achieve any or all of the necessary components of a
successful e-commerce operation. We intend to expand our Palm.com and Palm.net
websites. This expansion will require additional expenditures, including the
use of part of the proceeds of this offering. These expenditures are
anticipated to exceed revenues from these services over the next few years. We
have little experience in implementing or operating a direct e-commerce
business, and if we are not successful in operating it or in successfully
managing our current sales channels alongside our direct e-commerce channel,
our business and financial condition could be materially harmed.
Our Internet services business prospects could suffer if the Internet does not
continue to grow as a medium for interactive content and services.
Our future success depends in part on the continued growth and reliance by
consumers and businesses on the Internet, particularly in the market for
Internet services and networking of handheld computing devices. Use and growth
of the Internet will depend in significant part on continued rapid
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growth in the number of households and commercial, educational and government
institutions with access to the Internet. The use and growth of the Internet
will also depend on the number and quality of products and services designed
for use on the Internet. Because use of the Internet as a source of
information, products and services is a relatively recent phenomenon, it is
difficult to predict whether the number of users drawn to the Internet will
continue to increase and whether the market for commercial use of the Internet
will continue to develop and expand. Internet use patterns may decline as the
novelty of the medium recedes.
The rapid rise in the number of Internet users and the growth of electronic
commerce and applications for the Internet has placed increasing strains on the
Internet's communications and transmission infrastructure. This could lead to
significant deterioration in transmission speeds and the reliability of the
Internet as a commercial medium and could reduce the use of the Internet by
businesses and individuals. The Internet may not be able to support the demands
placed upon it by this continued growth. Any failure of the Internet to support
growth due to inadequate infrastructure or for any other reason would seriously
limit its development as a viable source of commercial and interactive content
and services. This could impair the development and acceptance of our Internet
services which could in turn harm our business prospects.
If the security of our websites is compromised, our reputation and business
could suffer.
A significant barrier to widespread use of electronic commerce sites, such as
our Palm.com site, and network services sites, such as our Palm.net site, is
concern for the security of confidential information transmitted over public
networks. Despite our efforts to protect the integrity of our Palm.com and
Palm.net sites, a party may be able to circumvent our security measures and
could misappropriate proprietary information or cause interruptions in our
operations and damage our reputation. Any such 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.
Our business will suffer if we are not able to retain, hire and integrate
sufficient qualified personnel.
Our future success depends partly on the continued contribution of our key
executive, technical, sales, marketing, manufacturing and administrative
personnel. It also depends on our ability to expand, integrate and retain our
management team after our separation from 3Com. Many members of our senior
management have been with the business only a short time. In particular, our
Chief Executive Officer has only been employed with us since December 1999 and
we have only limited experience under his leadership. In addition, recruiting
and retaining skilled personnel, including software and hardware engineers, is
highly competitive. If we fail to retain, hire and integrate qualified
employees and contractors, we will not be able to maintain and expand our
business.
Third parties have claimed and may claim in the future we are infringing their
intellectual property, and we could suffer significant litigation or licensing
expenses or be prevented from selling products if these claims are successful.
In the course of our business, we frequently receive claims of infringement
or otherwise become aware of potentially relevant patents or other intellectual
property rights held by other parties. We evaluate the validity and
applicability of these intellectual property rights, and determine in each case
whether we must negotiate licenses or cross-licenses to incorporate or use the
proprietary technologies in our products. Third parties may claim that we or
our customers or Palm platform licensees are infringing their intellectual
property rights, and we may be found to infringe those intellectual property
rights and require a license to use those rights. We may be unaware of
intellectual property rights of others that may cover some of our technology,
products and services.
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Moreover, in connection with future intellectual property infringement claims,
we will not have the benefit of asserting counterclaims based on 3Com's
intellectual property portfolio, and we will not be able to offer licenses to
3Com's intellectual property rights in order to resolve claims.
On April 28, 1997, Xerox Corporation filed suit against U.S. Robotics
Corporation and U.S. Robotics Access Corp. in the United States District Court
for the Western District of New York. The case is now captioned: Xerox
Corporation v. U.S. Robotics Corporation, U.S. Robotics Access Corp., Palm
Computing, Inc. and 3Com Corporation, Civil Action No. 97-CV-6182T. The
complaint alleges willful infringement of a Xerox United States patent, issued
on January 21, 1997, relating to computerized interpretation of handwriting.
The complaint further seeks unspecified damages and injunctive relief. Xerox
has asserted that products utilizing Graffiti script recognition software made,
used, offered for sale or sold in the United States, or imported into the
United States since January 21, 1997, infringe its patent. On June 25, 1999,
the court stayed the action pending reexamination of the patent by the United
States Patent and Trademark Office. The reexamination of the patent is
currently pending. In connection with our separation from 3Com, pursuant to the
terms of the Indemnification and Insurance Matters Agreement, we will indemnify
and hold 3Com harmless for any damages or losses which may arise out of this
litigation. In particular, an adverse determination in the Xerox litigation
could subject us to substantial damages and require us to indemnify our
customers and licensees for damages that they may suffer. Moreover, if there is
an adverse determination, a license may be necessary to continue using the
Grafitti script recognition software in our Palm devices and Palm platform. A
license may not be available or on terms acceptable to us. If upon an adverse
determination we were unable to obtain a license on terms acceptable to us, we
could be required to modify our script recognition software or license
alternative script recognition software from third parties for inclusion in our
Palm devices and our Palm platform.
Any litigation regarding patents or other intellectual property could be
costly and time-consuming, and divert our management and key personnel from our
business operations. The complexity of the technology involved and the
uncertainty of intellectual property litigation increase these risks. Claims of
intellectual property infringement might also require us to enter into costly
royalty or license agreements or indemnify our Palm platform licensees.
However, we may not be able to obtain royalty or license agreements on terms
acceptable to us, or at all. We also may be subject to significant damages or
injunctions against development and sale of our products.
We often rely on licenses of intellectual property for use in our business.
We cannot assure you that these licenses will be available in the future on
favorable terms or at all. In addition, our position with respect to the
negotiation of licenses may deteriorate after our separation from 3Com.
If third parties infringe our intellectual property, we may expend significant
resources enforcing our rights or suffer competitive injury.
Our success depends in large part on our proprietary technology. We rely on a
combination of patents, copyrights, trademarks and trade secrets,
confidentiality provisions and licensing arrangements to establish and protect
our proprietary rights. If we fail to protect or to enforce our intellectual
property rights successfully, our competitive position could suffer, which
could harm our operating results.
Our pending patent and trademark registration applications may not be allowed
or competitors may challenge the validity or scope of these patent applications
or trademark registrations. In addition, our patents may not provide us a
significant competitive advantage.
We may be required to spend significant resources to monitor and police our
intellectual property rights. We may not be able to detect infringement and may
lose competitive position in the market before we do so. In addition,
competitors may design around our technology or develop competing technologies.
Intellectual property rights may also be unavailable or limited in some foreign
countries, which could make it easier for competitors to capture market share.
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Over the last twelve months, there have been several thefts of computer
equipment from us and our employees. This computer equipment has contained
proprietary information. We have formulated a security plan to reduce the risk
of any future thefts and have cooperated with state and federal law enforcement
officials in an investigation of past incidents. We may not be successful in
preventing future thefts, or in preventing those responsible for past thefts
from using our technology to produce competing products. The unauthorized use
of Palm technology by competitors could have a material adverse effect on our
ability to sell our products in some markets.
Our business is subject to economic, political and other risks associated with
international sales and operations.
Since we sell our products worldwide, our business is subject to risks
associated with doing business internationally. We anticipate that revenue from
international operations will represent an increasing portion of our total
revenue. In addition, two of the facilities where our devices are manufactured
are located outside the United States. Accordingly, our future results could be
harmed by a variety of factors, including:
. changes in foreign currency exchange rates;
. changes in a specific country's or region's political or economic
conditions, particularly in emerging markets;
. trade protection measures and import or export licensing requirements;
. potentially negative consequences from changes in tax laws;
. difficulty in managing widespread sales and manufacturing operations;
and
. less effective protection of intellectual property.
We intend to pursue strategic acquisitions and our business could be materially
harmed if we fail to successfully integrate acquired businesses.
We often evaluate acquisition opportunities that could provide us with
additional product or services offerings or additional industry expertise. Any
future acquisition could result in difficulties assimilating acquired
operations and products, diversion of capital and management's attention away
from other business issues and opportunities and amortization of acquired
intangible assets. Integration of acquired companies may result in problems
related to integration of technology and inexperienced management teams. Our
management has had limited experience in assimilating acquired organizations
and products into our operations. We may not successfully integrate any
operations, personnel or products that we may acquire in the future. If we fail
to successfully integrate acquisitions, our business could be materially
harmed.
Potential year 2000 problems associated with our products, our internal systems
or the products of our suppliers and customers could harm our business.
Many currently installed computer systems and software were written to accept
and process only two digit entry codes for the year when storing dates.
Beginning with the year 2000, these entry codes will need to accept four digit
entries to distinguish 21st century dates from 20th century dates. As a result,
computer systems and products may need to be upgraded to solve this problem to
avoid incorrect or lost data. Although we believe the products we are currently
offering are year 2000 ready, the first generation of our handheld device
product, which is no longer being sold, does not properly display the European
date format. We expect to release a downloadable software patch to fix this
problem. If any of our products do not operate properly in the year 2000, we
could have increased warranty costs, customer satisfaction issues, litigation
or other material costs or liabilities. We have relied on 3Com to address any
year 2000 readiness issues in the internal and external systems we currently
use. If 3Com's year 2000 readiness preparations are insufficient, we may be
required to bear the costs of upgrading or replacing any systems after our
separation from 3Com. In addition, we could experience delays in our ability to
manufacture and ship products and deliver services, disruptions in
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our customer service and technical support facilities and interruptions of
customer access to our online products and services. We cannot assure you that
all year 2000 problems have been identified or corrected in time to prevent
serious harm to us. In addition, we have relied on assurances from third
parties, including our suppliers and manufacturers in the United States and
abroad and our wireless telecommunications network provider, BellSouth, that
they and the products and services they supply are year 2000 compliant. We have
not independently verified these assurances in many cases, and any failure of
these third-party products and services to be year 2000 compliant could harm
us. There is a risk that our users could initiate litigation against us for
damages arising from our products that are not year 2000 compliant. Year 2000
issues could harm our future results of operations, cash flows or financial
condition.
Risks Related to Our Separation from 3Com
We currently use 3Com's operational and administrative infrastructure, and our
business will suffer if we do not develop our own infrastructure quickly and
cost-effectively.
We currently use 3Com's systems to support our operations, including systems
to manage inventory, order processing, human resources, shipping, accounting,
payroll and internal computing operations. Many of these systems are
proprietary to 3Com and are very complex. These systems have been modified, and
are in the process of being further modified, to enable us to separately track
items related to our business. These modifications, however, may result in
unexpected system failures or the loss or corruption of data.
We are in the process of creating our own systems to replace 3Com's systems.
We may not be successful in implementing these systems and transitioning data
from 3Com's systems to ours.
Any failure or significant downtime in 3Com's or our own information systems
could prevent us from taking customer orders, shipping products or billing
customers and could harm our business. In addition, 3Com's and our information
systems require the services of employees with extensive knowledge of these
information systems and the business environment in which we operate. In order
to successfully implement and operate our systems, we must be able to attract
and retain a significant number of highly skilled employees. If we fail to
attract and retain the highly skilled personnel required to implement,
maintain, and operate our information systems, our business could suffer.
In addition, we currently have office space in 3Com's Santa Clara campus. We
have entered into arrangements with 3Com to lease these facilities under a
lease that is terminable with six months notice beginning in July 2001 and
expires in July 2002. After this transition period, we will need to find
alternative facilities. If we fail to find replacement facilities in a timely
fashion, our business will be harmed.
Our stock price and business may suffer if 3Com does not complete its
distribution of our common stock.
3Com currently intends that, subject to obtaining approval by the 3Com board
of directors and a ruling from the Internal Revenue Service that the
distribution will be tax-free to 3Com stockholders and that our separation from
3Com qualifies as a reorganization, it will distribute to its stockholders all
of our common stock that it owns approximately six months after this offering,
although it is not obligated to do so. This distribution may not occur by that
time or at all. At the time of this offering, we will not know what the ruling
from the Internal Revenue Service regarding the tax treatment of the separation
and the distribution will be. If 3Com does not receive a favorable tax ruling,
it is not likely to make the distribution in the expected time frame or at all.
In addition, until this distribution occurs, the risks discussed below relating
to 3Com's control of us and the potential business conflicts of interest
between 3Com and us will continue to be relevant to our stockholders. If the
distribution is delayed or not completed at all, the liquidity of our shares in
the market will be severely constrained
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unless and until 3Com elects to sell some of its significant ownership. There
are no limits on these sales and the sale or potential sale by 3Com could
adversely affect market prices. In addition, because of the limited liquidity
until the distribution occurs, relatively small trades of our stock will have a
disproportionate effect on our stock price. Also, if 3Com does not distribute
its shares, we will face significant difficulty hiring and retaining key
personnel, many of whom are attracted by the potential of operating our
business as a fully independent entity.
We will be controlled by 3Com as long as it owns a majority of our common
stock, and our other stockholders will be unable to affect the outcome of
stockholder voting during such time.
After the completion of this offering and the private placements to America
Online, Motorola and Nokia, 3Com will own approximately % of our
outstanding common stock, or approximately % if the underwriters exercise
in full their option to purchase additional shares. As long as 3Com owns a
majority of our outstanding common stock, 3Com will continue to be able to
elect our entire board of directors and to remove any director, with or without
cause, without calling a special meeting. Investors in this offering will not
be able to affect the outcome of any stockholder vote prior to the planned
distribution of our stock to the 3Com stockholders. As a result, 3Com will
control all matters affecting us, including:
. the composition of our board of directors and, through it, any
determination with respect to our business direction and policies,
including the appointment and removal of officers;
. the allocation of business opportunities that may be suitable for us and
3Com;
. any determinations with respect to mergers or other business
combinations;
. our acquisition or disposition of assets;
. our financing;
. changes to the agreements providing for our separation from 3Com;
. the payment of dividends on our common stock; and
. determinations with respect to our tax returns.
3Com is not prohibited from selling a controlling interest in us to a third
party.
Our historical financial information may not be representative of our results
as a separate company.
The historical financial information we have included in this prospectus does
not reflect what our financial position, results of operations and cash flows
would have been had we been a separate, stand-alone entity during the periods
presented. 3Com did not account for us, and we were not operated, as a
separate, stand-alone entity for the periods presented. In addition, the
historical financial information is not necessarily indicative of what our
results of operations, financial position and cash flows will be in the future.
We have not made adjustments to our historical financial information to reflect
many significant changes that will occur in our cost structure, funding and
operations as a result of our separation from 3Com, including increased costs
associated with reduced economies of scale, increased marketing expenses
related to building a company brand identity separate from 3Com and increased
costs associated with being a publicly traded, stand-alone company.
We will not be able to rely on 3Com to fund our future capital requirements,
and we cannot assure you that financing from other sources will be available on
favorable terms or at all.
In the past, our capital needs have been satisfied by 3Com. However,
following our separation, 3Com will no longer provide funds to finance our
working capital or other cash requirements. We
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cannot assure you that financing from other sources, if needed, will be
available on favorable terms or at all.
We believe our capital requirements will vary greatly from quarter to
quarter, depending on, among other things, capital expenditures, fluctuations
in our operating results, financing activities, acquisitions and investments
and inventory and receivables management. We believe that the proceeds from
this offering, along with our future cash flow from operations, will be
sufficient to satisfy our working capital, capital expenditure and research and
development requirements for the foreseeable future. However, we may require or
choose to obtain additional debt or equity financing in order to finance
acquisitions or other investments in our business. Future equity financings
would be dilutive to the existing holders of our common stock. Future debt
financings could involve restrictive covenants. We will likely not be able to
obtain financing with interest rates as favorable as those that 3Com could
obtain.
We may have potential business conflicts of interest with 3Com with respect to
our past and ongoing relationships that could harm our business operations.
Conflicts of interest may arise between 3Com and us in a number of areas
relating to our past and ongoing relationships, including:
. labor, tax, employee benefit, indemnification and other matters arising
from our separation from 3Com;
. intellectual property matters;
. employee retention and recruiting;
. sales or distributions by 3Com of all or any portion of its ownership
interest in us;
. the nature, quality and pricing of transitional services 3Com has agreed
to provide us; and
. business opportunities that may be attractive to both 3Com and us.
Nothing restricts 3Com from competing with us.
We may not be able to resolve any potential conflicts, and even if we do, the
resolution may be less favorable than if we were dealing with an unaffiliated
party. The agreements we have entered into with 3Com may be amended upon
agreement between the parties. While we are controlled by 3Com, 3Com may be
able to require us to agree to amendments to these agreements that may be less
favorable to us than the current terms of the agreements.
Our directors and executive officers may have conflicts of interest because of
their ownership of 3Com common stock.
Many of our directors and executive officers have a substantial amount of
their personal financial portfolios in 3Com common stock and options to
purchase 3Com common stock. Their options to purchase 3Com common stock may not
convert into options to purchase our common stock if the distribution does not
occur. Ownership of 3Com common stock by our directors and officers after our
separation from 3Com could create, or appear to create, potential conflicts of
interest when directors and officers are faced with decisions that could have
different implications for 3Com and us.
If the transitional services being provided to us by 3Com are not sufficient to
meet our needs, or if we are not able to replace these services after our
agreements with 3Com expire, we will be unable to manage critical operational
functions of our business.
3Com has agreed to provide transitional services to us, including services
related to:
. information technology systems;
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. supply chain;
. human resources administration;
. product order administration;
. customer service;
. buildings and facilities;
. treasury; and
. legal, finance and accounting.
Although 3Com is contractually obligated to provide us with these services,
these services may not be provided at the same level as when we were part of
3Com, and we may not be able to obtain the same benefits. We will also lease
and sublease office space from 3Com. These transitional service and leasing
arrangements generally have a term of less than two years following the
separation. After the expiration of these various arrangements, we may not be
able to replace the transitional services or enter into appropriate leases in a
timely manner or on terms and conditions, including cost, as favorable as those
we will receive from 3Com.
These agreements were made in the context of a parent-subsidiary relationship
and were negotiated in the overall context of our separation from 3Com. The
prices charged to us under these agreements may be lower than the prices that
we may be required to pay third parties for similar services or the costs of
similar services if we undertake them ourselves.
Risks Related to the Securities Markets and Ownership of Our Common Stock
Substantial sales of common stock may occur in connection with the
distribution, which could cause our stock price to decline.
3Com currently intends to distribute the approximately shares of our
common stock it owns to 3Com stockholders approximately six months after this
offering. Substantially all of these shares will be eligible for immediate
resale in the public market. We are unable to predict whether significant
amounts of common stock will be sold in the open market in anticipation of, or
following, this distribution, or by 3Com if the distribution does not occur. We
are also unable to predict whether a sufficient number of buyers will be in the
market at that time. Any sales of substantial amounts of common stock in the
public market, or the perception that such sales might occur, whether as a
result of this distribution or otherwise, could harm the market price of our
common stock.
Our securities have no prior market, and we cannot assure you that our stock
price will not decline after the offering.
Before this offering, there has not been a public market for our common
stock, and an active public market for our common stock may not develop or be
sustained after this offering. The market price of our common stock could be
subject to significant fluctuations after this offering. Among the factors that
could affect our stock price are:
. quarterly variations in our operating results;
. changes in revenue or earnings estimates or publication of research
reports by analysts;
. speculation in the press or investment community;
. strategic actions by us or our competitors, such as acquisitions or
restructurings;
. actions by institutional stockholders or by 3Com prior to its
distribution of our stock;
20
<PAGE>
. general market conditions; and
. domestic and international economic factors unrelated to our
performance.
The stock markets in general, and the markets for high technology stocks in
particular, have experienced extreme volatility that has often been unrelated
to the operating performance of particular companies. These broad market
fluctuations may adversely affect the trading price of our common stock. In
particular, we cannot assure you that you will be able to resell your shares at
or above the initial public offering price, which will be determined by
negotiations between the representatives of the underwriters and us.
Provisions in our charter documents and Delaware law may delay or prevent
acquisition of us, which could decrease the value of your shares.
Our certificate of incorporation and bylaws and Delaware law contain
provisions that could make it harder for a third party to acquire us without
the consent of our board of directors, although these provisions have little
significance while we are controlled by 3Com. These provisions include a
classified board of directors and limitations on actions by our stockholders by
written consent. In addition, our board of directors has the right to issue
preferred stock without stockholder approval, which could be used to dilute the
stock ownership of a potential hostile acquirer. Delaware law also imposes some
restrictions on mergers and other business combinations between us and any
holder of 15% or more of our outstanding common stock. Although we believe
these provisions provide for an opportunity to receive a higher bid by
requiring potential acquirers to negotiate with our board of directors, these
provisions apply even if the offer may be considered beneficial by some
stockholders.
Purchasers in this offering will experience immediate dilution in net tangible
book value per share.
Purchasers of our common stock in this offering and the America Online,
Motorola and Nokia private placements will experience immediate dilution of
$ in net tangible book value per share.
21
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
You should not rely on forward-looking statements in this prospectus. This
prospectus contains forward-looking statements that involve risks and
uncertainties. We use words such as "anticipates," "believes," "plans,"
"expects," "future," "intends," "may," "will," "should," "estimates,"
"predicts," "potential," "continue" and similar expressions to identify these
forward-looking statements. This prospectus also contains forward-looking
statements attributed to third parties relating to their estimates regarding
the growth of our markets. Forward-looking statements are subject to known and
unknown risks, uncertainties and other factors that may cause our actual
results, as well as those of the markets we serve, levels of activity,
performance, achievements and prospects to be materially different from those
expressed or implied by the forward-looking statements. These risks,
uncertainties and other factors include, among others, those identified in
"Risk Factors" and elsewhere in this prospectus.
22
<PAGE>
OUR SEPARATION FROM 3COM
Overview
On September 13, 1999, 3Com announced its plan to make Palm, a wholly-owned
subsidiary, into an independent, publicly-traded company focused on the
handheld device industry. Until the completion of this offering, we will
continue as a wholly-owned subsidiary of 3Com. We expect that the separation of
our business from 3Com, including the transfer of related assets, liabilities
and intellectual property rights, will be substantially completed before the
completion of this offering.
Benefits of the Separation
We believe that we will realize benefits from our complete separation from
3Com, including the following:
Greater Strategic Focus. In addition to the Palm handheld computing
business, 3Com generates significant revenue from other lines of products,
including switches, hubs, remote access systems, routers, network
management software, network interface cards and modems. Our focus will be
on developing businesses and strategic opportunities for handheld devices.
This effort will be supported by our own board of directors, management
team and employees.
Increased Speed and Responsiveness. As a company smaller in size than
3Com, we expect to be able to make decisions more quickly, deploy resources
more rapidly and efficiently and operate with more agility than we could as
a part of a larger organization. In addition, we expect to enhance our
responsiveness to customers and partners.
Better Incentives for Employees and Greater Accountability. We expect the
motivation of our employees and the focus of our management will be
strengthened by incentive compensation programs tied to the market
performance of our common stock. The separation will enable us to offer our
employees compensation directly linked to the performance of the Palm
business, which we expect to enhance our ability to attract and retain
qualified personnel.
More Direct Access to Capital Markets. As a separate company, we will
have more direct access to the capital markets to issue debt or equity
securities and to grow through acquisitions.
Separation and Transitional Arrangements
We and 3Com, and, in some cases, our respective subsidiaries, will enter into
agreements providing for the separation of our businesses from 3Com, including
a master separation and distribution agreement. These agreements generally
provide for, among other things:
. the transfer from 3Com to us of assets and the assumption by us of
liabilities relating to our business;
. the allocation of intellectual property between us and 3Com; and
. various interim and ongoing relationships between us and 3Com.
The Distribution by 3Com of Our Common Stock
After completion of this offering, 3Com will own approximately % of the
outstanding shares of our common stock, or approximately % if the
underwriters fully exercise their option to purchase additional shares. 3Com
currently plans to complete its divestiture of Palm approximately
23
<PAGE>
six months after this offering by distributing all of its shares of our common
stock to the holders of 3Com's common stock. However, 3Com is not obligated to
complete the distribution, and we cannot assure you as to whether or when it
will occur.
3Com has advised us that it would not complete the distribution if its board
of directors determines that the distribution is no longer in the best interest
of 3Com and its stockholders. 3Com has further advised us that it currently
expects that the principal factors that it would consider in determining
whether and when to complete the distribution include:
. the relative market prices of our common stock and 3Com's common stock;
. the issuance by the Internal Revenue Service of a ruling that the
distribution will be tax-free to 3Com stockholders and that the
transaction will qualify as a reorganization for United States federal
income tax purposes;
. the absence of any court orders or regulations prohibiting or
restricting the completion of the distribution; and
. other conditions affecting our business or 3Com's business.
24
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately
$ , based on an assumed initial public offering price of $ per
share and after deducting an assumed underwriting discount and estimated
offering expenses payable by us. We estimate that our net proceeds from the
private placements to America Online, Motorola and Nokia will be approximately
$ , based on an assumed offering price of $ per share. We intend to use the
proceeds of this offering and the private placements for:
. payment of a dividend to 3Com approximately equal to its tax basis in
Palm, which was approximately $ million at , 2000;
. repayment of an intercompany payable to 3Com, which was approximately
$49 million at August 27, 1999;
. increased capital expenditures to support anticipated growth in
operations, infrastructure for our wireless and Internet services and
hardware and software for our information systems and personnel;
. increased marketing expenses to establish our Palm brand;
. replacing the working capital retained by 3Com and funding our increased
working capital needs associated with revenue growth; and
. potential investments in, or acquisitions of, other businesses or
technologies.
DIVIDEND POLICY
We currently intend to retain any future earnings to fund the development and
growth of our business. Therefore, other than the cash dividend to 3Com to be
paid with a portion of the proceeds of this offering, we do not anticipate
paying any cash dividends in the foreseeable future.
25
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of August 27, 1999. Our
capitalization is presented:
. on an actual basis;
. on a pro forma basis to give effect to the retention of most of our
accounts receivable and accounts payable by 3Com at the time of our
separation, as though such retention had occurred as of August 27, 1999,
the payment of a dividend to 3Com equal to its tax basis in Palm, which
was approximately $ million at , 2000, and the reclassification of
approximately $49 million at August 27, 1999 from 3Com Corporation
equity to an intercompany payable to 3Com; and
. on a pro forma as adjusted basis to reflect our receipt of the estimated
net proceeds from the sale of shares of common stock in this
offering and our sale of shares in the private placements to America
Online, Motorola and Nokia and the payment of the amounts payable to
3Com Corporation.
You should read the information set forth below together with "Selected
Consolidated Financial Data," our historical consolidated financial statements
and the notes to those statements and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" included elsewhere in this
prospectus.
<TABLE>
<CAPTION>
August 27, 1999
------------------------------
Pro Pro Forma
Actual Forma As Adjusted
-------- ------- -----------
(in thousands)
<S> <C> <C> <C>
Payable to 3Com
Corporation(1)(2)............ $ -- $48,902 $
======== ======= =====
Stockholders' equity:
Preferred stock............. $ -- $ -- $ --
Common stock................ -- --
Additional paid-in capital.. -- --
3Com Corporation
equity(1)(2)............... 113,413
Accumulated other
comprehensive income
(loss)..................... (118) (118) (118)
-------- ------- -----
Total stockholders'
equity................... $113,295 $ $
======== ======= =====
Total capitalization.... $113,295 $ $
======== ======= =====
</TABLE>
- --------
Notes:
(1) We intend to declare a dividend payable to 3Com approximately equal to its
tax basis in Palm. We intend to pay this dividend using a portion of the
proceeds from this offering.
(2) Intercompany payable amounts due to 3Com are included as a component of
3Com Corporation equity as no interest was charged on such balances and
there was no scheduled repayment. We intend to repay our intercompany
payable to 3Com, which was approximately $49 million as of August 27, 1999,
using a portion of the proceeds of this offering.
26
<PAGE>
DILUTION
Our net tangible book value at August 27, 1999 was approximately $100.6
million, or $ per share. Net tangible book value per share is determined
by dividing our tangible net worth, which is total tangible assets less total
liabilities, by the number of shares of common stock outstanding after giving
effect to the -for-one stock split immediately before this offering and the
private placements. Dilution in net tangible book value per share represents
the difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the private placements and the net tangible
book value per share of our common stock immediately afterwards. After giving
effect to the following:
. our sale of shares of common stock in this offering at an assumed
initial public offering price of $ per share and after deducting an
assumed underwriting discount and estimated offering expenses payable by
us;
. our sale of shares of common stock to America Online, Motorola and
Nokia concurrently with the closing of this offering at an assumed
offering price of $ per share;
. retention of most of our accounts receivable and accounts payable by
3Com at the time of our separation as though such retention had occurred
as of August 27, 1999;
. payment of a dividend to 3Com approximately equal to its tax basis in
Palm, which was approximately $ million at , 2000; and
. repayment of an intercompany payable to 3Com, which was approximately
$49 million at August 27, 1999;
our pro forma as adjusted net tangible book value at August 27, 1999 would have
been approximately $ , or $ per share. This represents an immediate
increase in net tangible book value of $ per share to our existing
stockholder and an immediate dilution in net tangible book value of $ per
share to new investors purchasing shares of common stock in this offering and
the private placements. The following table illustrates this dilution per
share:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of August
27, 1999................................................. $
Increase in pro forma book value per share attributable to
new investors (including the private placements).........
Pro forma, as adjusted, net tangible book value per share
after this offering and the private placements.............
-------
Dilution in pro forma net tangible book value per share to
new investors (including the private placements)........... $
=======
</TABLE>
The discussion and table above assume no exercise of options outstanding
under our 1999 Stock Plan and no issuance of shares reserved for future
issuance under our 1999 Employee Stock Purchase Plan. As of August 27, 1999,
there were options outstanding to purchase a total of shares of
common stock at a weighted average price of $ per share. To the extent that
any of these options are exercised, there will be further dilution to new
investors.
27
<PAGE>
The following table sets forth, as of August 27, 1999 on the pro forma as
adjusted basis described above, the differences between the number of shares of
common stock purchased from us, the total price paid and average price per
share paid by our existing stockholder and by the new investors in this
offering and the private placements at an assumed initial public offering price
of $ per share, before deducting the estimated underwriting discounts and
commissions and offering expenses payable by us, and after giving effect to the
-for-one stock split immediately before this offering and the private
placements.
<TABLE>
<CAPTION>
Total Average
Shares Purchased Consideration Price
----------------- ------------------ Per
Number Percentage Amount Percentage Share
------ ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C>
Existing stockholder............. % $ % $
New investors (including the
private placements).............
------ ----- ------- ----- -------
Total.......................... 100.0% $ 100.0%
====== ===== ======= ===== =======
</TABLE>
If the underwriters' option to purchase additional shares is exercised in
full, the following will occur:
. the number of shares of common stock held by our existing stockholder
will decrease to approximately % of the total number of shares of
common stock outstanding; and
. the number of shares held by new public investors will be increased to
or approximately % of the total number of shares of our
common stock outstanding after this offering.
28
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The following tables present our selected consolidated financial data. The
information set forth below should be read together with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
our historical consolidated financial statements and notes to those statements
included in this prospectus. Our consolidated statements of operations data set
forth below for the years ended May 25, 1997, May 31, 1998 and May 28, 1999 and
the consolidated balance sheet data as of May 31, 1998 and May 28, 1999 are
derived from our audited consolidated financial statements included in this
prospectus which have been audited by Deloitte & Touche LLP, independent
auditors, whose report is also included in this prospectus.
The consolidated statements of operations data for the year ended June 30,
1995 and the eleven month period ended May 26, 1996 and the consolidated
balance sheet data as of June 30, 1995, May 26, 1996 and May 25, 1997 are
derived from our unaudited consolidated financial data that is not included in
this prospectus. The consolidated statements of operations data for the three
months ended August 28, 1998 and August 27, 1999 and the consolidated balance
sheet data as of August 27, 1999 are derived from unaudited consolidated
financial statements included in this prospectus and, in the opinion of
management, include all adjustments, consisting only of normal recurring
accruals, that are necessary for a fair presentation of our financial position
and results of operations for these periods. The historical financial
information may not be indicative of our future performance and does not
reflect what our financial position and results of operations would have been
had we operated as a separate, stand-alone entity during the periods presented.
<TABLE>
<CAPTION>
Three Months
Years Ended Ended
------------------------------------------------ ------------------
June 30, May 26, May 25, May 31, May 28, Aug. 28, Aug. 27,
1995(1) 1996(2) 1997 1998 1999 1998 1999
-------- -------- -------- -------- -------- -------- --------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenues................ $ 1,403 $ 7,054 $114,157 $272,137 $563,525 $116,069 $176,505
Cost of revenues........ 174 4,479 77,685 157,749 315,616 62,998 98,324
------- ------- -------- -------- -------- -------- --------
Gross profit........... 1,229 2,575 36,472 114,388 247,909 53,071 78,181
------- ------- -------- -------- -------- -------- --------
Operating expenses:
Sales and marketing.... 1,099 2,783 30,305 70,765 127,726 23,969 42,648
Research and
development........... 1,384 4,716 13,442 21,863 46,027 9,738 12,507
General and
administrative........ 977 1,853 6,238 15,299 23,692 6,233 7,160
Purchased in-process
technology............ -- -- -- -- 2,125 -- --
------- ------- -------- -------- -------- -------- --------
Total operating
expenses............. 3,460 9,352 49,985 107,927 199,570 39,940 62,315
------- ------- -------- -------- -------- -------- --------
Operating income
(loss)................. (2,231) (6,777) (13,513) 6,461 48,339 13,131 15,866
Interest and other
expense, net........... 65 81 (515) (56) (223) (25) (63)
------- ------- -------- -------- -------- -------- --------
Income (loss) before
income taxes........... (2,166) (6,696) (14,028) 6,405 48,116 13,106 15,803
Income tax provision
(credit)............... -- (3,634) (6,166) 2,234 18,488 5,036 6,145
------- ------- -------- -------- -------- -------- --------
Net income (loss)....... $(2,166) $(3,062) $ (7,862) $ 4,171 $ 29,628 $ 8,070 $ 9,658
======= ======= ======== ======== ======== ======== ========
Unaudited pro forma net
income per share:
Basic.................. $ $
======== ========
Diluted................ $ $
======== ========
Shares used in computing
unaudited pro forma net
income per share:
Basic..................
======== ========
Diluted................
======== ========
Supplemental unaudited
pro forma net income
per share:
Basic.................. $ $
======== ========
Diluted................ $ $
======== ========
Shares used in computing
supplemental unaudited
pro forma net income
per share:
Basic..................
======== ========
Diluted................
======== ========
<CAPTION>
June 30, May 26, May 25, May 31, May 28, Aug. 27,
1995(1) 1996(2) 1997 1998 1999 1999
-------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital.................. $ 318 $ 4,651 $ 31,375 $ 68,971 $ 52,509 $ 91,074
Total assets..................... 2,432 9,618 45,984 115,359 152,247 201,346
Stockholder's net investment..... 627 7,218 35,657 81,292 74,527 113,295
</TABLE>
- -------
Notes:
(1)Our fiscal year end was June 30 prior to our acquisition by 3Com.
(2)Fiscal 1996 includes only eleven months of operating results.
29
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The following discussion of our financial condition and results of operations
should be read together with our consolidated financial statements and notes to
those statements included elsewhere in this prospectus. The following
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results could differ materially from the results
contemplated by these forward-looking statements due to a number of factors,
including those discussed below and elsewhere in this prospectus.
Overview
We were founded in 1992 and introduced our first handheld device in 1996. We
are currently a wholly-owned subsidiary of 3Com. Our business has focused
primarily on developing and selling our Palm-branded handheld devices, and as
of December 1, 1999, we had sold over 5 million Palm devices worldwide. In
1999, we expanded our strategy of licensing our Palm platform and developed our
wireless Internet access service to support Internet-enabled handheld devices.
On September 13, 1999, 3Com announced its plan to make us an independent,
publicly-traded company focused on the handheld device industry. After the
completion of this offering, 3Com will own approximately % of our outstanding
common stock, or approximately % if the underwriters fully exercise their
option to purchase additional shares. 3Com currently intends to complete its
divestiture of Palm approximately six months after this offering by
distributing all of its shares of our common stock to the holders of 3Com's
common stock.
We have entered into various agreements related to interim and ongoing
relationships with 3Com. These agreements provide for transitional services and
support in the areas of information technology systems, supply chain, human
resources administration, product order administration, customer service,
buildings and facilities, treasury, legal and finance and accounting. Specified
charges for transitional services are generally at cost plus 5%, but may
increase to cost plus 10% if the services extend beyond a one-year period. The
transition period varies depending on the agreement but is generally less than
two years. Although the fees provided for in the agreements are intended to
represent the fair market value of these services, we cannot assure you that
these fees necessarily reflect the costs of obtaining the services from
unrelated third parties or of our providing these services internally. However,
we believe that purchasing these services from 3Com provides an efficient means
of obtaining these services during the transition period.
We must also negotiate new or revised agreements with various third parties
as a separate, stand-alone entity. We cannot assure you that the terms we will
be able to negotiate will be as favorable as those that we enjoyed as part of
3Com. In addition, as part of 3Com, we benefited from various economies of
scale including shared global administrative functions, facilities and volume
purchase discounts. We expect our costs will increase as a result of the loss
or renegotiation of these arrangements, although the amount of the cost
increase is not determinable at this time.
Our Business
Substantially all of our revenues to date have been generated from sales of
our handheld devices and, to a lesser extent, peripherals and accessories. We
have not derived material revenues to date from licensing our Palm platform or
from subscriptions to our wireless Internet access service. As we expand our
focus on Palm platform licensing and Internet services, we expect that an
increasing portion of our revenues in future periods will come from these
sources. International revenues represented 29% of our total revenues in fiscal
1999 and 31% of our total revenues for the three months ended August 27, 1999.
30
<PAGE>
Revenues from our handheld devices consist primarily of sales to
distributors, retailers and resellers and to end users who buy directly from us
through our Palm.com website. We recognize revenues when the product has been
shipped, risk of loss has passed to the customer and collection of the
resulting receivable is deemed probable. We provide for estimated product
returns, warranty, royalties and post-contract support obligations at the time
of sale. We provide a 12-month limited warranty on our products. We generally
grant price protection to our distributors, retailers and resellers at the time
of price reductions.
Revenues from licenses of the Palm platform are derived from agreements with
our licensees that range from three to five years in length. Revenues from our
software license agreements are recognized on a per-unit royalty basis or as
specified in the agreement. Related maintenance and support revenues are
recognized ratably over the term of the agreement.
Revenues from Internet services consist primarily of fees paid by subscribers
for our wireless Internet access service. We recognize subscription service
revenues over the period during which services are provided, typically one
month.
The mix of our device products has a significant impact on gross margins. In
the past, prices of specific models of handheld devices have declined over
time. Our average selling prices across our product lines have increased
moderately due to our introduction of new and higher priced products. We cannot
be sure that we will continue to maintain our average selling prices in the
future and we expect our ability to do so will be challenged by increased
competition. If we are unable to maintain our average selling prices, our gross
margins will decline. Other factors that will affect our gross margins include
the product and services mix in any particular period, competitive pressures,
manufacturing costs, levels of volume discounts for components and sub-
assemblies and distribution costs.
We also expect our gross margins to fluctuate due to changes in our product
and services mix as we expand our focus on licensing the Palm platform and
selling our Internet services. As the relatively low gross margin of our
Internet subscription service revenues grow as a percentage of total Palm
revenues, we expect our overall gross margins to decline. In the short term, we
expect Internet services gross margins to be negative because we have
significant fixed costs associated with providing our Internet access service.
We expect that over time the growth of our licensing revenue, which we expect
to continue to have a higher gross margin than our device and Internet service
revenues, will contribute positively to our overall gross margins.
We expect to increase our operating expenses significantly as we invest in
the Palm platform and Internet services areas of our business. In addition, we
expect sales and marketing expenses to increase significantly as we focus on
establishing ourselves as a stand-alone entity. We also plan to increase
branding activities for our devices as well as for the Palm platform and our
Internet services. We expect research and development expenses to increase
significantly as we focus on developing the Palm platform for our licensees in
the handheld device and other markets and on building our Internet services. In
addition, for a period of time before the separation from 3Com and during the
transition period thereafter, we will increase general and administrative
expenses as we implement our own information system infrastructure and build
the corporate resources required to operate as a public company. During this
transition period, we will incur duplicative costs until we can operate solely
on our own infrastructure. As a result of these increased operating expenses,
we expect to incur net losses and negative cash flows from operations for
several quarters following this offering.
Basis of Presentation
Prior to June 1, 1998, our 52-53 week fiscal year ended on the Sunday nearest
to May 31. Effective June 1, 1998, we changed our fiscal year to a 52-53 week
fiscal year ending on the Friday nearest to May 31. Unless otherwise stated,
all years and dates refer to our fiscal year and fiscal periods.
31
<PAGE>
Our consolidated financial statements have been carved out from the
consolidated financial statements of 3Com using the historical results of
operations and historical bases of the assets and liabilities of the 3Com
business that Palm comprises. The consolidated financial statements also
include allocations to us of 3Com corporate expenses, including centralized
legal, accounting, treasury, real estate, information technology, distribution,
customer services, sales, marketing, engineering and other 3Com corporate
services and infrastructure costs. The expense allocations have been determined
on bases that 3Com and we considered to be reasonable reflections of the
utilization of the services provided to us or the benefit received by us.
Expenses were allocated based on relative revenues, headcount or square
footage.
The financial information presented in this prospectus is not indicative of
our financial position, results of operations or cash flows in the future, nor
is it necessarily indicative of what our financial position, results of
operations or cash flows would have been had we been a separate, stand-alone
entity for the periods presented. The financial information presented in this
prospectus does not reflect the many significant changes that will occur in our
funding and operations as a result of our becoming a stand-alone entity and
this offering.
Results of Operations
The following table sets forth consolidated statements of operations data
expressed as a percentage of revenues for the periods indicated:
<TABLE>
<CAPTION>
Three Months
Years Ended Ended
----------------------- -----------------
May 25, May 31, May 28, Aug. 28, Aug. 27,
1997 1998 1999 1998 1999
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................. 100% 100% 100% 100% 100%
Cost of revenues..................... 68 58 56 54 56
--- --- --- --- ---
Gross profit......................... 32 42 44 46 44
--- --- --- --- ---
Operating expenses:
Sales and marketing................ 27 26 23 22 24
Research and development........... 12 8 8 8 7
General and administrative......... 5 5 4 5 4
Purchased in-process technology.... -- -- 1 -- --
--- --- --- --- ---
Total operating expenses......... 44 39 36 35 35
--- --- --- --- ---
Operating income (loss).............. (12) 3 8 11 9
Interest and other expense, net...... -- -- -- -- --
--- --- --- --- ---
Income (loss) before income taxes.... (12) 3 8 11 9
Income tax provision (credit)........ (5) 1 3 4 4
--- --- --- --- ---
Net income (loss).................... (7)% 2% 5% 7% 5%
=== === === === ===
</TABLE>
Three Months Ended August 27, 1999 and August 28, 1998
Revenues
Revenues in the three months ended August 27, 1999 and August 28, 1998
consisted almost entirely of revenues from sales of our handheld device
products. Revenues were $176.5 million in the three months ended August 27,
1999, a 52% increase over revenues of $116.1 million in the three months ended
August 28, 1998. The increase in revenues resulted from increased demand for
our handheld devices, which reflects the growing market adoption of our
products. Average selling prices over this period remained relatively constant.
International revenues have become an increasing percentage of our total
revenues, increasing to 31% of total revenues in the three months
32
<PAGE>
ended August 27, 1999 from 21% in the three months ended August 28, 1998. As we
continue to expand the number of international markets we serve, we expect our
international business to become an increasing percentage of our overall
business.
Gross Margin
Gross margin is the excess of revenues over cost of revenues expressed as a
percentage of revenues. Cost of revenues includes product manufacturing,
warranty and technical support costs and, beginning in the three months ended
August 27, 1999, costs related to our wireless Internet service resulting from
the introduction of our Palm VII product. Gross margin was 44% of revenues in
the three months ended August 27, 1999, a two percentage point decline from a
gross margin of 46% of revenues in the three months ended August 28, 1998. The
decline in gross margin in the three months ended August 27, 1999 was a result
of cost of revenues including significant fixed costs related to our wireless
Internet service, which we expect to continue to incur.
Sales and Marketing
Sales and marketing expenses consist primarily of employee compensation and
commissions, advertising, promotional materials, conferences, meetings and
marketing development. Sales and marketing expenses were $42.6 million in the
three months ended August 27, 1999, a 78% increase over expenses of $24.0
million in the three months ended August 28, 1998. Sales and marketing expenses
represented 24% of revenues in the three months ended August 27, 1999 compared
to 22% in the three months ended August 28, 1998. These expenses increased due
to additional spending on demand generation activities, such as point of
purchase displays for retail sales channels and advertising promotional
materials, as we prepared to launch the Palm Vx device and extend the launch of
the Palm VII device nationwide in the second quarter of fiscal 2000.
Research and Development
Research and development expenses consist primarily of employee compensation
and related costs associated with our product development efforts, including
third-party consulting and prototyping costs. Research and development expenses
were $12.5 million in the three months ended August 27, 1999, a 29% increase
over expenses of $9.7 million in the three months ended August 28, 1998.
Research and development expenses represented 7% of revenues in the three
months ended August 27, 1999 compared to 8% in the three months ended August
28, 1998. The increase in research and development spending from period to
period was primarily a result of increased personnel and related costs
associated with a larger research and development organization that is
designing new handheld devices as well as developing new releases of the Palm
platform. Increased spending in the later period also resulted, to a lesser
extent, from design and prototype expenses incurred in connection with new
handheld devices that are currently under development.
General and Administrative
General and administrative expenses consist primarily of employee
compensation, professional and contractor fees and provisions for doubtful
accounts receivable. General and administrative expenses were $7.2 million in
the three months ended August 27, 1999, an increase of 16% over expenses of
$6.2 million in the three months ended August 28, 1998. The increase in
expenses is due to increased infrastructure costs as a result of our continued
growth. As a percentage of revenues, general and administrative expenses
decreased to 4% in the three months ended August 27, 1999 from 5% in the three
months ended August 28, 1998. The decrease as a percentage of revenues was the
result of expenses, primarily personnel related, growing at a slower rate than
revenues. We expect general and administrative expenses to increase in dollar
amount and as a
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percentage of revenues in future periods as we continue to build our
infrastructure to support operating as a stand-alone, publicly-held company.
Income Tax Provision
Our operating results historically have been included in 3Com's consolidated
United States federal and state income tax returns. The provision for income
taxes in our consolidated financial statements has been determined on a
separate return basis. Our effective tax rate in the three months ended August
27, 1999 was 39% compared to 38% in the three months ended August 28, 1998.
This rate is based on estimates of our income before taxes for federal and
state tax jurisdictions. As foreign subsidiaries are established in the future,
our mix of income before taxes in the various tax jurisdictions could cause the
effective tax rate to fluctuate. Our tax liability for periods prior to the
date of 3Com's distribution will be determined in accordance with our tax
sharing agreement with 3Com.
Years Ended May 28, 1999, May 31, 1998 and May 25, 1997
Revenues
Revenues from handheld devices were $563.5 million in fiscal 1999, an
increase of 107% over fiscal 1998. Revenues in fiscal 1998 were $272.1 million,
an increase of 138% over revenues of $114.2 million in fiscal 1997. The growth
in revenues in both years was primarily due to increasing unit sales as a
result of increasing demand for our handheld devices. We have increased demand
by regularly adding new differentiated products to our product line. We added
the Palm IIIx, Palm V and Palm VII devices to our product line in fiscal 1999.
We introduced the Palm III device late in fiscal 1998. We introduced the
PalmPilot Professional and PalmPilot Personal devices in late fiscal 1997.
Declining prices of existing products over the three-year period have been
offset by introducing an increasingly broad range of new products with
additional features such as increased memory, backlit screens, higher
resolution screens, sleeker styling, thinner and lighter form factor, and
wireless Internet capability. As a result, average selling prices have
increased moderately, although we do not expect this trend to continue in
future years.
Gross Margin
Gross margin was 44% in fiscal 1999, a two percentage point increase over
fiscal 1998. Gross margin was 42% in fiscal 1998, a 10 percentage point
increase over gross margin of 32% in fiscal 1997. The improvement in gross
margin in fiscal 1999 reflects increased sales of higher margin Palm IIIx and
Palm V products, as well as reduced manufacturing costs due to better pricing
that we were able to obtain from our component suppliers and contract
manufacturers. The improvement in gross margin in fiscal 1998 reflects product
cost improvements through engineering design changes, significant volume-
related cost reductions from component suppliers and contract manufacturers and
reduced period costs relative to fiscal 1997, which had higher than normal
period costs as a result of establishing manufacturing operations and
introducing new products.
Sales and Marketing
Sales and marketing expenses were $127.7 million in fiscal 1999, an 80%
increase over fiscal 1998. Sales and marketing expenses were $70.8 million in
fiscal 1998, a 134% increase over expenses of $30.3 million in fiscal 1997.
Sales and marketing expenses comprised 23% of revenues in fiscal 1999 as
compared to 26% of revenues in fiscal 1998 and 27% in fiscal 1997. Due to the
slower growth in our sales organization in fiscal 1999 and the continued rapid
growth in our revenues, sales and marketing expenses as a percentage of
revenues declined by three percentage points in fiscal 1999 compared to fiscal
1998. The absolute dollar increase in sales and marketing
34
<PAGE>
expenses in fiscal 1999 resulted primarily from increased advertising,
including expenditures on our "Simply Palm" national advertising campaign, and
increased product introduction activities associated with the launches of our
Palm IIIe, Palm IIIx, Palm V and Palm VII handheld devices. These launch
activities included increased personnel-related expenses associated with
increasing the size of our marketing organization, increased trade show
activities and related travel expenses, point of sale displays, sales
collateral and marketing development. The absolute dollar increase in sales and
marketing expenses in fiscal 1998 was primarily the result of the expansion of
our sales organization into Europe, continued growth of our sales and marketing
organization in the United States and our first international product launch
for the Palm III handheld devices at the CBIT technology show in Germany in
March 1998.
Research and Development
Research and development expenses were $46.0 million in fiscal 1999, a 110%
increase over fiscal 1998. Research and development expenses were $21.9 million
in fiscal 1998, a 63% increase over expenses of $13.4 million in fiscal 1997.
The absolute dollar increase in research and development expenses resulted
primarily from increased personnel-related expenses associated with expanding
the size of our engineering organization and increased expenses related to
contractors, consultants, prototyping and project materials. Research and
development expenses as a percentage of revenues were 8% in fiscal 1999
compared to 8% in fiscal 1998 and 12% in fiscal 1997. The decrease in research
and development expenses as a percentage of revenues from fiscal 1997 to fiscal
1998 resulted from economies of scale. During fiscal 1999 and fiscal 1998 we
supported the development of two new families of handheld products, the Palm V
and Palm VII product families, and two new additions to the Palm III family,
the Palm IIIx and the Palm IIIe. In addition, we incurred significant
engineering costs to develop our wireless Internet access service that supports
our wireless Palm VII device. In fiscal 1999, we also added engineering staff
in order to begin development programs for two new releases of our platform
software as well as future handheld devices.
General and Administrative
General and administrative expenses were $23.7 million in fiscal 1999, a 55%
increase over fiscal 1998. General and administrative expenses were $15.3
million in fiscal 1998, an increase of 147% over expenses of $6.2 million in
fiscal 1997. General and administrative expenses as a percentage of revenues
were 4% in fiscal 1999 compared to 5% in fiscal 1998 and fiscal 1997. The
absolute dollar increases in general and administrative expenses resulted
primarily from increased personnel-related expenses and shared infrastructure
costs with 3Com to support the growth of our business. In addition, general and
administrative expenses were higher in fiscal 1998 compared to fiscal 1997 as a
result of an increased provision for doubtful accounts receivable.
Purchased In-Process Technology
We acquired Smartcode Technologie SARL on February 8, 1999 for $17.4 million
in cash, including approximately $200,000 in costs directly related to the
acquisition. Approximately $2.1 million of the purchase price represented
purchased in-process technology that had not yet reached technological
feasibility, had no alternative future use and was charged to operations in the
third quarter of fiscal 1999.
Income Tax Provision
Our effective tax rate was 38% in fiscal 1999 and 35% in fiscal 1998, and in
fiscal 1997 we recorded a tax credit. The primary reasons for the fluctuation
in our tax rate are less research and development credit being available in
fiscal 1999 than in fiscal 1998 and our net loss in fiscal 1997.
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Quarterly Results of Operations
The following tables present our operating results for each of the nine
fiscal quarters in the period ended August 27, 1999, in dollars and as a
percentage of revenues. The information for each of these quarters is unaudited
and has been prepared on the same basis as the audited consolidated financial
statements included in this prospectus. In the opinion of management, all
necessary adjustments, which consist only of normal and recurring accruals,
have been included to fairly present the unaudited quarterly results. This data
should be read together with our consolidated financial statements and the
notes to those statements included in this prospectus.
The historical financial information may not be indicative of our future
performance and does not reflect what our financial position and results of
operations would have been had we operated as a separate, stand-alone entity
during the periods presented.
<TABLE>
<CAPTION>
Three Months Ended
---------------------------------------------------------------------------------------
Aug. 31, Nov. 30, Mar. 1, May 31, Aug. 28, Nov. 27, Feb. 26, May 28, Aug. 27,
1997 1997 1998 1998 1998 1998 1999 1999 1999
-------- -------- ------- ------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statements
of Operations Data:
Revenues................ $51,675 $69,997 $65,766 $84,699 $116,069 $147,233 $125,889 $174,334 $176,505
Cost of revenues........ 29,906 42,115 37,392 48,336 62,998 84,289 67,583 100,746 98,324
------- ------- ------- ------- -------- -------- -------- -------- --------
Gross profit............ 21,769 27,882 28,374 36,363 53,071 62,944 58,306 73,588 78,181
------- ------- ------- ------- -------- -------- -------- -------- --------
Operating expenses:
Sales and marketing.... 11,314 20,286 17,335 21,830 23,969 33,893 28,725 41,139 42,648
Research and
development........... 4,538 5,170 5,209 6,946 9,738 10,722 10,989 14,578 12,507
General and
administrative........ 2,470 3,290 3,181 6,358 6,233 5,071 5,739 6,649 7,160
Purchased in-process
technology............ -- -- -- -- -- -- 2,125 -- --
------- ------- ------- ------- -------- -------- -------- -------- --------
Total operating
expenses.............. 18,322 28,746 25,725 35,134 39,940 49,686 47,578 62,366 62,315
------- ------- ------- ------- -------- -------- -------- -------- --------
Operating income
(loss)................. 3,447 (864) 2,649 1,229 13,131 13,258 10,728 11,222 15,866
Interest and other
expense, net........... (35) (44) (5) 28 (25) (75) (15) (108) (63)
------- ------- ------- ------- -------- -------- -------- -------- --------
Income (loss) before
income taxes........... 3,412 (908) 2,644 1,257 13,106 13,183 10,713 11,114 15,803
Income tax provision
(credit)............... 1,190 (317) 922 439 5,036 5,066 4,116 4,270 6,145
------- ------- ------- ------- -------- -------- -------- -------- --------
Net income (loss)....... $ 2,222 $ (591) $ 1,722 $ 818 $ 8,070 $ 8,117 $ 6,597 $ 6,844 $ 9,658
======= ======= ======= ======= ======== ======== ======== ======== ========
As a Percentage of
Revenues:
Revenues................ 100% 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenues........ 58 60 57 57 54 57 54 58 56
------- ------- ------- ------- -------- -------- -------- -------- --------
Gross profit............ 42 40 43 43 46 43 46 42 44
------- ------- ------- ------- -------- -------- -------- -------- --------
Operating expenses:
Sales and marketing.... 22 29 26 26 22 23 23 24 24
Research and
development........... 9 7 8 8 8 7 9 8 7
General and
administrative........ 5 5 5 7 5 4 4 4 4
Purchased in-process
technology............ -- -- -- -- -- -- 2 -- --
------- ------- ------- ------- -------- -------- -------- -------- --------
Total operating
expenses.............. 36 41 39 41 35 34 38 36 35
------- ------- ------- ------- -------- -------- -------- -------- --------
Operating income
(loss)................. 6 (1) 4 2 11 9 8 6 9
Interest and other
expense, net........... -- -- -- -- -- -- -- -- --
------- ------- ------- ------- -------- -------- -------- -------- --------
Income (loss) before
income taxes........... 6 (1) 4 2 11 9 8 6 9
Income tax provision
(credit)............... 2 -- 1 1 4 3 3 2 4
------- ------- ------- ------- -------- -------- -------- -------- --------
Net income (loss)....... 4% (1)% 3% 1% 7% 6% 5% 4% 5%
======= ======= ======= ======= ======== ======== ======== ======== ========
</TABLE>
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We have experienced seasonal variations in our operating results.
Historically, our revenues have been weaker in the first and third fiscal
quarters and have often been lower than the preceding quarter. This seasonal
variation is due to the fact that our products are highly consumer-oriented,
and consumer buying patterns traditionally reflect reduced purchases in those
quarters. As our licensing revenues grow, we expect that they will contribute
to the fluctuations in our quarterly results because the products offered by
our licensees are also primarily consumer-oriented. In addition, we attempt to
time our new product releases to coincide with relatively higher consumer
spending in the second and fourth fiscal quarters, which contributes to these
seasonal variations.
In the second quarter of fiscal 1998, our gross margin declined compared to
the prior and subsequent quarters primarily due to price reductions. Sales and
marketing expenses increased in this same quarter as a result of costs related
to our first third-party developer conference and start-up costs incurred for
setting up our international sales and marketing organization. In addition,
sales and marketing expenses increased after the first quarter of fiscal 1998
in preparation for the worldwide launch of the Palm III product family in the
fourth quarter of fiscal 1998. In the fourth quarter of fiscal 1998, our
general and administrative expenses were higher due to increased provisions for
doubtful accounts receivable identified during the quarter.
In the first and third quarters of fiscal 1999, our gross margin improved due
to the mix of new products with higher gross margins consisting of the Palm
III, Palm IIIx, and Palm V devices. Research and development expenses and
general and administrative expenses decreased as a percentage of revenues in
the second quarter of fiscal 1999 compared to the prior and subsequent quarters
as a result of seasonally strong second quarter revenues and a lower provision
for doubtful accounts receivable than in the first quarter. In the third
quarter of fiscal 1999, we incurred a one-time charge of $2.1 million for
purchased in-process technology as a result of the Smartcode acquisition.
Liquidity and Capital Resources
Historically, 3Com has managed cash on a centralized basis. Cash receipts
associated with our business have been transferred to 3Com on a periodic basis
and 3Com has provided funds to cover our disbursements. Accordingly, we have
reported no cash or cash equivalents at May 31, 1998 and May 25, 1997. At May
28, 1999, we reported cash of $478,000 acquired in the Smartcode acquisition
and at August 27, 1999, we reported cash of $37.1 million as a result of a
transfer from 3Com.
In accordance with our separation agreement, 3Com will transfer to us the
3Com-owned assets and liabilities which relate to our business prior to the
separation date, except for most of our accounts receivable and accounts
payable. We will receive the net proceeds of the offering and the private
placements to America Online, Motorola and Nokia and will pay a dividend to
3Com approximately equal to its tax basis in us, which was approximately $
million at , 2000. In addition, we will make a payment to 3Com of an
intercompany payable, which was approximately $49 million as of August 27,
1999. We anticipate that we will use some of the proceeds from the offering and
the private placements to America Online, Motorola and Nokia to replace the
working capital retained by 3Com and fund our increased working capital needs
associated with revenue growth.
Cash provided from operating activities was $10.1 million for the three
months ended August 27, 1999. Cash provided by operating activities was $59.1
million in fiscal 1999, cash used in operating activities was $32.6 million in
fiscal 1998 and $34.8 million in fiscal 1997. Cash provided by operating
activities in fiscal 1999 resulted primarily from net income adjusted for non-
cash charges for depreciation and amortization and changes in working capital.
Cash used in operating activities in fiscal 1998 resulted primarily from an
increase in accounts receivable which more than offset net income, and
adjustments for non-cash charges and other working capital items. Cash used in
operating activities in fiscal 1997 resulted primarily from our net loss as
well as increases in accounts receivable and inventories.
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We had capital expenditures of $2.3 million in the three months ended August
27, 1999, $5.3 million in fiscal 1999, $8.8 million in fiscal 1998 and $2.5
million in fiscal 1997. In addition, in fiscal 1999, we expended $16.8 million,
net of cash acquired, for the acquisition of Smartcode.
Our future capital requirements will depend on a number of factors, including
the timing and rate of the expansion of our business. We anticipate a
substantial increase in our capital expenditures to support anticipated growth
in operations, infrastructure for our wireless and Internet services plus
hardware and software for our information systems and personnel. We believe
that our cash, cash equivalents and proceeds from this offering and the private
placements to America Online, Motorola and Nokia will provide sufficient
capital to fund our operations for the foreseeable future. We cannot assure
you, however, that the underlying assumed levels of revenues and expenses will
prove to be accurate. We may need to raise additional funds through public or
private financings or other arrangements in order to:
. support more rapid expansion of our business than we anticipate;
. develop and introduce new or enhanced products or services;
. respond to competitive pressures;
. invest in or acquire businesses or technologies; or
. respond to unanticipated requirements or developments.
We cannot be certain that financing will be available to us when we need it
on favorable terms or at all. If additional funds are raised through the
issuance of equity securities, dilution to existing stockholders may result. If
insufficient funds are available, we may not be able to introduce new products
and services, expand the development of our Palm platform and our Internet
services or compete effectively in any of our markets, any of which could
materially harm our business, financial condition and results of operations.
Quantitative and Qualitative Disclosures About Market Risk
Market Risk Disclosures
The following discussion about market risk involves forward-looking
statements. Actual results could differ materially from those projected in the
forward-looking statements. We are exposed to market risk related to changes in
interest rates and foreign currency exchange rates. We do not use derivative
financial instruments for speculative or trading purposes.
Interest Rate Sensitivity
As of August 27, 1999, we had cash and cash equivalents of $37.1 million
which consisted of highly liquid money market instruments with maturities less
than 90 days. Because of the short maturities of these instruments, a sudden
change in market interest rates would not have a material impact on the fair
value of the portfolio. We would not expect our operating results or cash flows
to be affected to any significant degree by the effect of a sudden change in
market interest rates on our portfolio.
Foreign Currency Exchange Risk
Historically, our exposure to exchange rate risk has been managed on an
enterprise-wide basis as part of 3Com's risk management strategy. This strategy
has utilized foreign exchange forward and option contracts to hedge certain
balance sheet exposures and intercompany balances against future movements in
foreign exchange rates. Gains and losses on the forward and option contracts
are largely offset by gains and losses on the underlying exposure and
consequently a sudden or significant change in foreign exchange rates would not
have a material impact on future net income or cash flows. We are currently
evaluating our exchange rate risk management strategy. We do not currently and
do not intend in the future to utilize derivative financial instruments for
trading purposes.
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<PAGE>
Equity Security Price Risk
We do not own any equity investments. Therefore, we do not currently have any
direct equity price risk.
Effects of Recent Accounting Pronouncements
In June 1998 and June 1999, the Financial Accounting Standards Board, or
FASB, issued Statement of Financial Accounting Standards, or SFAS, 133,
"Accounting for Derivative Instruments and Hedging Activities" and SFAS 137,
"Accounting for Derivative Instruments and Hedging Activities-Deferral of the
Effective Date of FASB Statement No. 133." These statements require companies
to record derivatives on the balance sheet as assets or liabilities, measured
at fair value. Gains or losses resulting from changes in the values of those
derivatives would be accounted for depending on the use of the derivative and
whether it qualifies for hedge accounting. SFAS 133 will be effective for our
fiscal year ending May 31, 2002. We believe that adoption of these statements
will not have a significant impact on our financial results.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position No. 98-1, "Accounting for the Costs of Computer Software
Developed or Obtained for Internal Use." Statement of Position No. 98-1
requires that entities capitalize costs related to internal-use software once
certain criteria have been met. We adopted Statement of Position 98-1 in our
first quarter of fiscal 2000. The adoption of this statement did not have a
significant impact on our financial results.
Year 2000 Compliance
Many computer systems and software programs were written to accept and
process only two digit entry codes for the year when storing dates. Beginning
with the year 2000 these entry codes will need to accept four digit entries to
distinguish 21st century dates from the 20th century dates. As a result,
computer systems and software programs may need to be updated to solve this
problem and avoid incorrect or lost data.
We face risks associated with the year 2000 issue. Our operations could be
adversely affected if systems do not correctly recognize date information when
the year changes to 2000. We face risks primarily in the following areas:
. systems used by us and 3Com to run our business including information
systems, equipment and facilities;
. systems used by our and 3Com's suppliers; and
. potential warranty or other claims from our customers.
We have relied on 3Com to address any year 2000 readiness issues in the
internal and external systems we currently use. If 3Com's year 2000 readiness
preparations are insufficient, we may be required to bear the costs of
upgrading or replacing any systems after our separation from 3Com. We continue
to evaluate and mitigate our exposure in these areas where appropriate. We
intend for some of our disclosures and announcements concerning our products
and year 2000 programs, including those in this prospectus, to constitute "Year
2000 Readiness Disclosures" as defined in the recently enacted Year 2000
Information and Readiness Disclosure Act. We cannot be certain that year 2000
issues will not have a material adverse impact on us.
State of Readiness and Risks
We have identified four key exposure internal areas with respect to the year
2000 issue, namely: key transaction processing applications, equipment and
facilities, products and key suppliers.
Key transaction processing applications. Key transaction processing
applications include those used to run our business, finance, order processing
and distribution operations. 3Com has
39
<PAGE>
completed its evaluation of these applications for year 2000 readiness and has
been upgrading or replacing systems, where necessary. If we or 3Com identify
significant new non-compliance issues, or if we encounter unexpected
difficulties in areas previously considered to be year 2000 ready, our ability
to conduct our business or record transactions could be disrupted, which could
adversely affect our results of operations or financial condition.
Equipment and facilities. We have evaluated year 2000 readiness of our
equipment and facilities. We have contacted our key suppliers to ascertain year
2000 compliance of our critical equipment. We expect our critical equipment to
be ready for year 2000. If our year 2000 assessment is incorrect, our design,
production and shipping capabilities could be disrupted, which could adversely
affect our results of operations or financial condition.
Products. We have conducted an extensive evaluation of our currently
available products. We believe that the products we are currently offering are
year 2000 ready. However, the first generation of our handheld device product,
which is no longer being sold, does not properly display the European date
format. We expect to release a downloadable software patch to fix this problem.
If any of our products do not operate properly in the year 2000, we could have
increased warranty costs, customer satisfaction issues, litigation or other
material costs and liabilities, which could adversely affect our results of
operations or financial condition.
Key suppliers. We have contacted our critical suppliers of products and
services to determine that the suppliers' operations and the products and
services they provide are year 2000 ready. Our third-party manufacturers
advised us that their manufacturing operations are or will be year 2000
compliant by December 31, 1999. Confirmation of the continued year 2000
readiness of these key suppliers will continue throughout the remainder of
1999. If key suppliers fail to adequately address the year 2000 issue for the
products or services they provide to us, critical materials, products and
services may not be delivered in a timely manner, which could adversely affect
our results of operations or financial condition.
Most Reasonably Likely Worst-Case Scenario
We believe that our most reasonably likely worst-case year 2000 scenario
would relate to problems with the systems and services of third parties rather
than with our internal systems or products. We believe the risks are greatest
with infrastructure services such as electricity supply and water and sewer
service, telecommunications, transportation and distribution channels and
critical suppliers of materials and services.
Our operations are conducted in a variety of domestic and foreign facilities.
Each location relies on local private and governmental suppliers for utilities,
telephone, and other necessary services and supplies. For example, failure in
the electricity grid or disruption to the continuous supply of power would be a
worst-case scenario that would completely shut down the affected facilities.
Widespread electrical failures could also adversely affect the delivery of
water and sewer services, and hinder the transportation of employees to and
from the workplace.
We cannot identify all possible disruption scenarios. We are preparing
contingency plans specifying our actions if failures occur in key internal
systems and/or critical third party systems and services. The process includes
identifying and prioritizing risks, assessing the business impact of those
risks, evaluating risk mitigation alternatives, and preparing written
contingency plans for those failures with the greatest business risk to us.
Contingency plans for critical business operations are expected to be in
place by the end of the year and these plans will be validated and modified as
needed. Contingency plans will continue to be refined through the end of 1999
as we learn more about the preparations and potential exposure of third parties
to year 2000 disruptions.
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Costs to Address Year 2000 Issues
Although we currently do not expect future year 2000 compliance costs to be
material, the costs could include:
. hardware and software upgrades or replacements primarily related to
desktop systems and telephone equipment;
. consultant and contractor fees to assist in assessments and to perform
remediation and integration testing;
. increased staffing in our customer service area to address the expected
increase in support calls during the year 2000 transition; and
. a contingency for potential unexpected costs associated with replacing
or repairing systems previously considered to be year 2000 ready.
If we identify unexpected problems relating to the year 2000 issue, we may
incur additional costs in identifying and responding to the problems.
41
<PAGE>
BUSINESS
Introduction
We are the leading global provider of handheld computing devices. We believe
that we have achieved our leadership position by focusing on customer needs and
emphasizing simplicity and ease of use in design and engineering. We design,
develop and market our Palm-branded handheld devices, which currently include
our Palm III, Palm V and Internet-enabled Palm VII families. According to
International Data Corporation, in 1998 we had a 68% market share of the
worldwide personal companion handheld device market.
We believe that the success of our devices is attributable to our innovative
product designs, our Palm platform, our technology leadership and the strength
of the Palm brand. We are building on these strengths to expand our business by
licensing the Palm platform to other device and information appliance
manufacturers. In addition, we are expanding our wireless and Internet
offerings through Palm.net, our subscription-based wireless access service, and
Palm.com, our Internet destination site. As the functionalities of handheld
computing devices, information appliances, mobile phones and handheld
entertainment devices converge, we believe that we are well-positioned to
establish the Palm platform as an industry standard.
The rapid proliferation of our devices based on our Palm platform has led to
the emergence of a community of developers who create applications for the Palm
platform as well as peripherals and accessories that increase the functionality
of Palm platform-based devices. These developers have created over 4,500
applications for Palm devices to date, enhancing the functionality and
usefulness of products based on the Palm platform. We believe the Palm platform
is attractive to our licensees because it has been widely adopted by end users
and has broad third-party development support. This adoption further drives an
increase in the size of the Palm platform user base. We refer to this
reinforcing community of users, developers and licensees as the Palm economy.
Industry Overview
As professionals have become increasingly mobile, often spending long periods
of time away from traditional work settings, they have sought out tools to
access and manage critical personal and professional information.
Traditionally, these professionals used paper-based organizers and, later,
stand-alone electronic pocket organizers or portable computers to accomplish
these tasks. These early tools met with mixed success and often were slow,
large, expensive and difficult to use and offered limited functionality.
The introduction of Palm's first device ushered in a new generation of
handheld devices that offered users a combination of simplicity and
functionality. Innovations in design, synchronization technology, user
interface, programmability, functionality and battery power management
transformed these devices into convenient productivity tools. These
enhancements significantly accelerated user demand. According to International
Data Corporation, annual worldwide sales of personal companions will increase
from approximately one million units in 1997 to an estimated 14 million units
in 2003. We believe that further market growth will be driven by continued
innovation, increased wireless data connectivity and the emergence of new usage
patterns driven by Internet content and enterprise data.
We believe that continued technological innovations that address end-user
needs are an important component of industry growth. Technological advances
have led to significant reductions in size and weight, as well as improvements
in battery life, reliability and storage capacity, of handheld devices. Third
party developers, who create software applications and complementary hardware
peripherals and accessories, supplement manufacturers' innovations and allow
users to customize and enhance their devices. These feature enhancements and
performance improvements, driven by both manufacturers and third party
developers, continue to attract new users and encourage device upgrades.
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The emergence of technologies enabling wireless access to the Internet and
enterprise data is again transforming the handheld device industry. The
Internet has become an important way for consumers and professionals to access
personal and business information, download new applications and access new
services. We believe that wireless access to Internet content and enterprise
data will make handheld computing devices increasingly valuable to users. This
value proposition is driving a variety of handheld information appliance makers
to add Internet connectivity features to products such as mobile phones.
As handheld devices are adopted in greater numbers and handheld device
applications become increasingly integrated into other handheld information
appliances, an opportunity exists for operating system developers to extend
their platforms for use on other handheld devices. We believe that the
extension of an operating system to a diverse set of handheld information
appliances, including mobile phones, increases the utility of all devices that
use the operating system and expands the scope and potential market for both
operating system developers and device manufacturers.
Business Summary
In 1996, we introduced our first handheld device product, based on our
innovative Palm platform, and quickly established global market leadership in
the handheld device industry. Our revenues have grown from approximately $1
million in fiscal 1995 to $564 million in fiscal 1999. Our international
business accounted for 29% of revenues in fiscal 1999. We believe that our
users associate the Palm brand with high-quality products that offer a
combination of portability, connectivity, simplicity and style. By capitalizing
on the market-leading position of our handheld devices in domestic and
international markets and on our Palm platform and emerging Internet services
and applications, we believe we can extend our leadership in this evolving
industry.
Handheld Devices. We currently have three families of handheld devices, the
Palm III, Palm V and Palm VII product families, each of which is based on the
Palm platform. We develop our handheld devices by focusing on customer needs.
While all Palm devices are designed to offer a combination of utility,
simplicity, wearability and mobility, we have further differentiated individual
products to appeal to specific market segments. For example, to appeal to users
who place the most value on wearability, we introduced the Palm V product,
which combines the traditional functionality of our products with a sleek,
compact and light-weight form factor. In fiscal 1999, the Palm V product family
became our largest product line measured in terms of revenues. Similarly, to
appeal to mobile professionals and enterprise customers that want to provide
their employees with convenient remote access to enterprise data, we introduced
the Palm VII product, which combines connectivity and mobility. Customers
buying our devices receive a Palm handheld device, a cradle to connect the
device to a personal computer and personal information management and
synchronization software which runs on a personal computer and serves as a
conduit between the device and other personal computer applications.
Palm Platform. The Palm platform combines the distinctive look, feel and ease
of use of our Palm OS operating system with our HotSync synchronization
technology, pen-based input technology, personal information management
applications such as address book and datebook, and, in our Palm VII product,
web-clipping software that allows content providers and users to send and
receive Internet data in a handheld device format. We also make development
tools available for our developer community, and we share select parts of the
Palm OS operating system source code in order to enable developers to optimize
the interface of their applications with the Palm platform. As a result, the
Palm OS operating system has emerged as a highly flexible, efficient operating
system.
In addition to including the Palm platform in our Palm-branded devices, we
have expanded our strategy of licensing the platform to device and information
appliance manufacturers. In October
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1999, we announced a non-exclusive agreement with Nokia, the world's leading
provider of mobile phones, to integrate the Palm platform into several of
Nokia's mobile phone products. We believe this agreement represents a
significant endorsement of the Palm platform for the worldwide wireless phone
market. Similarly, in November 1999 we entered into an agreement with Sony to
license and develop the Palm platform for use in future Sony products. We
believe that the potential of these and other new markets represents a
significant growth opportunity for us and our developer community.
Internet Services and Applications. The Internet allows enhanced contact with
our users by allowing us to offer products and services directly to our users
and by creating an online destination where users, resellers and developers can
participate in the Palm economy. We offer users of our Palm VII device a new
way to access and navigate the Internet through our web-clipping software,
which allows users to download specific information from the Internet. To
support the wireless connectivity of our Palm VII device, we offer Palm.net
which is a monthly fee, subscription-based Internet access service. In
addition, we have developed a website that is also called Palm.net, an Internet
destination where content providers and third party developers can post web-
clipping applications for users to download. We have also developed our
Palm.com website, which is emerging as an important destination site for our
customers, users and developer community. These Internet services and
applications increase the functionality of our products, provide us with
expanded opportunities for product sales, advertising and transaction revenue
and keep us at the forefront of technology and innovation in our rapidly
changing markets.
The Palm Economy. Our broad user base has attracted a large community of
third-party developers that create software applications and peripherals that
increase the performance and functionality of Palm devices. As of December 1,
1999, more than 29,000 developers had registered to use Palm developer tools to
create software applications for the Palm platform. In addition, we distribute
approximately 80 peripherals and accessories developed by us and third parties
ranging from wireless modems to keyboards to leather cases. This expanding Palm
economy has, in turn, encouraged licensees to integrate the Palm platform with
new handheld information appliances providing new opportunities to grow the
Palm economy. The Internet is further expanding the Palm economy by attracting
new users and by encouraging developers to create Internet-specific
applications. We believe that the Palm economy creates opportunities for all
participants by continually extending the functionality and market appeal of
both existing and next-generation Palm-branded products and products based on
the Palm platform.
Strategy
Our objective is to increase our handheld device market leadership and
establish our Palm platform as the industry standard operating system for the
next generation of handheld computing devices, mobile information appliances,
mobile phones and handheld devices for entertainment such as games and music.
In addition, we plan to further develop our Internet services and expand our
enterprise sales. The key elements of our strategy to achieve these objectives
are to:
Extend Market Leadership through Continued Dedication to the Palm Design
Philosophy. Our design philosophy carefully balances elegant form with simple
and useful functions. We intend to continue to increase the size of the
handheld device market by extending this philosophy to products targeted at new
market segments. We have recently accelerated our market segmentation
activities by identifying specific user needs across consumer, mobile
professional and enterprise markets and by introducing new versions of our
handheld devices that combine features tailored to address these specific
needs. For example, we introduced both an entry-level Palm IIIe product for
price-sensitive consumers and the Palm V product for consumers seeking a
slimmer, sleeker Palm device. Underlying our design philosophy is a fundamental
commitment to innovation. We have been first to market with a number of
innovative technologies that we have incorporated into our products ranging
from our first Palm device to our recently introduced Palm VII product. We
believe that continuing product and technology innovation will be important to
our overall success.
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Accelerate Adoption of Palm Products and Services in the Enterprise
Market. We believe the enterprise market represents a significant opportunity
for Palm. Most Palm devices are used in professional environments but have
historically been purchased by users on an individual basis rather than by
corporations or institutions for enterprise-wide deployment. With the recent
introduction of wireless-enabled devices, the development of enterprise
customer support programs and the addition of a direct enterprise salesforce,
we are beginning to see increased adoption of Palm devices by our enterprise
customers. For example, Cedars-Sinai Medical Center is deploying Palm VII
devices to manage patient information. To accelerate the adoption of our
devices by enterprises, we have established relationships with enterprise
software vendors such as Oracle, PeopleSoft, Remedy and SAP to develop
applications that provide access to enterprise databases using devices based on
the Palm platform. Additionally, we are developing synchronization features and
network security capabilities tailored to enterprise networks and computer
servers and working with third party developers to design enterprise-specific
software applications.
License the Palm Platform to Establish a Standard, Open Operating System for
Information Appliances. We intend to further expand the use of the Palm
platform in a wide variety of handheld devices and information appliances. This
strategy involves licensing the Palm platform to other handheld device
manufacturers such as Sony and to manufacturers of other information appliances
that are looking to incorporate an operating system that is widely adopted by
consumers and has broad third-party developer support. We plan to continue to
pursue licensing agreements with wireless telephone companies such as Nokia and
QUALCOMM as well as providers of other mobile information appliances.
Continue to Develop Products and Services that Leverage Wireless Connectivity
and the Internet. The introduction of the Palm VII product represents the first
step in our rollout of wireless Internet-enabled devices. Our Internet services
strategy has four complementary components. First, through strategic
relationships we plan to expand the geographic coverage of our Palm.net
wireless access service on a global basis. Second, we intend to develop
hardware and software solutions to enable previous generations of Palm products
to access Palm.net. Third, we intend to enhance the wireless functionality of
our Palm.net service to increase its utility for enterprise and carrier
applications. Finally, we believe that the proliferation of wireless devices
that link to the Internet will enable us to leverage our Internet properties.
In this regard, we believe that Palm may be particularly well-positioned to
build an Internet access portal around our Palm.net and Palm.com properties.
For example, in addition to providing access for Palm devices through Palm.net,
we plan to make content, such as Internet calendaring and information
management, available through the Palm.net site.
Expand International Business. We intend to continue to expand our
international business. For the first three months of fiscal 2000, revenues
outside the United States accounted for 31% of our total revenues compared to
21% for the first three months of fiscal 1999. With the help of the Palm
developer community, we have introduced localized versions of Palm devices in
five languages. According to International Data Corporation, we had a 72%
market share of the personal companion market in Europe and 59% market share in
Asia in 1998. We plan to build on this success by expanding our international
product offerings, introducing additional local-language versions of the Palm
platform and broadening our distribution channels overseas.
Support the Palm Economy. As the community of users, licensees and hardware
and software developers for Palm products has grown, we have expanded our
efforts to support the Palm economy. Support of the developer community takes a
variety of forms, ranging from offering software tools and technical support
services for third-party developers to hosting PalmSource conferences that
allow us to give direction regarding product and strategy trends. In addition,
we expect to make strategic investments in new companies or make acquisitions
that we believe will support or expand the Palm economy. We may also
selectively develop applications designed to
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increase the functionality of Palm-based devices and support expansion of the
Palm economy. We expect to continue these efforts to support the Palm economy
to stimulate overall demand for products based on the Palm platform.
Products and Services
Handheld Devices. Each of our handheld devices is designed with the Palm
philosophy of providing the user with a simple, elegant and useful productivity
tool. People use our handheld devices for many different purposes, including
managing both personal information and enterprise data and accessing e-mail and
content from the Internet. Users can also customize their devices by adding a
wide range of applications, peripherals and accessories. We have developed each
of our three current product families to address specific customer needs.
The Palm III product family combines the small form factor, seamless desktop
synchronization, ease of use and fast data access that have been the hallmark
of our handheld devices. The Palm IIIe device is our most affordable, entry-
level product. The Palm IIIe special edition product, the newest addition to
this family, combines the traditional features of the Palm III device with a
new, translucent enclosure and is targeted at the student market. The Palm IIIx
device allows users to upgrade both memory and operating system and includes
application software such as enhanced links to Microsoft Outlook.
The Palm V product family emphasizes wearability, combining all of the
functions of the Palm III product family with a sleek and stylish form-factor
featuring an anodized aluminum case. It also features advanced display
technology and a rechargeable battery. The Palm Vx device, introduced in the
fall of 1999, has additional pre-bundled software and more memory than the Palm
V device.
The Palm VII, which integrates wireless communications functionality, is the
first device in our newest product family. The Palm VII device builds on the
features of our other product families by adding wireless access to Internet
content, enterprise data, e-mail, messaging and e-commerce services such as
online shopping, auctions and stock trading. The Palm VII device incorporates
our web-clipping technology, which presents Internet content and enterprise
data in a format optimized for handheld devices. We believe the wireless
connectivity of the Palm VII device makes it particularly well-suited for the
enterprise market as it allows mobile employees to access enterprise data
remotely. In order for users of the Palm VII device to access Internet content,
they currently must subscribe to our Palm.net access service.
As part of our enterprise market strategy, we have entered into an agreement
with Oracle to bundle OracleLite with our developer kit. This bundled product
allows mobile customers in the enterprise market to use a Palm device to gain
access to enterprise databases while working remotely. Similarly, we support
efforts by companies such as PeopleSoft, Remedy and SAP to enable enterprise
users to access their database information with Palm devices. We are also
developing the Palm Ethernet Cradle for enterprise customers. This product
allows Palm device users to connect directly to an enterprise's local area
network from various locations throughout the enterprise. The Palm Ethernet
Cradle is scheduled to be available in February 2000.
We also market and resell peripherals and accessories such as modems, leather
cases, colored flip covers and other fashion accessories for our products.
Palm Platform. Our Palm platform, which integrates a number of components
around the Palm OS operating system, is the foundation for Palm devices as well
as for devices manufactured by our licensees. Our objective is to establish the
Palm platform as the industry standard for handheld computing devices and other
information appliances.
The Palm platform consists of several components:
. the Palm OS operating system;
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. the Palm user interface, which enables users to interact with the Palm
device, and application programming interfaces, which allow developers
to write applications that run on devices based on the Palm platform;
. standard personal information management applications, including
datebook, address book, to-do list, memo pad, calculator and expense
management functions;
. development tools, including developer kits that enable third party
developers to develop applications and licensee kits with hardware
reference designs that enable licensees to design devices around the
Palm OS operating system;
. HotSync data synchronization technology, which enables a handheld device
to synchronize information with personal computers or enterprise
databases;
. Graffiti script recognition technology, which enables users to input
script data directly through our pen-based user interface; and
. Web-clipping software, which allows content providers to present and
users to receive Internet or enterprise data in a format optimized for
handheld computing devices.
The Palm platform has been optimized for handheld devices where instant
access to information, low power consumption and wireless capabilities are
important. These attributes have important benefits for Palm, our developers
and our licensees.
The Palm platform offers a variety of benefits to developers of handheld
devices. The Palm platform software code is designed to allow applications to
run quickly and reliably. It minimizes power, processing and memory
requirements without sacrificing performance, which in turn reduces component
costs for manufacturers. These attributes helped us to design the Palm V with
its slim form factor and will allow our licensees, such as Nokia and Sony, to
design products that allocate more processing resources to new applications
rather than to running a complex operating system. In addition, the
architecture of the Palm platform enables the addition of peripheral devices
and software libraries, which broadens the functionality of the device.
The Palm platform provides application developers with significant design
flexibility. The combination of simpler application programming interfaces and
a modular code architecture enables developers to quickly and easily learn to
program for the Palm platform. In addition, we share select parts of our source
code to enable developers to optimize the interface of their applications with
the Palm platform.
The modular architecture of our Palm platform also provides benefits for our
licensees. We design separations between our software layers and the underlying
basic code, or kernel, and the hardware reference design specific to our Palm
devices. This separation breaks the Palm platform into easily configurable
components, promoting innovation and broadening its appeal to manufacturers of
different information appliances. This separation allows components of the Palm
platform to be modified and replaced to allow the Palm OS operating system to
run on a variety of handheld hardware devices.
Significant market acceptance of Palm platform-based devices is attracting an
increasing number of licensees. In October 1998, Symbol Technologies introduced
the first device based on the Palm platform incorporating bar code scanning
capabilities. Symbol has since introduced other products incorporating wireless
local area network access and rugged packaging. These products are targeted as
vertical solutions for retail, transportation, parcel and postal delivery,
manufacturing and healthcare. Other licensees of the Palm platform include
QUALCOMM, a maker of digital mobile phones, which has introduced its pdQ
digital smart phone combining the functionality of the Palm handheld device
with a mobile phone, and Handspring, a maker of handheld devices branded as
Visor which are targeted at consumers.
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Internet Services and Applications. We have developed two groups of products
and services to address the opportunities created by the emergence of the
Internet: Palm.net and Palm.com.
In 1999, we introduced Palm.net, a subscription-based wireless access service
that enables Palm users to access web-clipped content on the Internet. We
currently offer pre-paid access packages from $9.99 to $39.99 per month and
charge additional amounts for network usage in excess of the pre-paid package.
The Palm VII device currently comes with nine pre-installed web-clipping
applications. In addition, users receive a CD-ROM which contains an additional
14 web-clipping applications that can be installed on the device. Palm.net is
also the name of Palm's web-clipping destination site, which offers links to
more than 150 additional sites that users can download to their devices as well
as customer support, technical support, coverage maps and account information.
For example, Palm VII users can access Fidelity.com or E*Trade to get real-time
stock quotes, UPS.com to monitor package delivery, ESPN.com to check sports
scores, WSJ.com to get news or business headlines and Travelocity to check
airline flight times and delays.
Palm.net also serves as a resource for both content publishers and third
party developers. Content publishers can post links to their own websites that
are web-clipping enabled. In addition, developers can post applications on
Palm.net for use on wireless-enabled Palm devices. As wireless and Internet
technologies advance, we intend to expand the geographical coverage of the
Palm.net network, which currently covers over 260 metropolitan areas in the
United States, and expand the content and application offerings available
through Palm.net.
Palm.com was established as a means to increase our contact with our end
users, customers and third-party developers. Visitors to Palm.com can purchase
Palm devices, accessories and peripherals as well as download Palm software
upgrades and link to third-party software. They can also find product and
customer support information and explore links to other Palm-related websites.
Palm.com also offers important support resources for developers. Developers can
use Palm.com to register with Palm, obtain access to software development tools
and obtain technical support.
Strategic Alliances
Beginning in 1999, we expanded our strategy of licensing the Palm platform to
manufacturers of other handheld information appliances and working with other
companies to expand the use of applications running on the Palm platform. We
recently announced the following strategic alliances:
Nokia. In October 1999, we entered into a licensing and joint development
agreement with Nokia to create a new pen-based mobile phone platform that
integrates telephony and data applications with personal information management
applications. The agreement provides that the jointly developed mobile phone
platform will integrate the user and application interface components of the
Palm platform with know-how supplied by Nokia, with the intention that
applications currently available for the Palm platform will be supported by the
new platform. Pursuant to the agreement, Nokia has a non-exclusive royalty-
bearing license to use the jointly developed platform. Concurrent with this
offering, Nokia has agreed to purchase shares of common stock equal to the
lesser of $80 million or 1 1/2% of the Company's capital stock, which
percentage is based on outstanding common stock as well as options to
purchase shares which have been granted as of ,2000.
Sony. In November 1999, we entered into a licensing and joint development
agreement with Sony Corporation to enable Sony to create new handheld consumer
electronics products with next generation audio-visual functionality. Pursuant
to the agreement, we will develop extensions to the Palm platform that
incorporate Sony's Memory Stick application programming interface technology
for use in the new devices. The agreement also provides us with the right to
license the Memory Stick technology as incorporated in the Palm platform to
third parties.
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Sun Microsystems. In June 1999, we jointly announced with Sun Microsystems
our intention to integrate Sun's Java technology with the Palm platform. In
addition, we jointly announced with Sun in October 1999 the availability of
Sun's consulting services to help deliver enterprise applications and
capabilities for handheld devices based on the Palm platform through the newly
formed Sun.Com Consulting practice.
America Online. In December 1999, we entered into a non-binding memorandum of
understanding with America Online pursuant to which the parties intend to
establish a strategic relationship aimed at offering mobile consumer Internet
services for Palm platform-based handheld device users. The memorandum is non-
binding and there can be no assurance that the parties will be able to enter
into a definitive, binding agreement regarding this relationship. Additionally,
concurrent with this offering, America Online has agreed to purchase shares of
common stock equal to the lesser of $80 million or 1 1/2% of our capital stock,
which percentage is based on outstanding common stock as well as options to
purchase shares which have been granted as of , 2000.
Motorola. In December 1999, we entered into a non-binding memorandum of
understanding with Motorola pursuant to which the parties intend to conclude a
definitive license agreement in which Motorola will license the Palm OS
operating system software to develop wireless products. In addition, the
parties intend to conclude development and license agreements pursuant to which
the capabilities of the Palm OS operating system software would be expanded so
that Motorola could develop new categories of products and enter new markets.
The memorandum is non-binding and there can be no assurance that the parties
will be able to enter into a definitive, binding agreement regarding this
relationship. Additionally, concurrent with this offering, Motorola has agreed
to purchase shares of common stock equal to the lesser of $65 million or 1 1/2%
of the Company's capital stock, which percentage is based on outstanding
common stock as well as options to purchase shares which have been
granted as of , 2000.
Developer Community
The combination of our large user base and the open architecture of the Palm
platform has attracted a large and growing community of third party developers
who create software applications, peripherals and accessories for Palm devices
and Palm platform-based products. The diverse offerings from this third-party
developer community in turn broaden the user appeal of our devices and other
products based on the Palm platform. As of December 1, 1999, more than 29,000
developers had registered to create applications for the Palm platform. In
addition, over 4,500 applications are currently available in a broad range of
categories, including contact and schedule management, e-mail and Internet
communications, sales force and field automation, personal productivity,
groupware, financial management and games. Developers of several major
applications, such as IBM's Lotus Organizer, Symantec's ACT! and QUALCOMM's
Eudora Internet e-mail software, have enabled these applications to be
synchronized with our devices. We have hosted three developer conferences with
attendance growing from approximately 380 in 1997 to 2,000 in 1999 and have
begun hosting these conferences internationally in Tokyo, London and Munich.
Sales and Marketing
We sell to our end users primarily through distributors, retailers and
resellers. In the United States, we currently sell directly to six
distributors, 14 retailers and eight regional resellers. We also use our
dedicated enterprise sales force to market Palm products directly to
enterprises which then purchase devices through one of our other sales
channels. We also sell directly to consumers through our Palm.com website.
In the United States, distributors represent our largest sales channel. These
distributors generally sell to retailers on a national basis and include large
distributors targeting Internet retailers
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such as Buy.com. The retail channel is our second largest United States
distribution channel and encompasses office supply and consumer electronics
retailers and catalog and mail order companies. Retailers primarily sell Palm
devices to individuals, small businesses, small offices and home offices. This
channel is currently our fastest growing area of distribution.
In Europe and the Pacific Rim, we currently sell our product exclusively
through distributors. We have approximately 111 international distributors, of
which approximately 88 are in Europe and 23 are in the Pacific Rim. In
addition, 3Com currently resells our products into the Canadian and Latin
American markets.
We believe there is a significant opportunity to expand the Palm economy by
selling device products through third parties such as IBM and Franklin Covey
that sell customized versions of our products under their own brand. We believe
by developing specialized and customized products that are re-branded and re-
sold by these third parties, we can quickly and cost effectively enter new
geographic and specialized vertical markets, or expand our penetration into
existing markets such as the enterprise. Our strategy is to select established
enterprise companies that have significant market presence or access to new
markets that can be more efficiently developed and managed by these third
parties than by us. For example, IBM sells Palm-based products in the
enterprise market branded as the IBM WorkPad PC Companion in the United States,
Europe, Japan, Latin America and Asia. We have entered into a relationship with
Franklin Covey to provide a series of devices based on the Palm III, V and VII
products sold to both the consumer and enterprise markets based on its popular
time and life management planning concepts. We jointly developed with Supra,
the largest provider of lock boxes for the real-estate industry, an electronic
key embedded in Palm devices for accessing their lock boxes and specialized
realtor productivity software.
We build awareness of our products and the Palm brand through mass-media
advertising, targeted advertising, public relations efforts, in-store
promotions and merchandising and through our Palm-branded Internet properties.
We also receive extensive feedback from our end users, the third-party
developer community and our channel customers through market research. We use
this feedback to continually refine our product development as well as the
position and assortment of our products in our sales channels.
Customer Service and Support
We believe that customer service and technical support are essential parts of
the sales process in our industry. In order to provide high levels of customer
service, senior management and assigned account managers work closely with our
distributor, retailer, reseller and enterprise customers. We believe these
relationships enable us to improve customer satisfaction and develop products
to meet specific customer needs. For our enterprise customers we provide a
variety of support offerings including a training program for the enterprise
help-desk, website, e-mail and telephone troubleshooting, as well as a program
to provide refurbished units to enterprises needing replacement devices.
Individual consumers also have access to website, e-mail and telephone support.
We outsource our customer service, technical support and product repairs to
regionally-based third parties.
Product Development and Technology
Our engineering department consists of a device design group and a separate
Palm platform team. Our product development efforts are focused on both
improving the functionality of our existing products and developing new
products. We believe the industrial design of our products has played an
important role in our success. We intend to continue to identify and respond to
the needs of our customers by introducing new product designs with an emphasis
on innovations in the utility, simplicity, wearability, mobility, style and
ease of use of our products and services.
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To identify and develop technologies for the next generations of Palm
devices, we use parallel development teams to avoid schedule dependency from
one product to the next. At the same time, these parallel development teams
share results to avoid duplication of effort. As a result, we have a rapid
product development cycle that targets releasing new versions of products
approximately every six months to coincide with the summer and winter selling
seasons and introducing new generation products approximately every 12 months.
In addition, our Palm platform software engineering group works both on
refining the Palm platform for our Palm-branded devices and on coordinating
development efforts with our licensees.
We have four design centers, each of which focuses on different aspects of
our products, such as wireless connectivity, flexibility and wearability. For
example, our design center in Bellevue, Washington developed the technology
that enabled the wireless connectivity of the Palm VII product, and our design
center in Santa Clara, California was responsible for the improvements in
wearability of the Palm V product. We have additional design centers in Rolling
Meadows, Illinois and Montpellier, France.
We believe that our success will depend, in part, on our ability to develop
and introduce new products and enhancements to our existing products. In the
past we have made, and intend to continue to make, significant investments in
research and development. Our research and development expenditures totaled
approximately $46.0 million in fiscal 1999, $21.9 million in fiscal 1998 and
$13.4 million in fiscal 1997. As of November 26, 1999, we had 250 people
engaged in research and development activities.
Manufacturing and Supply Chain
We currently outsource all of our manufacturing operations to Manufacturers'
Services Limited and Flextronics. This outsourcing extends from prototyping to
volume manufacturing and includes activities such as material procurement,
final assembly, test, quality control and shipment to our customers.
Manufacturers' Services Limited currently assembles Palm devices for us at its
Utah facility which it recently purchased from 3Com. Flextronics currently
assembles Palm devices at its facilities in Mexico, California and Malaysia.
Our outsourced manufacturing strategy allows us to:
. minimize our capital expenditures;
. conserve the working capital that would be required to fund inventory;
. adjust to manufacturing volumes quickly to meet changes in demand; and
. operate without dedicating any space to manufacturing operations.
We believe that additional assembly line efficiencies are realized due to our
product architecture and our commitment to process design. Although we
generally use standard components for our products and try to maintain
alternative sources of supply, some key components, such as the Motorola
microprocessors we use, are purchased from sole or single source suppliers for
which alternative sources are not currently available in the quantities and at
the prices we require. The components that make up our devices are supplied by
a number of vendors such as Epson, Samsung, Sharp and Philips, who each supply
liquid crystal display panels, AMD, Fujitsu and Toshiba, who each supply DRAM
memory chips, and Motorola, the supplier of our microprocessor.
Competition
We compete in the handheld device, operating system and Internet services
markets. The markets for these products and services are highly competitive.
Some of our competitors or potential competitors have significantly greater
financial, technical and marketing resources than we do. These competitors may
be able to respond more rapidly than us to new or emerging technologies or
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changes in customer requirements. They may also devote greater resources to the
development, promotion and sale of their products than we do.
Our devices compete with a variety of handheld devices, including pen- and
keyboard-based devices, mobile phones and subnotebook personal computers. Our
principal competitors include Casio, Compaq, Hewlett-Packard, Psion and Sharp
as well as licensees of our Palm platform such as Handspring and TRG. We
believe the principal competitive factors impacting the market for our handheld
devices are functionality, features, operating system performance, styling,
availability, brand and price.
Our Palm platform competes primarily with operating systems such as
Microsoft's Windows CE operating system for handheld personal computers and
Symbian's EPOC operating system for wireless communication devices. We believe
that the principal competitive factors affecting the market for operating
systems are the overall number of end users, technological features and
capabilities of the operating system, number and quality of third-party
applications available for use on the operating system, architecture of the
operating system and relative ease of developing compatible applications. In
our licensing activities, our Palm platform also competes with the proprietary
operating systems of our potential licensees.
While it currently has no directly analogous competitors, the Palm VII device
and our wireless Internet access service compete with a variety of alternative
technologies and services. Mobile phone manufacturers and service providers
including Nokia, Motorola and Sprint have recently introduced mobile phones
which offer Internet connectivity. We expect that the trend toward integrating
Internet connectivity into a diverse set of devices will continue to accelerate
as industry standards emerge. Our subscription-model access business also
competes indirectly with other providers of Internet access, ranging from
dedicated Internet service providers such as America Online and Earthlink to
local phone companies. In addition, although we currently supply Internet
access to Palm VII subscribers through our Palm.net service, competing Internet
access solutions may be developed to enable connectivity through wireless-
enabled Palm devices outside our Palm.net service.
Intellectual Property
Our software, hardware and operations rely on and benefit from an extensive
portfolio of intellectual property. We currently have 10 United States patents
issued for our technology and we have 52 United States patent applications
pending. We also have 27 foreign patent applications pending.
We own a number of trademarks, including Palm, Palm III, Palm V, Palm VII,
Palm OS, Palm Computing, PalmSource, HotSync, Graffiti, Simply Palm and
Palm.net. We are currently engaged in litigation against other parties to
enforce our rights to these trademarks, the protection of which is important to
our reputation and branding. We also own copyrights to the Palm platform and
our software development applications.
We license a number of technologies from third parties for integration into
our products. We believe that the licensing of complementary technologies from
parties with specific expertise is an effective means of expanding the features
and functionality of our products.
In addition to our Palm platform, we also license development applications to
third-party developers of compatible products, services and applications to
increase the functionality of devices based on the Palm platform. In addition,
we have licensed software that enables numerous website hosts, including ABC
News, Bank of America, Dow Jones, ESPN, E*Trade, Fidelity.com, Fodor's,
MasterCard, Merriam-Webster, MovieFone, Starbucks, TheStreet.com, UPS, USA
Today, VISA, The Weather Channel and Yahoo!, to make their websites accessible
by devices based on the Palm platform using our web-clipping technology.
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<PAGE>
We rely on a combination of patent, trademark, copyright and trade secret
laws and restrictions on disclosure to protect our intellectual property
rights.
Backlog
We order finished products from our third-party manufacturers based upon our
forecast of worldwide customer demand and in advance of receiving orders from
our customers. Orders are generally placed by our customers on an as-needed
basis and products are usually shipped within one to four weeks after receipt
of an order. Orders generally may be canceled or rescheduled by the customer
without significant penalty. Accordingly, backlog as of any particular date is
not necessarily indicative of our future revenues.
Employees
As of November 26, 1999, we had a total of approximately 632 employees, of
which approximately 67 were in supply chain and service and support, 250 were
in engineering, 254 were in sales and marketing and 61 were in general and
administrative activities. Our future performance depends, in significant part,
upon our ability to attract new personnel and retain existing personnel in key
areas including engineering, technical support and sales. Competition for
personnel is intense, especially in the San Francisco Bay Area where we are
headquartered, and we cannot be sure that we will be successful in attracting
or retaining personnel in the future. None of our employees is subject to a
collective bargaining agreement. We consider our relationship with our
employees to be good.
Facilities
We occupy approximately 160,000 square feet of leased space in Santa Clara,
California. The lease of this facility is terminable with six-months notice
beginning in July 2001 and expires in July 2002. In addition to our principal
office space in Santa Clara, California, we also lease research and development
facilities in Bellevue, Washington, Rolling Meadows, Illinois and Montpellier,
France and sales and support offices internationally in Winnersh, United
Kingdom and La Defense, France. We believe that existing facilities are
adequate for our needs through calendar year 2000 and are currently in the
process of locating additional space to meet our expected requirements
thereafter. If we require additional space, we believe that we will be able to
secure such space on commercially reasonable terms without undue operational
disruption.
Legal Proceedings
On April 28, 1997, Xerox Corporation filed suit against U.S. Robotics
Corporation and U.S. Robotics Access Corp. in the United States District Court
for the Western District of New York. The case is now captioned: Xerox
Corporation v. U.S. Robotics Corporation, U.S. Robotics Access Corp., Palm
Computing, Inc. and 3Com Corporation, Civil Action No. 97-CV-6182T. The
complaint alleges willful infringement of a Xerox United States patent, issued
on January 21, 1997, relating to computerized interpretation of handwriting.
The complaint further seeks unspecified damages and injunctive relief. Xerox
has asserted that products utilizing Graffiti script recognition software made,
used, offered for sale or sold in the United States, or imported into the
United States since January 21, 1997 infringe its patent. On June 25, 1999, the
Court stayed the action pending reexamination of the patent by the United
States Patent and Trademark Office. The reexamination of the patent is
currently pending. In connection with our separation from 3Com, pursuant to the
terms of the Indemnification and Insurance Matters Agreement, we will indemnify
and hold 3Com harmless for any damages or losses which may arise out of this
litigation. In particular, an adverse determination in the Xerox litigation
could subject us to substantial damages and require us to indemnify our
53
<PAGE>
customers and licensees for damages that they may suffer. Moreover, if there is
an adverse determination, a license may be necessary to continue using the
Grafitti script recognition software in our Palm devices and Palm platform. A
license may not be available or on terms acceptable to us. If upon an adverse
determination we were unable to obtain a license on terms acceptable to us, we
could be required to modify our script recognition software or license
alternative script recognition software from third parties for inclusion in our
Palm devices and our Palm platform.
On July 22, 1999, we filed a copyright infringement action against Olivetti
and CompanionLink in the United States District Court for the Northern District
of California and obtained a preliminiary injunction against further
distribution, sale, import or export of Olivetti Office USA's "Royal daVinci"
handheld device and the daVinci OS Software Development Kit, distributed by
CompanionLink Software, Inc. The injunction is to remain in effect pending the
outcome of the lawsuit. We also initiated a copyright infringement action in
Hong Kong on July 21, 1999, against EchoLink Design Ltd., the company
responsible for developing the operating system software contained in the
daVinci products. The High Court of the Hong Kong Special Administrative Region
issued an order the same day restraining EchoLink from further copying,
distribution, sale, import or export of Palm OS operating system source code or
EchoLink's "NEXUS OS" source code, which we maintain infringes our copyrights.
54
<PAGE>
MANAGEMENT
Directors, Executive Officers and Key Employees
Set forth below is information concerning our directors and executive
officers and their ages as of October 31, 1999.
<TABLE>
<CAPTION>
Name Age Position
---- --- --------
<S> <C> <C>
Directors and Executive
Officers:
Carl J. Yankowski....... 51 Chief Executive Officer and Director
Eric A. Benhamou........ 44 Director
James L. Barksdale...... 56 Director
Gordon A. Campbell...... 55 Director
Susan G. Swenson........ 51 Director
Alan J. Kessler......... 42 President
Judy Bruner............. 41 Senior Vice President and Chief Financial Officer
Stephen Yu.............. 34 Vice President, General Counsel and Secretary
Key Employees:
Mark Bercow............. 38 Vice President, Strategic Alliances & Platform Development
Gregory S. Rhine........ 41 Vice President, Worldwide Sales
Peng K. Lim............. 36 Vice President, Worldwide Product Engineering
Daniel S. Keller........ 43 Vice President, Platform Engineering
Dinesh Raghavan......... 45 Vice President, Global Supply Chain Operations
Charles Yort............ 40 Vice President, Enterprise
Byron Connell........... 39 Vice President, Product Marketing
Robert Harvey........... 47 Senior Director, Palm.net Services
Douglas Haslam.......... 49 Director, Human Resources
David de Valk........... 30 Director, Global Service and Support
</TABLE>
Carl J. Yankowski has been our Chief Executive Officer and one of our
directors since December 1999. From September 1998 to December 1999, Mr.
Yankowski was Executive Vice President of Reebok International Ltd. and
President and Chief Executive Officer of the Reebok Division. From November
1993 to January 1998, Mr. Yankowski was President and Chief Operating Officer
of Sony Electronics Inc., a subsidiary of the Sony Corporation. Mr. Yankowski
holds a Bachelor of Science degree in electrical engineering from the
Massachusetts Institute of Technology as well as a Bachelor of Science degree
in management which he earned concurrently from MIT's Sloan School of
Management. Mr. Yankowski also serves as a director of Safeguard Scientifics
and Avidyne, Inc., and he is a member of the board of advisors of Boston
College Business School.
Eric A. Benhamou has served as one of our directors since September 1999. Mr.
Benhamou has been 3Com's Chief Executive Officer since September 1990 and also
served as 3Com's President from April 1990 through August 1998. Mr. Benhamou
has been 3Com's Chairman of the Board of Directors since July 1994. Mr.
Benhamou served as 3Com's Chief Operating Officer from April 1990 through
September 1990. From October 1987 through April 1990, Mr. Benhamou held various
general management positions within 3Com. Mr. Benhamou also serves as Chairman
of the Board of Cypress Semiconductor, Inc. and as a director of Legato
Systems, Inc. Mr. Benhamou is a member of President Clinton's Information
Technology Advisory Council.
James L. Barksdale has served as one of our directors since September 1999.
Mr. Barksdale has been a managing partner at The Barksdale Group since he
founded it in April 1999. Prior to that, he served as President, Chief
Executive Officer and a director of Netscape Communications Corporation, an
Internet browser company, from January 1995 to April 1999. Previously,
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<PAGE>
Mr. Barksdale had been President and Chief Executive Officer of AT&T Wireless
Services since September 1994. From 1992 to September 1994, Mr. Barksdale had
been employed as President and Chief Operating Officer of McCaw Cellular
Communications, Inc., and from 1979 to 1992 by Federal Express Corporation. Mr.
Barksdale also serves as a director of Robert Mondavi Corporation, Sun
Microsystems, Inc., America Online, Inc., Liberate Technologies,
Homegrocer.com, Inc. and Respond.com, Inc.
Gordon A. Campbell has served as one of our directors since September 1999.
Mr. Campbell is the founder and, since 1993, has been President and Chairman of
the Board of Techfarm, Inc., a company formed to launch technology-based start-
up companies. Mr. Campbell was the founder of CHIPS and Technologies, Inc., a
company that designs and distributes very large scale integrated circuit
products, and served as its President and Chief Executive Officer from December
1984 until November 1993, and as its Chairman of the Board from December 1984
until November 1995. Mr. Campbell also serves as a director of Bell
Microproducts, Inc., Chairman of the Board of 3D/Fx Interactive Inc. and
Chairman of the Board of Cobalt Networks, Inc.
Susan G. Swenson has served as one of our directors since October 1999. Ms.
Swenson is President and Chief Operating Officer of Leap Wireless
International, Inc. and Chief Executive Officer of Cricket Communications, Inc.
since July 1999. Ms. Swenson has also been a director of Leap since July 1999.
From March 1994 to July 1999, Ms. Swenson served as President and Chief
Executive Officer for Cellular One, a joint venture between AirTouch/Vodafone
and AT&T Wireless. Ms. Swenson is also a director of Wells Fargo Bank, General
Magic and Working Assets.
Alan J. Kessler has been President of Palm since June 1999. From April 1998
to June 1999, Mr. Kessler was Senior Vice President of Global Customer Service
for 3Com. From July 1997 to April 1998, Mr. Kessler was Senior Vice President
of Worldwide Enterprise Sales and Service for 3Com. From October 1985 to July
1997, Mr. Kessler held a variety of sales and marketing management positions at
3Com, including Vice President of 3Com's North America System Sales, Vice
President and General Manager of 3Com's Internetworking Product Group and a
Director of Marketing with responsibility for key network communication product
lines. Mr. Kessler holds a Master of Business Administration degree from the
University of California, Berkeley and a Bachelor of Science degree in
business, with honors, from San Jose State University.
Judy Bruner has served as Senior Vice President and Chief Financial Officer
of Palm since September 1999. From April 1998 to September 1999, Ms. Bruner was
Vice President and Corporate Controller at 3Com. From October 1996 to April
1998, Ms. Bruner was the Vice President, Finance for 3Com's Enterprise Systems
Business Unit. From June 1995 to October 1996, she served as 3Com's Vice
President and Corporate Treasurer. From April 1988 to June 1995 Ms. Bruner
served in a variety of 3Com financial management positions including Corporate
Treasurer. Prior to joining 3Com, Ms. Bruner most recently served as the Vice
President and Chief Financial Officer for Ridge Computers Inc., a privately
held company that designed and manufactured computer systems. She was with
Ridge Computers Inc. from December 1984 until April 1988. From July 1980 to
December 1984, Ms. Bruner held a variety of accounting and finance positions at
Hewlett-Packard Company. Ms. Bruner holds a Bachelor of Arts degree in
Economics from the University of California, Los Angeles and a Master of
Business Administration degree from Santa Clara University.
Stephen Yu has served as Vice President, General Counsel and Secretary since
September 1999. From November 1994 to September 1999, Mr. Yu held various
positions within the 3Com legal department, most recently serving as 3Com's
Legal Director, Business Development and West Coast Product Operations. From
September 1990 to November 1994, Mr. Yu was an associate attorney with Gray
Cary Ware & Freidenrich, a law firm located in Palo Alto, California. Mr. Yu
received a Juris Doctor degree cum laude from Georgetown University Law Center
and a Bachelor of Science degree in electrical engineering from Purdue
University.
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<PAGE>
Mark Bercow has been Palm's Vice President, Strategic Alliances and Platform
Development since July 1997. Prior to joining Palm, from January 1997 to July
1997, he was Director of Marketing for the Cable Access Products Division of
3Com. From September 1995 to September 1996, Mr. Bercow was Vice President,
Marketing and Business Development at FirstFloor Software, Inc. From September
1994 to September 1995 he was the General Manager of the David Systems
subsidiary of Chipcom Corporation and from September 1993 to September 1994, he
was Acting Vice President, Marketing at Chipcom Corporation. Prior to joining
Chipcom, Mr. Bercow was Group Manager, Marketing at Sun Microsystems, Inc. He
holds a Bachelor of Science degree in business administration from California
State University, Northridge.
Gregory S. Rhine has served as Palm's Vice President of Worldwide Sales since
June 1999. From October 1997 to May 1999, Mr. Rhine served as Vice President
and General Manager for VeriFone, Inc., a division of Hewlett-Packard Company.
From January 1997 to September 1997, Mr. Rhine was Vice President of American
Channel Development and Sales at Apple. From May 1988 to December 1996, Mr.
Rhine held a variety of sales and management positions at Apple, including
Senior Director U.S. Distribution Sales, Director, Value Added Reseller (VAR)
sales, and Regional Sales Manager. Prior to Apple, from July 1979 to April
1988, Mr. Rhine worked for Olin Corporation in various areas of responsibility
including business development and marketing. Mr. Rhine holds a degree in
Business Administration from the University of Missouri and has completed
graduate work at West Coast University and executive management programs at The
Kellogg School of Business in Evanston, Illinois.
Peng K. Lim has served as Vice President, Worldwide Product Engineering of
Palm since April 1999. From June 1997 to March 1999, Mr. Lim served as Vice
President, Engineering at Fujitsu Personal Systems Inc. From July 1996 to June
1997, he was Engineering Platform Director for Texas Instruments Incorporated.
Mr. Lim was Director of Engineering for Zenith Data Systems Corporation from
September 1993 to June 1996. Prior to that, Mr. Lim was Director of Engineering
at Dauphin Technology, Inc. Mr. Lim received his Bachelor of Science degree and
Master of Science degree in electrical engineering from University of Windsor
in Canada and Master of Engineering Management from Northwestern University.
Mr. Lim completed the executive management program at Stanford University.
Daniel S. Keller has been Palm's Vice President of Platform Engineering since
August 1999. From June 1998 to July 1999, Mr. Keller was Director, Product
Engineering and from November 1997 to May 1998, he was Director, Corporate
Solutions Engineering. Prior to joining Palm, from April 1996 to September
1997, Mr. Keller was Vice President of Product Development for Power Agent,
Inc., an Internet company creating a large-scale, Internet system for bringing
buyers and sellers together. From November 1991 to March 1996 he was Director
of Development System Products at Taligent, Inc. From November 1980 to October
1991, Mr. Keller was at Apple Computer, Inc., where he held various positions
in the development of Apple's system software, graphical human interface,
development systems, and Japanese products. Prior to Apple, from June 1978 to
October 1980, he worked in operating system engineering at Hewlett-Packard
Company. Mr. Keller received his Bachelor of Science degree in Computer
Engineering with high honors from the University of California, San Diego.
Dinesh Raghavan joined Palm in October 1998 as Vice President, Global Supply
Chain Operations. Prior to joining Palm, from May 1997 to September 1998.
Mr. Raghavan held the position of Director of Manufacturing Operations for the
European Paging Subscriber Division of Motorola, Inc. based in Dublin, Ireland.
From August 1977 to April 1997, Mr. Raghavan held various positions of
increasing responsibility in development engineering and manufacturing
management with Motorola. He holds a Bachelor of Technology degree in
electrical engineering from the Indian Institute of Technology in Kanpur, India
and a Masters in Business Administration degree from Nova University in Fort
Lauderdale, Florida.
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<PAGE>
Charles Yort has been Vice President, Enterprise for Palm since November
1999. From September 1998 to November 1999, Mr. Yort was the Senior Director of
Palm Computing's enterprise sales team. Prior to joining Palm, from December
1996 to August 1998, Mr. Yort was the Director of Small Business Operations for
3Com. From September 1995 to November 1996, Mr. Yort was Director of Market
Development for 3Com. Prior to joining 3Com, from June 1993 to August 1995, Mr.
Yort was Marketing Manager for the PC Division of Inmac Corporation, a reseller
of computer related products. From August 1981 to June 1993, Mr. Yort worked in
various marketing, business development and engineering roles for Hewlett-
Packard Company. Mr. Yort holds a Masters in Business Administration degree
from Stanford University's Graduate School of Business, with concentrations in
Strategic Management and Finance. He earned a Bachelor of Science in
Engineering and Bachelor of Arts in Economics from Princeton University.
Byron Connell has been Vice President, Marketing since July 1999. From
September 1998 to December 1999, Mr. Connell was Senior Director of Product
Marketing for Palm and from July 1997 to August 1998, he was Director of
Product Marketing. From December 1994 to July 1997, Mr. Connell was the Group
Manager of Product Marketing for the Home Products Division of Hewlett- Packard
Company. From February 1993 to December 1994, Mr. Connell was the Group Manager
of Customer Requirements for Apple Computer, Inc. and from July 1988 to January
1993, he worked in a variety of sales, channel, and marketing management
positions for Apple Computer, Inc. Mr. Connell holds a Bachelor of Science
degree in Business Administration from the University of Southern California
and a Master of Management degree in marketing, international business and
management policy from the J.L. Kellogg Graduate School of Management at
Northwestern University. As an international exchange student, Mr. Connell also
studied at the Rotterdam School of Management Master of Business Administration
program at Erasmus University, Netherlands.
Robert Harvey has served as Director, Palm.net since December 1997. From
November 1983 to November 1997, Mr. Harvey held a variety of manufacturing and
operations positions at Apple Computer, Inc., including Director of Mobile
Computing Operations from May 1995 to November 1997. From October 1973 to
October 1983, Mr. Harvey worked with the Palo Alto Police Department, most
recently serving as Captain, Uniform Division. Mr. Harvey holds a Bachelor of
Science degree in Sociology from the University of Santa Clara and a Masters of
Public Administration from California State University, Hayward.
Doug Haslam has been Director, Human Resources for Palm since January 1997.
From January to December 1996, Mr. Haslam led Human Resources for the DDS
Division of Xerox Corporation. From September 1991 to September 1995, Mr.
Haslam was Director, Human Resources for Kenetech Windpower Corporation, and
from January 1988 to September 1991, he was Principal of his own Human
Resources consulting practice. From January 1985 to January 1988, Mr. Haslam
was Director, Human Resources for EOS, Inc., and from April 1981 to January
1985, he was Human Resources Manager for EOS, Inc. He has a Bachelor of Arts
degree in Political Science from Ohio University and a Masters in Public
Administration degree from University of California, Los Angeles.
David de Valk has been Director of Customer Service since October 1999. From
September 1998 to October 1999, Mr. de Valk served as Director, e-Business
Strategy and Architecture for 3Com Global Customer Service. From June 1997 to
September 1998, Mr. de Valk held several senior service positions in 3Com
Global Customer Service, most recently Director, Network Solutions Services.
From September 1991 to June 1997, Mr. de Valk worked in various Technical
Support positions including Manager, Applications Engineering for U.S. Robotics
Corporation. Mr. de Valk attended Eureka College.
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<PAGE>
Board Structure and Compensation
Our board of directors is divided into three classes serving staggered three-
year terms. Mr. Yankowski's initial term will expire in 2000. Mr. Campbell's
and Ms. Swenson's initial terms will expire in 2001. Messrs. Benhamou's and
Barksdale's initial terms will expire in 2002.
Non-employee directors will be paid an annual retainer equal to $20,000 and
be eligible for stock option grants under the Director Plan at such times and
in such amounts as are set forth in the Director Plan.
Audit Committee
Mr. Campbell and Ms. Swenson are members of our audit committee. Our audit
committee reviews our auditing, accounting, financial reporting and internal
control functions and makes recommendations to the board of directors for the
selection of independent accountants. In addition, the committee monitors the
quality of our accounting principles and financial reporting, our compliance
with foreign trade regulations as well as the independence of and the non-audit
services provided by our independent accountants. In discharging its duties,
the audit committee:
. reviews and approves the scope of the annual audit and the independent
accountant's fees;
. meets independently with our internal auditing staff, our independent
accountants and our senior management; and
. reviews the general scope of our accounting, financial reporting, annual
audit and internal audit program, matters relating to internal control
systems as well as the results of the annual audit.
Compensation Committee
Messrs. Barksdale and Campbell are members of our compensation committee. Our
compensation committee determines, approves and reports to the board on all
elements of compensation for our elected officers including targeted total cash
compensation and long-term equity based incentives.
Stock Ownership of Directors and Executive Officers
All of our common stock is currently owned by 3Com, and thus none of our
officers, directors or director nominees own any of our common stock. To the
extent our directors and officers own shares of 3Com common stock at the time
of the distribution, they will participate in the distribution on the same
terms as other holders of 3Com common stock.
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<PAGE>
The following table sets forth the number of shares of 3Com common stock
beneficially owned on October 31, 1999 by each director, each of the executive
officers named in the Summary Compensation Table in the "--Executive
Compensation" section below, and all of our directors, director nominees and
executive officers as a group. Except as otherwise noted, the individual
director or executive officer or their family members had sole voting and
investment power with respect to such securities. The total number of shares of
3Com common stock outstanding as of October 31, 1999 was 341,225,466.
<TABLE>
<CAPTION>
Shares of 3Com
Beneficially Owned
-------------------- ---
Name of Beneficial Owner Number Percentage
------------------------ --------- ----------
<S> <C> <C> <C>
Carl J. Yankowski.................................. -- *
Eric A. Benhamou(1)................................ 1,788,817 *
James L. Barksdale(2).............................. 120,000 *
Gordon A. Campbell(3).............................. 52,875 *
Susan G. Swenson................................... -- *
Alan J. Kessler(4)................................. 179,716 *
Judy Bruner(5)..................................... 76,402 *
Stephen Yu(6)...................................... 10,903 *
All directors and executive officers as a group.... 2,228,713 *
</TABLE>
- --------
* Represents holdings of less than one percent.
(1) Includes 1,377,505 shares issuable upon the exercise of options exercisable
within 60 days of October 31, 1999.
(2) Includes 60,000 shares issuable upon the exercise of options exercisable
within 60 days of October 31, 1999 and 60,000 shares are held by Mr.
Barksdale and his spouse.
(3) Includes 52,875 shares issuable upon the exercise of options exercisable
within 60 days of October 31, 1999.
(4) Includes 179,716 shares issuable upon the exercise of options exercisable
within 60 days of October 31, 1999.
(5) Includes 74,381 shares issuable upon the exercise of options exercisable
within 60 days of October 31, 1999.
(6) Includes 10,164 shares issuable upon the exercise of options exercisable
within 60 days of October 31, 1999.
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<PAGE>
Executive Compensation
The following table sets forth compensation information for the chief
executive officer and the three other executive officers of Palm who, based on
salary and bonus compensation from 3Com and its subsidiaries, were the most
highly compensated for the year ended May 28, 1999. All information set forth
in this table reflects compensation earned by these individuals for services
with 3Com and its subsidiaries for the fiscal year ended May 28, 1999.
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Annual ------------
Compensation Awards
---------------- ------------
Securities All Other
Bonus Underlying Compensation
Name and Principal Position Salary($) ($)(1) Options(#) ($)(2)
--------------------------- --------- ------ ------------ ------------
<S> <C> <C> <C> <C>
Eric A. Benhamou, Chief Executive
Officer and Director(3)........... 750,000 -- 273,425 12,092
Alan J. Kessler, President......... 400,000 -- 83,500 10,466
Judy Bruner, Senior Vice President
and Chief Financial Officer....... 204,967 16,504 35,000 5,480
Stephen Yu, Vice President, General
Counsel and Secretary............. 130,242 7,946 10,950 3,564
</TABLE>
- --------
(1) The amounts shown in this column reflect payments made under 3Com's
company-wide profit-sharing plan. 3Com distributed these amounts at six-
month intervals to all employees worldwide, other than those who are paid
commissions, including executive officers, with the individual payments
determined pro rata based on salary level.
(2) All other compensation includes group term life insurance premiums,
payments made to reimburse a spouse's travel costs to 3Com events and
401(k) matching payments.
(3) Mr. Benhamou ceased serving as our Chief Executive Officer in December
1999.
Grants of Stock Options
The following table shows all grants of options to acquire shares of 3Com
common stock to the executive officers named in the Summary Compensation Table
in the fiscal year ended May 28, 1999.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
% of Total Annual Rates of Stock
Number of Options Granted Appreciation for
Securities to 3Com Exercise or Option Term(4)
Underlying Options Employees in Base Price Expiration ---------------------
Name Granted(#)(1) Fiscal Year(2) ($/Sh)(3) Date 5%($) 10%($)
- ---- ------------------ --------------- ----------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Eric A. Benhamou........ 175,000 * 24.0000 6/1/08 $2,641,357 $6,693,718
54,675 * 25.5000 9/1/08 876,813 2,222,016
43,750 * 38.6875 11/30/08 1,064,453 2,697,534
Alan J. Kessler......... 52,500 * 24.0000 6/1/08 792,407 2,008,116
17,875 * 25.5000 9/1/08 286,658 726,448
13,125 * 38.6875 11/30/08 319,336 809,260
Judy Bruner............. 20,000 * 28.0625 7/22/08 352,967 894,488
8,000 * 20.4375 4/19/09 102,824 260,577
4,000 * 20.4375 4/19/09 51,412 130,288
Stephen Yu.............. 6,000 * 28.0625 7/22/08 105,890 268,346
4,000 * 20.4375 4/19/09 51,412 130,288
950 * 28.5000 5/19/09 17,027 43,151
</TABLE>
- --------
*Less than one percent.
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<PAGE>
(1) All of the above options are subject to the terms of 3Com's 1983 Stock
Option Plan or 1994 Stock Option Plan and are exercisable only as they
vest. The options granted to each executive officer vest and become
exercisable in equal annual increments over a four year period provided the
optionee continues to be employed by us.
(2) Based on a total of 18,938,977 shares granted to all 3Com employees in
fiscal 1999.
(3) All options were granted at an exercise price equal to the fair market
value of 3Com's common stock on the date of grant.
(4) Potential realizable values are net of exercise price, but before deduction
of taxes associated with exercise. These amounts represent certain assumed
rates of appreciation only, based on the Securities and Exchange Commission
rules, and do not represent our estimate of future stock prices. No gain to
an optionee is possible without an increase in stock price, which will
benefit all stockholders commensurately. A zero percent gain in stock price
will result in zero dollars for the optionee. Actual realizable values, if
any, on stock option exercises are dependent on the future performance of
our common stock, overall market conditions and the option holders'
continued employment through the vesting period.
Exercises of Stock Options
The following table shows aggregate exercises of options to purchase 3Com
common stock in the fiscal year ended May 28, 1999 by the executive officers
named in the Summary Compensation Table in the "--Executive Compensation"
section above.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised In-
Underlying Unexercised The-Money Options at
Shares Options at Fiscal Year-End(#) Fiscal Year-End ($)(1)
Acquired on Value -------------------------------- -------------------------
Name Exercise(#) Realized($) Exercisable Unexercisable Exercisable Unexercisable
---- ----------- ----------- ----------- --------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Eric A. Benhamou........ 200,000 $8,625,498 1,162,398 516,175 $15,530,295 $678,786
Alan J. Kessler......... 30,000 810,894 98,840 187,500 -- 206,305
Judy Bruner............. 10,000 185,625 63,151 51,585 433,874 302,344
Stephen Yu.............. 3,200 79,400 7,186 16,679 20,438 81,750
</TABLE>
- --------
(1) Based on fair market value of $27.3125 per share as of May 28, 1999, the
closing sale price of 3Com's common stock on that date as reported by the
Nasdaq National Market System.
Employment Arrangements
Mr. Yankowski serves as our Chief Executive Officer and as a director. Under
the terms of his employment, Mr. Yankowski's annual base compensation is
$600,000 and he is eligible for a target cash bonus of $600,000 per year. In
addition, subject to board approval, Mr. Yankowski will receive an employee
stock option grant equivalent in value to $48 million based on the price per
share in this offering or no more than 2% of the shares outstanding at the time
of this offering. This option will vest 25% per year over a period of four
years and is subject to the terms and conditions of the 1999 Stock Plan. In the
event that Mr. Yankowski is terminated for any reason other than cause during
the first two years of his employment, he is entitled to receive continued
salary payments and continued vesting of his stock option for a two-year period
if the termination occurs within the first six months of his employment, an 18-
month period if the termination occurs within the second six months, or a 12-
month period if the termination occurs within the second year. Pursuant to a
management retention agreement, Mr. Yankowski is entitled to severance benefits
in the event that, within 24 months following a change of control, his
employment is terminated involuntarily other than for cause, death or
disability or by Mr. Yankowski voluntarily for good reason. These severance
benefits include a severance payment of 200% of his salary and target bonus,
continued employee benefits, pro-rated bonus payment, and full acceleration of
vesting on Mr. Yankowski's stock options.
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Treatment of 3Com Options
We intend to assume substantially all of the 3Com options held by our
employees on the distribution date. As of October 31, 1999, our employees held
options to purchase 2,610,815 shares of 3Com common stock at a weighted average
exercise price per share of $28.02. The price of 3Com common stock on that date
was $29.00. These assumed options are expected to convert at the distribution
into options to purchase our common stock. The number of shares and the
exercise price of 3Com options that convert into our options are expected to be
adjusted using a conversion formula. The conversion formula is expected to be
based on the opening per share price of our common stock on the first trading
day after the distribution relative to the closing per share price of 3Com
common stock on the last trading day before the distribution. The resulting
options are expected to maintain the original vesting provisions and option
periods.
Treatment of 3Com Restricted Stock
Under the 3Com Restricted Stock Plan, some of our key employees were granted
restricted stock awards. As of October 31, 1999, our employees held 24,000
unvested 3Com restricted shares. The unvested 3Com restricted shares held by
our employees are expected to be forfeited on the distribution. We intend to
provide our employees who forfeit 3Com restricted shares with replacement
restricted shares of our common stock granted at the time of the distribution.
The replacement restricted shares are expected to have substantially the same
vesting provisions as the forfeited 3Com restricted shares.
Incentive Plans
1999 Stock Plan
Our board of directors adopted the 1999 Stock Plan, referred to as the "1999
Plan," in November 1999, and our stockholder initially approved our 1999 Plan
in November 1999. Our 1999 Plan provides for the grant of incentive stock
options to our employees, and for the grant of nonstatutory stock options and
stock purchase rights to our employees, directors and consultants.
Number of Shares of Common Stock Available under the 1999 Plan. As of ,
1999, a total of shares of our common stock were reserved for
issuance pursuant to the 1999 Plan. No options to acquire shares of our common
stock were issued and outstanding as of that date. Our 1999 Plan provides for
annual increases in the number of shares available for issuance on the first
day of each fiscal year, beginning with our 2001 fiscal year, equal to the
lesser of 5% of our outstanding shares of common stock on that date,
shares or a lesser amount determined by our board.
Administration of the 1999 Plan. Our board of directors or a committee of our
board administers the 1999 Plan. In the case of options intended to qualify as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the committee will consist of two or more "outside directors" within the
meaning of Section 162(m) of the Code. The administrator has the power to
determine the terms of the options or stock purchase rights granted, including
the exercise price, the number of shares subject to each option or stock
purchase right, the exercisability of the options and the form of consideration
payable upon exercise.
Options. The administrator determines the exercise price of options granted
under the 1999 Plan, but with respect to nonstatutory stock options intended to
qualify as "performance-based compensation" within the meaning of Section
162(m) of the Code and all incentive stock options, the exercise price must at
least be equal to the fair market value of our common stock on the grant date.
The term of an incentive stock option may not exceed ten years, except that
with respect to any participant who owns 10% of the voting power of all classes
of our outstanding capital stock, the term
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must not exceed five years and the exercise price must at least equal 110% of
the fair market value on the grant date. The administrator determines the term
of all other options.
No optionee may be granted an option to purchase more than shares in
any fiscal year, except that in connection with his or her initial service, an
optionee may be granted an additional option to purchase up to shares.
After termination of one of our employees, directors or consultants, he or
she may exercise his or her option for the period of time stated in the option
agreement. Generally, if termination is due to death or disability, the option
will remain exercisable for 12 months. In all other cases, the option will
generally remain exercisable for 3 months. However, an option may never be
exercised later than the expiration of its term.
Stock Purchase Rights. The administrator determines the exercise price of
stock purchase rights granted under our 1999 Plan. Unless the administrator
determines otherwise, the restricted stock purchase agreement will grant us a
repurchase option that we may exercise upon the voluntary or involuntary
termination of the purchaser's service with us for any reason, including death
or disability. The purchase price for shares we repurchase will generally be
the original price paid by the purchaser and may be paid by cancellation of any
indebtedness of the purchaser to us. The administrator determines the rate at
which our repurchase option will lapse.
Transferability of Options and Stock Purchase Rights. Our 1999 Plan generally
doesn't allow for the transfer of options or stock purchase rights and only the
optionee may exercise an option or stock purchase right during his or her
lifetime.
Adjustments upon Merger or Asset Sale. Our 1999 Plan provides that in the
event of our merger with or into another corporation or a sale of substantially
all of our assets, the successor corporation will assume or substitute an
equivalent award for each option or stock purchase right. If following such an
assumption or substitution, the holder of an option or stock purchase right is
terminated without cause, then the vesting and exercisability of 50% of the
then unvested shares subject to his or her option or stock purchase right shall
accelerate. If the outstanding options or stock purchase rights are not assumed
or substituted for in connection with a merger or sale of assets, the
administrator will provide notice to the optionee that he or she has the right
to exercise the option or stock purchase right as to all of the shares subject
to the option or stock purchase right, including shares which would not
otherwise be exercisable, for a period of 15 days from the date of the notice.
The option or stock purchase right will terminate upon the expiration of the
15-day period.
Amendment and Termination of our 1999 Plan. Our 1999 Plan will automatically
terminate in 2009, unless we terminate it sooner. In addition, our board of
directors has the authority to amend, suspend or terminate the 1999 Plan,
provided it does not adversely affect any option previously granted under our
1999 Plan.
1999 Employee Stock Purchase Plan
Concurrently with this offering, we intend to establish an Employee Stock
Purchase Plan, referred to as the "Purchase Plan."
Number of Shares of Common Stock Available under the Purchase Plan. A total
of shares of our common stock will be made available for sale. In
addition, our Purchase Plan provides for annual increases in the number of
shares available for issuance on the first day of each fiscal year, beginning
with our 2001 fiscal year, equal to the lesser of 2% of the outstanding shares
of our common stock on the first day of the fiscal year, shares, or a
lesser amount as may be determined by our board of directors.
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Administration of the Purchase Plan. Our board of directors or a committee of
our board administers the Purchase Plan. Our board of directors or its
committee has full and exclusive authority to interpret the terms of the
Purchase Plan and determine eligibility.
Eligibility to Participate. All of our employees are eligible to participate
if they are customarily employed by us or any participating subsidiary for at
least 20 hours per week and more than five months in any calendar year.
However, an employee may not be granted an option to purchase stock under the
Purchase Plan if:
. immediately after grant the employee owns stock possessing 5% or more of
the total combined voting power or value of all classes of our capital
stock, or
. the employee's rights to purchase stock under all of our employee stock
purchase plans accrues at a rate that exceeds $25,000 worth of stock for
each calendar year.
Offering Periods and Contributions. Our Purchase Plan is intended to qualify
under Section 423 of the Code and contains consecutive and overlapping 24-month
offering periods. Each offering period includes four 6-month purchase periods.
The offering periods generally start on the first trading day on or after April
1 and October 1 of each year, except for the first such offering period which
will commence on the first trading day on or after the effective date of this
offering and will end on the last trading day on or before March 31, 2002.
Our Purchase Plan permits participants to purchase common stock through
payroll deductions of up to 10% of their eligible compensation, which includes
a participant's base salary, and commission but excludes all other compensation
paid to the participant. A participant may purchase a maximum of shares
during a 6-month purchase period.
Purchase of Shares. Amounts deducted and accumulated by the participant are
used to purchase shares of our common stock at the end of each six-month
purchase period. The price is 85% of the lower of the fair market value of our
common stock at either the beginning or end of an offering period. If the fair
market value at the end of a purchase period is less than the fair market value
at the beginning of the offering period, participants will be withdrawn from
the current offering period following their purchase of shares on the purchase
date and will be automatically re-enrolled in a new offering period.
Participants may end their participation at any time during an offering period,
and will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.
Transferability of Rights. A participant may not transfer rights granted
under the Purchase Plan other than by will, the laws of descent and
distribution or designation of a beneficiary as provided under the Purchase
Plan.
Adjustments upon Merger or Asset Sale. In the event of our merger with or
into another corporation or a sale of all or substantially all of our assets, a
successor corporation may assume or substitute for each outstanding option. If
the successor corporation refuses to assume or substitute for the outstanding
options, the offering periods then in progress will be shortened, and a new
exercise date will be set prior to the merger or sale of assets.
Amendment and Termination of the Purchase Plan. Our Purchase Plan will
terminate in 2009. However, our board of directors has the authority to amend
or earlier terminate our Purchase Plan, except that, subject to exceptions
described in the Purchase Plan, no such action may adversely affect any
outstanding rights to purchase stock under our Purchase Plan.
1999 Director Option Plan
Our board of directors adopted the 1999 Director Option Plan, referred to as
the "Director Plan", in November 1999, and our stockholder initially approved
the Director Plan in November 1999. The
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Director Plan provides for the periodic grant of nonstatutory stock options to
our non-employee directors.
Number of Shares Available under the Director Plan. As of , 1999, a total
of shares were reserved for issuance under the Director Plan. No
options to acquire shares were issued and outstanding as of this date. Our
Director Plan provides for annual increases in the number of shares of common
stock available for issuance on the first day of each fiscal year, beginning
with our 2001 fiscal year, equal to shares or a lesser amount
determined by our board.
Options. All grants of options to our non-employee directors under the
Director Plan are automatic. We will grant each non-employee director an option
to purchase shares upon the later of the effective date of the Director
Plan and the date when such person first becomes a non-employee director,
except for those directors who became non-employee directors by ceasing to be
employee directors. In addition, all non-employee directors who have served for
at least 6 months receive an option to purchase shares on the date of
each annual meeting of our stockholders at which the non-employee director is
re-elected to our board of directors.
All options granted under our Director Plan have a term of ten years and an
exercise price equal to the fair market value of our common stock on the date
of grant. Each share option becomes exercisable as to 33% of the shares
subject to the option on each anniversary of the date of grant, and each
share option, becomes exercisable as to 100% of the shares subject to the
option on the first anniversary of the date of grant, provided in each case the
non-employee director remains a director on those dates.
After termination as a non-employee director, an optionee must exercise his
or her option at the time set forth in his or her option agreement. If
termination is due to death or disability, the option will generally remain
exercisable for 12 months. In all other cases, the option will generally remain
exercisable for a period of 3 months. However, an option may never be exercised
later than the expiration of its term.
Transferability of Options. A non-employee director may not transfer options
granted to him or her under our Director Plan other than by will or the laws of
descent and distribution. Only the non-employee director may exercise his or
her options during his or her lifetime.
Adjustments upon Change of Control. In the event of our merger with or into
another corporation in which our stockholders before such transaction do not
continue to hold at least 50% of the successor or resulting entity, a sale of
substantially all of our assets and other transactions set forth in the
Director Plan, the exercisability of each option granted under the Director
Plan shall accelerate as to all of the shares subject to the option. The option
will terminate following the change of control transaction.
Amendment and Termination of the Director Plan. Unless terminated sooner, our
Director Plan will automatically terminate in 2009. Our board of directors has
the authority to amend, alter, suspend, or discontinue the Director Plan, but
none of those actions may adversely affect any grant made under the Director
Plan.
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ARRANGEMENTS BETWEEN PALM AND 3COM
We have provided below a summary description of the executed master
separation and distribution agreement, along with the key related agreements,
which we expect to be executed prior to the completion of this offering. This
description, which summarizes the material terms of the agreements, is not
complete. You should read the full text of these agreements, which have been
filed with the Securities and Exchange Commission as exhibits to the
registration statement of which this prospectus is a part.
Master Separation and Distribution Agreement
The master separation and distribution agreement contains the key provisions
relating to our separation from 3Com, this offering and the distribution of our
shares to 3Com stockholders.
The Separation. The separation is scheduled to occur on or around February
26, 2000. The separation agreement will provide for the transfer to us of
assets and liabilities from 3Com related to our business as described in this
prospectus, effective on the separation date. The various ancillary agreements
that are exhibits to the separation agreement and which detail the separation
and various interim and ongoing relationships between 3Com and us following the
separation date include:
. a general assignment and assumption agreement;
. technology, patent, and trademark ownership and license agreements;
. an employee matters agreement;
. a tax sharing agreement;
. a transitional services agreement
. a real estate matters agreement;
. a confidential disclosure agreement; and
. an indemnification and insurance matters agreement.
To the extent that the terms of any of these ancillary agreements conflict with
the separation agreement, the terms of these agreements will govern. These
agreements are described more fully below.
The Initial Public Offering. Under the terms of the separation agreement 3Com
will own at least % of our outstanding common stock following this offering
and the private placements to America Online, Motorola and Nokia. We are
obligated to use our reasonable commercial efforts to satisfy the following
conditions to the consummation of this offering, any of which may be waived by
3Com:
. the registration statement containing this prospectus must be effective;
. United States securities and blue sky laws must be satisfied;
. our common stock must be listed on the New York Stock Exchange or the
Nasdaq Stock Market;
. all our obligations under the underwriting agreement must be met or
waived by the underwriters;
. 3Com must own at least % of our stock and must be satisfied that the
distribution will be tax-free to its United States stockholders;
. no legal restraints must exist preventing the separation or this
offering;
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. the separation must have occurred; and
. the separation agreement must not have been terminated.
The Distribution. 3Com intends to, following consummation of this offering,
distribute by December 1, 2000 the remaining shares of our common stock that
3Com holds to 3Com stockholders on a pro rata basis. We will prepare an
information statement with 3Com and send it to 3Com stockholders before the
distribution becomes effective. The information statement will inform the
stockholders of the distribution and its specifics. 3Com may, in its sole
discretion, change the distribution date. 3Com intends to consummate the
distribution only if the following conditions are met, any of which may be
waived by 3Com:
. the Internal Revenue Service must issue a ruling that the distribution
of Palm common stock will be tax-free to 3Com stockholders and that the
transaction will qualify as a reorganization for United States federal
income tax purposes;
. all required government approvals must be in effect;
. no legal restraints must exist preventing this distribution; and
. nothing must have happened in the intervening time between this offering
and the distribution that makes the distribution harmful to 3Com or its
stockholders.
Covenants Between 3Com and Palm. In addition to signing documents that
transfer control and ownership of various assets and liabilities of 3Com
relating to our business, we have agreed with 3Com to enter into additional
transitional service agreements, exchange information, engage in auditing
practices and resolve disputes in particular ways.
Additional Transitional Service Agreements. 3Com and we will enter into
transitional service agreements covering the provision of various transitional
services, including financial, legal, accounting, customer service, human
resources administration, supply chain, product order administration,
facilities and information technology services by 3Com to us. These services
will generally be provided for a fee equal to direct and indirect costs of
providing the services plus 5%. The transitional service agreements will
generally have a term of one year or less from the date of separation.
Information Exchange. Both 3Com and we have agreed to share information with
each other, for a variety of purposes, unless the sharing would be commercially
detrimental. In furtherance of this, both 3Com and we have agreed as follows:
. Each party has agreed to maintain adequate internal accounting to allow
the other party to satisfy its own reporting obligations and prepare its
own financial statements.
. Each party will retain records beneficial to the other party for a
specified period of time. If the records are going to be destroyed, the
destroying party will give the other party an opportunity to retrieve
all relevant information from the records, unless the records are
destroyed in accordance with adopted record retention policies.
. Each party will use commercially reasonable efforts to provide the other
party with directors, officers, employees, other personnel and agents
who may be used as witnesses in and books, records and other documents
which may reasonably be required in connection with legal,
administrative or other proceedings.
Auditing Practices. So long as 3Com is required to consolidate our results of
operations and financial position, we have agreed to:
. not select a different independent accounting firm from that used by
3Com without 3Com's consent;
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. use reasonable commercial efforts to enable our auditors to date their
opinion on our audited annual financial statements on the same date as
3Com's auditors date their opinion on 3Com's financial statements;
. exchange all relevant information needed to prepare financial
statements;
. grant each other's internal auditors access to each other's records; and
. notify each other of any change in accounting principles.
Dispute Resolution. If problems arise between us and 3Com, we have agreed to
the following procedures:
. The parties will make a good faith effort to first resolve the dispute
through negotiation.
. If negotiations fail, the parties agree to attempt to resolve the
dispute through non-binding mediation.
. If mediation fails, the parties can resort to binding arbitration. In
addition, nothing prevents either party acting in good faith from
initiating litigation at any time if failure to do so would cause
serious and irreparable injury to one of the parties or to others.
No Representations and Warranties. Neither party is making any promises to
the other regarding:
. the value of any asset that 3Com is transferring;
. whether there is a lien or encumbrance on any asset 3Com is
transferring; or
. the legal sufficiency of any conveyance of title to any asset 3Com is
transferring.
No Solicitation. Each party has agreed not to directly solicit or recruit
employees of the other party without the other party's consent for two years
after the distribution date. However, this prohibition does not apply to
general recruitment efforts carried out through public or general solicitation
or where the solicitation is employee-initiated.
Expenses. All of the costs and expenses related to this offering as well as
the costs and expenses related to the separation and distribution will be
allocated between us and 3Com. We will each bear our own internal costs
incurred in consummating these transactions.
Termination of the Agreement. 3Com in its sole discretion can terminate the
separation agreement and all ancillary agreements and abandon the distribution
at any time prior to the closing of this offering. Both 3Com and Palm must
agree to terminate the separation agreement and all ancillary agreements at any
time between the closing of this offering and the distribution.
General Assignment and Assumption Agreement
The general assignment and assumption agreement identifies the assets 3Com
will transfer to us and the liabilities we will assume from 3Com in the
separation. The agreement also describes when and how these transfers and
assumptions will occur.
Asset Transfer. Effective on the separation date, 3Com will transfer the
following assets to us, to the extent that the assets were, prior to the
separation date, 3Com assets and except as provided in an ancillary agreement
or other agreement:
. assets reflected on our balance sheet as of August 27, 1999, minus any
assets disposed of after August 27, 1999;
. written off, expensed or fully depreciated assets that would have
appeared on our balance sheet as of August 27, 1999, if we had not
written off, expensed or fully depreciated them;
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. assets that 3Com acquired after August 27, 1999, that would have
appeared in our financial statements as of the separation date if we
prepared such financial statements using the same principles we used in
preparing our balance sheet dated August 27, 1999;
. assets that our business primarily uses as of the separation date but
are not reflected in our balance sheet as of August 27, 1999 due to
mistake or omission;
. contingent gains related primarily to our business;
. contracts that relate primarily to our business entered into in our
name;
. specified rights under existing insurance policies; and
. other specified assets.
Excluded Assets. The general assignment and assumption agreement also
provides that 3Com will not transfer selected assets to us, including most
accounts receivable.
Assumption of Liabilities. Effective on the separation date, we will assume
the following liabilities from 3Com, to the extent that the liabilities were,
prior to the separation date, 3Com liabilities and except as provided in an
ancillary or other agreement:
. liabilities reflected as liabilities on our balance sheet as of August
27, 1999, minus any liabilities that were discharged after such date of
the balance sheet;
. liabilities of 3Com that arise after August 27, 1999 that would have
appeared in our financial statements as of the separation date if we
prepared such financial statements using the same principles we used in
preparing our balance sheet dated August 27, 1999;
. liabilities that are primarily related primarily of our business at the
separation date but are not reflected in our balance sheet as of August
27, 1999 due to mistake or omission;
. contingent liabilities primarily related to our business;
. liabilities other than taxes primarily resulting from the operation of
our business, or resulting from any asset that 3Com transferred to us;
. liabilities arising out of specified terminated, divested or
discontinued businesses and operations; and
. other specified liabilities.
Excluded Liabilities. The general assignment and assumption agreement also
provides that we will not assume specified liabilities, including:
. most accounts payable;
. any liabilities that would otherwise be allocated to us but which are
covered by 3Com's insurance policies, unless we are a named insured
under such policies; and
. other specified liabilities.
The Non-United States Plan. The transfer of international assets and
assumption of international liabilities will be accomplished through agreements
entered into between international subsidiaries. The agreement acknowledges
that circumstances in jurisdictions outside of the United States may require
the timing of the international separation to be delayed past the separation
date.
Delayed Transfers. If it is not practicable to transfer specified assets and
liabilities on the separation date, the agreement provides that these assets
and liabilities will be transferred after the separation date.
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Terms of Other Ancillary Agreements Govern. If another ancillary agreement
expressly provides for the transfer of an asset or an assumption of a
liability, the terms of the other ancillary agreement will determine the manner
of the transfer and assumption.
Obtaining Approvals and Consents. The parties agree to use all reasonable
efforts to obtain any required consents, substitutions or amendments required
to novate or assign all rights and obligations under any contracts that will be
transferred in the separation.
Nonrecurring Costs and Expenses. Any nonrecurring costs and expenses that are
not allocated in the separation agreement or any other ancillary agreement
shall be the responsibility of the party that incurs the costs and expenses.
Master Technology Ownership and License Agreement
The master technology ownership and license agreement, or the master
technology agreement, allocates rights in technology other than patents, patent
applications and invention disclosures. In the master technology agreement,
3Com will confirm that we own all technology developed by us and, to the extent
that any technology is registered in 3Com's name or 3Com otherwise has any
ownership rights in that technology, 3Com will assign it to us. In addition,
specified manufacturing technology will be jointly owned. 3Com will not
restrict our right to use the assigned or jointly owned technology. We will
commit to license our operating system to 3Com on favorable terms pursuant to a
separate agreement that we will negotiate.
In the event of an acquisition of either party, the acquired party may assign
the master technology agreement, except that 3Com may not assign the commitment
to license the operating system.
Master Patent Ownership and License Agreement
The master patent ownership and license agreement, or the master patent
agreement, allocates rights relating to patents, patent applications and
invention disclosures. In the master patent agreement, 3Com will confirm that
we own patents, patent applications and invention disclosures which were
developed by us and, to the extent that any of these patents or patent
applications are recorded in 3Com's name, 3Com will assign them to us. The
specific patents, patent applications and invention disclosures being assigned
are identified in a database. 3Com will not restrict our rights to practice the
assigned patents. 3Com will retain ownership of jointly developed patents,
patent applications and invention disclosures, but will grant us a license to
jointly developed patents, patent applications and invention disclosures that
have resulted or in the future result from our joint development with 3Com in
the wireless connectivity area. The license is non-exclusive and royalty-free
and will permit us to make, have made, use, lease, sell, offer for sale, and
import current and future Palm products and services. The license continues for
the life of the licensed patents. 3Com will not be restricted from licensing
these wireless connectivity patents for defensive purposes, but for purposes
other than for defensive purposes, 3Com will be restricted from licensing these
wireless connectivity patents in the field of lightweight handheld mobile
computing devices and operating systems for such devices.
In addition, each party will covenant not to sue the other party or the other
party's customers or suppliers for infringement of its patents that exist as of
the separation date or that are based on applications or invention disclosures
that exist as of the separation date. The products and services that are
covered by the covenant are the products and services of each party's business
as it exists as of the separation date.
In the event of an acquisition of either party, the acquired party may assign
the master patent agreement except that the licenses and covenants not to sue
may not be assigned. In addition, in the event a sale of a subsidiary or
business unit of either party, the licenses and covenants not to sue may not be
assigned. However, the non-acquired party is obligated to enter into licenses
or
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covenants not to sue, as applicable, with a transferee acquiring a party or a
subsidiary or business unit of a party, subject to certain reductions in the
scope of the licenses and covenants not to sue and subject to the agreement of
the acquiring party to grant a license or covenant not to sue back to the non-
acquired party.
The master patent agreement will also provide that 3Com and we will assist
each other in specified ways for a period of five years after the separation
date in the event either party is subject to patent litigation.
Master Trademark Ownership and License Agreement
The master trademark ownership and license agreement, or the master trademark
agreement, will allocate rights relating to trademarks, service marks and trade
names. In the master trademark agreement, 3Com will confirm that we own our
trademarks, service marks and trade names that we use in connection with our
business and, to the extent that any of our marks are registered in 3Com's name
or 3Com otherwise has any rights in those marks, 3Com will assign them to us.
In addition, 3Com will grant us a royalty-free license to mark our existing
products with, and advertise and promote these products using, specified 3Com
trademarks. The term of this license is two years after the separation date. We
may allow authorized dealers to use the trademarks in the advertisement and
promotion of our existing products. During the first two years from the
separation date, 3Com will agree not to license the trademarks it licenses to
us to third parties for use in connection with products or services that
compete with our products shipping as of the distribution date, other than any
licenses that may have previously been granted.
3Com may terminate the license under the master trademark agreement only with
regard to products that fail to meet required quality standards, subject to a
notice and cure period.
Employee Matters Agreement
We will enter into an employee matters agreement with 3Com to allocate
assets, liabilities, and responsibilities relating to current and former
employees of Palm and their participation in the benefits plans, including
stock plans, that 3Com currently sponsors and maintains.
All eligible Palm employees will continue to participate in the 3Com benefits
plans on comparable terms and conditions to those for 3Com employees until the
distribution date or until we establish benefit plans for our employees, or
elect not to establish comparable plans, if it is not legally or financially
practical. We intend to establish our own benefit program no later than the
time of the distribution.
Once we establish our own benefits plans, we may modify or terminate each
plan in accordance with the terms of that plan and our policies. No Palm
benefit plan will provide benefits that overlap benefits under the
corresponding 3Com benefit plan at the time of the distribution. Each Palm
benefit plan will provide that all service, compensation and other benefit
determinations that, as of the distribution, were recognized under the
corresponding 3Com benefits plan will be taken into account under that Palm
benefit plan.
Assets relating to the employee liabilities will be transferred to Palm or
the related Palm plans and trusts from trusts and other funding vehicles
associated with 3Com's benefits plans.
Options. We will establish a replacement stock plan for eligible Palm
employees on or before the distribution. We will assume all 3Com options held
by Palm employees. These options will convert at the distribution into options
to purchase our common stock. The number of shares and the exercise price of
3Com options that convert into Palm options will be adjusted using a conversion
formula. The conversion formula will be based on the opening per-share price of
our common stock on the first trading day after the distribution relative to
the closing per-share price of 3Com common stock on the last trading day before
the distribution. The resulting Palm options will maintain the original vesting
provisions and option period.
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Restricted Stock. On or before the distribution, 3Com restricted stock
granted under incentive stock plans and held by Palm employees is expected to
be forfeited. Each Palm employee who forfeits 3Com restricted stock will
receive Palm restricted stock in replacement of his or her forfeited 3Com
restricted stock.
Stock Purchase Plan. We anticipate that Palm employees will continue to
participate in the 3Com stock purchase plan through the date of this offering.
After that time, we will sponsor a stock purchase plan for the benefit of Palm
employees that is comparable to the 3Com stock purchase plan.
Tax Sharing Agreement
We will enter into a tax sharing agreement with 3Com that will allocate
responsibilities for tax matters between Palm and 3Com. The agreement will
require us to pay 3Com for the incremental tax costs of our inclusion in
consolidated, combined or unitary tax returns with affiliated corporations. In
determining these incremental costs, the agreement will take into account not
only the group's incremental tax payments to the Internal Revenue Service or
other taxing authorities, but also the incremental use of tax losses of
affiliates to offset our taxable income, and the incremental use of tax credits
of affiliates to offset the tax on our income. The agreement will also provide
for compensation or reimbursement as appropriate to reflect redeterminations of
our tax liability for periods during which we joined in filing consolidated,
combined or unitary tax returns.
The tax sharing agreement also requires us to indemnify 3Com for certain
taxes and similar obligations, including:
. sales taxes on the sale of products purchased from us by 3Com before the
distribution;
. customs duties or harbor maintenance fees on products exported or
imported by 3Com on our behalf;
. the additional taxes that would result if an acquisition of a
controlling interest in our stock after the distribution causes the
distribution not to qualify for tax-free treatment to 3Com; and
. any taxes resulting from transactions undertaken in preparation for the
distribution.
Our indemnity obligations include any interest and penalties on taxes, duties
or fees for which we must indemnify 3Com.
Each member of a consolidated group for United States federal income tax
purposes is jointly and severally liable for the group's federal income tax
liability. Accordingly, we could be required to pay a deficiency in the group's
federal income tax liability for a period during which we were a member of the
group even if the tax sharing agreement allocates that liability to 3Com or
another member.
The tax sharing agreement will also assign responsibilities for
administrative matters such as the filing of returns, payment of taxes due,
retention of records and conduct of audits, examinations or similar
proceedings.
Master Transitional Services Agreement
The master transitional services agreement governs the provision of
transitional services by 3Com and us to each other, on an interim basis, until
one year after the separation date, unless extended for specific services or
otherwise indicated in the agreement. The services include data processing and
telecommunications services, such as voice telecommunications and data
transmission, and information technology support services, for functions
including accounting, financial management, tax, payroll, stockholder and
public relations, legal, procurement, and other administrative functions.
Services are generally cost plus 5%, but may increase to cost plus 10% if the
services extend beyond the one year period. The master transitional services
agreement also will cover the provision of additional transitional services
identified from time to time after the separation date that were inadvertently
or unintentionally omitted from the specified services, or that are essential
to effectuate an orderly transition under the separation agreement, so long as
the provision of such services would not significantly disrupt 3Com's
operations or significantly increase the scope of its responsibility under the
agreement.
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<PAGE>
Real Estate Matters Agreement
The real estate matters agreement addresses real estate matters relating to
the 3Com leased and owned properties that 3Com will transfer to or share with
us. The agreement describes the manner in which 3Com will transfer to or share
with us various leased and owned properties, including the following types of
transactions:
. leases to us of portions of specified properties that 3Com owns;
. assignments to us of 3Com's leases for specified leased properties;
. subleases to us of portions of specified properties leased by 3Com; and
. short term licenses between 3Com and us permitting short term occupancy
of selected leased and owned sites.
The real estate matters agreement includes a description of each property to
be transferred to or shared with us for each type of transaction. The standard
forms of the proposed transfer documents, such as lease, sublease and license,
are contained in schedules.
The real estate matters agreement also requires both parties to use
reasonable efforts to obtain any landlord consents required for the proposed
transfers of leased sites, including 3Com paying commercially reasonable
consent fees, if required by the landlords, and us agreeing to provide the
security required under the applicable leases.
The real estate matters agreement further provides that we will be required
to accept the transfer of all sites allocated to us, even if a site has been
damaged by a casualty before the separation date. Transfers with respect to
leased sites where the underlying lease is terminated due to casualty or action
by the landlord prior to the separation date will not be made, and neither
party will have any liability related thereto.
The real estate matters agreement also gives the parties the right to change
the allocation and terms of specified sites by mutual agreement based on
changes in the requirements of the parties. The real estate matters agreement
provides that all reasonable costs required to effect the transfers, including
landlord consent fees and landlord attorneys' fees, will be paid by 3Com.
Master Confidential Disclosure Agreement
The master confidential disclosure agreement provides that both parties agree
not to disclose confidential information of the other party except in specific
circumstances. 3Com and we also agree not to use this information in violation
of any use restrictions in one of the other written agreements between us.
Indemnification and Insurance Matters Agreement
General Release of Pre-Separation Claims. Effective as of the separation
date, subject to specified exceptions, we will release 3Com and its affiliates,
agents, successors and assigns, and 3Com will release us, and our affiliates,
agents, successors and assigns, from any liabilities arising from events
occurring on or before the separation date, including events occurring in
connection with the activities to implement the separation, this offering and
the distribution. This provision will not impair a party from enforcing the
separation agreement, any ancillary agreement or any arrangement specified in
any of these agreements.
Indemnification. The indemnification and insurance matters agreement also
contains provisions governing indemnification. In general, we have agreed to
indemnify 3Com and its affiliates, agents, successors and assigns from all
liabilities arising from:
. our business, any of our liabilities or any of our contracts; and
. any breach by us of the separation agreement or any ancillary agreement.
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<PAGE>
3Com has agreed to indemnify us and our affiliates, agents, successors and
assigns from all liabilities arising from:
. 3Com's business other than the Palm business; and
. any breach by 3Com of the separation agreement or any ancillary
agreement.
These indemnification provisions do not apply to amounts collected from
insurance. The agreement also contains provisions governing notice and
indemnification procedures.
Liability Arising From This Prospectus. We will bear any liability arising
from any untrue statement of a material fact or any omission of a material fact
in this prospectus.
Insurance Matters. The agreement also contains provisions governing our
insurance coverage from the separation date until the distribution date. In
general, we agree to reimburse 3Com for premium expenses related to insurance
coverage during this period. Prior to the distribution, 3Com will maintain
insurance policies on our behalf. We will work with 3Com to secure additional
insurance if desired and cost effective.
Environmental Matters. 3Com has agreed to indemnity us and our affiliates,
agents, successors and assigns from all liabilities arising from environmental
conditions existing as of the separation date at facilities transferred to us,
or which arise out of operations occurring before the separation date at these
facilities. Further, 3Com has agreed to indemnify us and our affiliates,
agents, successors and assigns from all liabilities arising from environmental
conditions caused by operations occurring at any time, whether before or after
the separation date, at any 3Com facility.
We have agreed to indemnify 3Com and its affiliates, agents, successors and
assigns from all liabilities arising from environmental conditions caused by
operations after the separation date at any of the facilities transferred to
us, and from environmental conditions at our facilities arising from an event
that occurs on or after the separation date.
Each party will be responsible for all liabilities associated with any
environmental contamination caused by that party post-separation.
Assignment. The indemnification and insurance matters agreement is not
assignable by either party without prior written consent.
75
<PAGE>
PRINCIPAL STOCKHOLDER
Prior to this offering and the private placements to America Online, Motorola
and Nokia, all of the outstanding shares of our common stock will be owned by
3Com. After this offering and the private placements to America Online,
Motorola and Nokia, 3Com will own about %, or about % if the underwriters
fully exercise their option to purchase additional shares of our outstanding
common stock. Except for 3Com, we are not aware of any person or group that
will beneficially own more than 5% of the outstanding shares of our common
stock following this offering.
76
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Upon the completion of this offering and the private placements to America
Online, Motorola and Nokia, we will be authorized to issue
shares of common stock, $0.001 par value, and shares of
undesignated preferred stock, $0.001 par value. The following description of
our capital stock is subject to our certificate of incorporation and bylaws,
which are included as exhibits to the registration statement of which this
prospectus forms a part, and by the provisions of applicable Delaware law.
Common Stock
Prior to this offering and the private placements to America Online, Motorola
and Nokia, there were shares of common stock outstanding, all of
which were held of record by 3Com.
The holders of our common stock are entitled to one vote per share on all
matters to be voted upon by the stockholders. Subject to preferences that may
be applicable to any outstanding preferred stock, the holders of our common
stock are entitled to receive ratably such dividends, if any, as may be
declared from time to time by our board of directors out of funds legally
available for that purpose. See "Dividend Policy." In the event of our
liquidation, dissolution or winding up, the holders of our common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of preferred stock, if any, then
outstanding. The holders of our common stock have no preemptive or conversion
rights or other subscription rights. There are no redemption or sinking fund
provisions applicable to our common stock.
Preferred Stock
Our board of directors has the authority, without action by the stockholders,
to designate and issue preferred stock in one or more series and to designate
the rights, preferences and privileges of each series, which may be greater
than the rights of our common stock. It is not possible to state the actual
effect of the issuance of any shares of preferred stock upon the rights of
holders of our common stock until our board of directors determines the
specific rights of the holders of the preferred stock. However, the effects
might include, among other things:
. restricting dividends on our common stock;
. diluting the voting power of our common stock;
. impairing the liquidation rights of our common stock; or
. delaying or preventing a change in control of us without further action
by the stockholders.
At the closing of this offering and the private placements to America Online,
Motorola and Nokia, no shares of preferred stock will be outstanding, and we
have no present plans to issue any shares of preferred stock.
Anti-Takeover Effects of Our Certificate and Bylaws and Delaware Law
Some provisions of Delaware law and our certificate of incorporation and
bylaws could make the following more difficult:
. acquisition of us by means of a tender offer;
. acquisition of us by means of a proxy contest or otherwise; or
. removal of our incumbent officers and directors.
These provisions, summarized below, are expected to discourage coercive
takeover practices and inadequate takeover bids. These provisions are also
designed to encourage persons seeking to
77
<PAGE>
acquire control of us to first negotiate with our board of directors. We
believe that the benefits of increased protection give us the potential ability
to negotiate with the proponent of an unfriendly or unsolicited proposal to
acquire or restructure us and outweigh the disadvantages of discouraging those
proposals because negotiation of those proposals could result in an improvement
of their terms.
Election and Removal of Directors. Our board of directors is divided into
three classes. The directors in each class will serve for a three-year term,
one class being elected each year by our stockholders. See "Management--
Directors and Executive Officers." This system of electing and removing
directors may discourage a third party from making a tender offer or otherwise
attempting to obtain control of us because it generally makes it more difficult
for stockholders to replace a majority of the directors.
Stockholder Meetings. Under our bylaws, only our board of directors, the
chairman of our board of directors, and until 3Com owns less than 50% of our
common stock, 3Com, may call special meetings of stockholders.
Requirements for Advance Notification of Stockholder Nominations and
Proposals. Our bylaws establish advance notice procedures with respect to
stockholder proposals and the nomination of candidates for election as
directors, other than nominations made by or at the direction of our board of
directors or a committee of our board of directors.
Delaware Anti-Takeover Law. We are subject to Section 203 of the Delaware
General Corporation Law, an anti-takeover law. In general, Section 203
prohibits a publicly held Delaware corporation from engaging in a "business
combination" with an "interested stockholder" for a period of three years
following the date the person became an interested stockholder, unless the
"business combination" or the transaction in which the person became an
interested stockholder is approved in a prescribed manner. Generally, a
"business combination" includes a merger, asset or stock sale, or other
transaction resulting in a financial benefit to the interested stockholder.
Generally, an "interested stockholder" is a person who, together with
affiliates and associates, owns or within three years prior to the
determination of interested stockholder status, did own, 15% or more of a
corporation's voting stock. The existence of this provision may have an anti-
takeover effect with respect to transactions not approved in advance by the
board of directors, including discouraging attempts that might result in a
premium over the market price for the shares of common stock held by
stockholders. 3Com is an "interested stockholder" for this purpose.
Elimination of Stockholder Action By Written Consent. Our certificate of
incorporation eliminates the right of stockholders other than 3Com to act by
written consent without a meeting. 3Com will lose this right once it owns less
than 50% of our common stock.
Elimination of Cumulative Voting. Our certificate of incorporation and bylaws
do not provide for cumulative voting in the election of directors.
Undesignated Preferred Stock. The authorization of undesignated preferred
stock makes it possible for our board of directors to issue preferred stock
with voting or other rights or preferences that could impede the success of any
attempt to change control of us. These and other provisions may have the effect
of deferring hostile takeovers or delaying changes in control or management of
us.
Amendment of Charter Provisions. The amendment of any of the above provisions
would require approval by holders of at least 80% of our outstanding common
stock.
Transfer Agent and Registrar
The transfer agent and registrar for our common stock is EquiServe.
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<PAGE>
UNDERWRITING
Palm and the underwriters named below (the "Underwriters") have entered into
an underwriting agreement with respect to the shares being offered. Subject to
some conditions, each Underwriter has severally agreed to purchase the number
of shares indicated in the following table. Goldman, Sachs & Co., Morgan
Stanley & Co. Incorporated, Merrill Lynch, Pierce, Fenner & Smith Incorporated,
and BancBoston Robertson Stephens Inc. are the representatives of the
Underwriters.
<TABLE>
<CAPTION>
Underwriters Number of Shares
------------ ----------------
<S> <C>
Goldman, Sachs & Co.........................................
Morgan Stanley & Co. Incorporated...........................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
BancBoston Robertson Stephens Inc...........................
-------------
Total.....................................................
=============
</TABLE>
If the Underwriters sell more shares than the total number set forth in the
table above, the Underwriters have an option to buy up to an additional
shares from Palm to cover such sales. They may exercise that option
for 30 days. If any shares are purchased pursuant to this option, the
Underwriters will severally purchase shares in approximately the same
proportion as set forth in the table above.
The following tables show the per share and total underwriting discounts and
commissions to be paid to the Underwriters by Palm. Such amounts are shown
assuming both no exercise and full exercise of the Underwriters' option to
purchase additional shares.
<TABLE>
<CAPTION>
Paid by the Company
-------------------------
No Exercise Full Exercise
----------- -------------
<S> <C> <C>
Per Share.......................................... $ $
Total.............................................. $ $
</TABLE>
Shares sold by the Underwriters to the public will initially be offered at
the initial public offering price set forth on the cover of this prospectus.
Any shares sold by the Underwriters to securities dealers may be sold at a
discount of up to $ per share from the initial public offering price.
Any such securities dealers may resell any shares purchased from the
Underwriters to selected other brokers or dealers at a discount of up to
$ per share from the initial public offering price. If all the shares
are not sold at the initial offering price, the representatives may change the
offering price and the other selling terms.
Palm, 3Com and Palm's directors and officers have agreed with the
Underwriters not to dispose of or hedge any of their common stock or securities
convertible into or exchangeable for shares of common stock during the period
from the date of this prospectus continuing through the date 180 days after the
date of this prospectus, except with the prior written consent of the
representatives. This agreement does not apply to any grants under Palm's
existing employee benefit plans. See "Shares Eligible For Future Sale" for a
discussion of transfer restrictions. America Online, Motorola and Nokia have
agreed with Palm, for the benefit of the Underwriters, not to dispose of or
hedge any of their common stock during the period from the date of the
consummation of this offering continuing through the date 180 days after the
date of this prospectus.
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<PAGE>
Prior to the offering, there has been no public market for the shares. The
initial public offering price will be negotiated among Palm and the
representatives. Among the factors to be considered in determining the initial
public offering price of the shares, in addition to prevailing market
conditions, will be Palm's historical performance, estimates of the business
potential and earnings prospects of Palm, an assessment of Palm's management
and the consideration of the above factors in relation to market valuation of
companies in related businesses.
At our request, the Underwriters have reserved up to six percent of the
shares of common stock to be issued by Palm and offered in this offering for
sale, at the initial public offering price, to persons with preexisting
strategic or other relationships with Palm. The number of shares available for
sale to the general public will be reduced to the extent that such persons
purchase such reserved shares. Any reserved shares which are not so purchased
will be offered by the Underwriters to the general public on the same basis as
the other shares of common stock offered by this prospectus.
We have applied to have our common stock quoted on the Nasdaq National Market
under the symbol "PALM".
In connection with the offering, the Underwriters may purchase and sell
shares of common stock in the open market. These transactions may include short
sales, stabilizing transactions and purchases to cover positions created by
short sales. Short sales involve the sale by the Underwriters of a greater
number of shares than they are required to purchase in the offering.
Stabilizing transactions consist of bids or purchases made for the purpose of
preventing or retarding a decline in the market price of the common stock while
the offering is in progress.
The Underwriters also may impose a penalty bid. This occurs when a particular
Underwriter repays to the Underwriters a portion of the underwriting discount
received by it because the representatives have repurchased shares sold by or
for the account of such Underwriter in stabilizing or short covering
transactions.
These activities by the Underwriters may stabilize, maintain or otherwise
affect the market price of the common stock. As a result, the price of the
common stock may be higher than the price that otherwise might exist in the
open market. If these activities are commenced, they may be discontinued by the
Underwriters at any time. These transactions may be effected on the Nasdaq
National Market, in the over-the-counter market or otherwise.
The Underwriters do not expect sales to discretionary accounts to exceed five
percent of the total number of shares offered.
Palm estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$ .
Palm has agreed to indemnify the several Underwriters against specified
liabilities, including liabilities under the Securities Act of 1933.
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<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
All of the shares of our common stock sold in this offering will be freely
tradable without restriction under the Securities Act, except for any shares
which be may acquired by an affiliate of Palm, as that term is defined in Rule
144 under the Securities Act. Persons who may be deemed to be affiliates
generally include individuals or entities that control, are controlled by, or
are under common control with, Palm and may include directors and officers of
Palm as well as significant stockholders of Palm, if any.
3Com currently plans to complete its divestiture of Palm approximately six
months following this offering by distributing all of the shares of Palm common
stock owned by 3Com to the holders of 3Com's common stock. Shares of our common
stock distributed to 3Com stockholders in the distribution generally will be
freely transferable, except for shares of common stock received by persons who
may be deemed to be affiliates. Persons who are affiliates will be permitted to
sell the shares of common stock that are issued in this offering or that they
receive in the distribution only through registration under the Securities Act,
or under an exemption from registration, such as the one provided by Rule 144.
The shares of our common stock held by 3Com before distribution and the
shares of our common stock purchased in the America Online, Motorola and Nokia
private placements are deemed "restricted securities" as defined in Rule 144,
and may not be sold other than through registration under the Securities Act or
under an exemption from registration, such as the one provided by Rule 144.
3Com, our directors and officers and we have agreed not to offer or sell any
shares of our common stock, subject to exceptions, for a period of 180 days
after the date of this prospectus, without the prior written consent of the
underwriters. America Online, Motorola and Nokia have agreed with Palm not to
dispose of or hedge any of their common stock during the period from the date
of this prospectus continuing through the date 180 days after the date of this
prospectus.
We will grant shares of our common stock pursuant to the 1999 Stock Plan
subject to restrictions. See "Management--Incentive Plans--1999 Stock Plan." We
currently expect to file a registration statement under the Securities Act to
register shares reserved for issuance under the 1999 Stock Plan and 1999
Employee Stock Purchase Plan. Shares issued pursuant to awards after the
effective date of the registration statement, other than shares issued to
affiliates, generally will be freely tradable without further registration
under the Securities Act. Shares issued pursuant to any vested and exercisable
options of 3Com converted into our options will also be freely tradable without
registration under the Securities Act after the effective date of the
registration statement. See "Management--Treatment of 3Com Options."
VALIDITY OF COMMON STOCK
The validity of the common stock offered hereby and other legal matters will
be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. The validity of the common stock offered
hereby will be passed upon for the underwriters by Sullivan & Cromwell, Los
Angeles, California.
EXPERTS
The consolidated financial statements as of May 31, 1998 and May 28, 1999 and
for each of the three years in the period ended May 28, 1999 included in this
prospectus and the related financial statement schedule included elsewhere in
the registration statement have been audited by Deloitte & Touche LLP,
independent auditors, as stated in their reports appearing herein and elsewhere
in the registration statement, and are included in reliance upon the reports of
such firm given upon their authority as experts in accounting and auditing.
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<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission, Washington, D.C.
20549, a registration statement on Form S-1 under the Securities Act with
respect to the common stock offered hereby. This prospectus does not contain
all of the information set forth in the registration statement and the exhibits
and schedules to the registration statement. Some items are omitted in
accordance with the rules and regulations of the SEC. For further information
about Palm and its common stock, reference is made to the registration
statement and the exhibits and any schedules to the registration statement.
Statements contained in this prospectus as to the contents of any contract or
other document referred to are not necessarily complete and in each instance,
if the contract or document is filed as an exhibit, reference is made to the
copy of the contract or other documents filed as an exhibit to the registration
statement, each statement being qualified in all respects by such reference. A
copy of the registration statement, including the exhibits and schedules to the
registration statement, may be read and copied at the SEC's Public Reference
Room at 450 Fifth Street, N.W., Washington, D.C. 20549. Information on the
operation of the Public Reference Room may be obtained by calling the SEC at 1-
800-SEC-0330. In addition, the SEC maintains an Internet site at
http://www.sec.gov, from which interested persons can electronically access the
registration statement, including the exhibits and any schedules to the
registration statement.
As a result of this offering, we will become subject to the full
informational requirements of the Securities Exchange Act of 1934, as amended.
We will fulfill our obligations with respect to those requirements by filing
periodic reports and other information with the SEC. We intend to furnish our
stockholders with annual reports containing consolidated financial statements
certified by an independent public accounting firm. We also maintain Internet
sites at http://www.palm.net and http://www.palm.com. Our websites and the
information contained therein or connected thereto shall not be deemed to be
incorporated into this prospectus or the registration statement of which it
forms a part.
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<PAGE>
PALM, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Audited Consolidated Financial Statements:
Independent Auditors' Report............................................ F-2
Consolidated Balance Sheets at May 31, 1998, May 28, 1999, and August
27, 1999 (unaudited)................................................... F-3
Consolidated Statements of Operations for the Years Ended May 25, 1997,
May 31, 1998, May 28, 1999 and Three Months Ended August 28, 1998 and
August 27, 1999 (unaudited)............................................ F-4
Consolidated Statements of Stockholder's Net Investment for the Years
Ended May 25, 1997, May 31, 1998, May 28, 1999 and Three Months ended
August 27, 1999 (unaudited)............................................ F-5
Consolidated Statements of Cash Flows for the Years Ended May 25, 1997,
May 31, 1998, May 28, 1999 and Three Months Ended August 28, 1998 and
August 27, 1999 (unaudited)............................................ F-6
Notes to Consolidated Financial Statements.............................. F-7
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
To the Board of Directors and Stockholder of Palm, Inc.:
We have audited the consolidated balance sheets of Palm, Inc. and its
subsidiary ("Palm" or "the Company") as of May 31, 1998 and May 28, 1999, and
the related consolidated statements of operations, stockholder's net
investment, and cash flows for each of the three years in the period ended May
28, 1999. These consolidated 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 in accordance with generally accepted auditing
standards. Those standards 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. An audit
also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for our opinion.
In our opinion, such consolidated financial statements present fairly, in all
material respects, the financial position of Palm, Inc. and its subsidiary at
May 31, 1998 and May 28, 1999, and the results of their operations and their
cash flows for each of the three years in the period ended May 28, 1999 in
conformity with generally accepted accounting principles.
San Jose, California
November 29, 1999
(November 30, 1999 as to the first paragraph and
, 2000 as to the second paragraph of Note 15)
---------------
The accompanying consolidated financial statements included herein reflect
the reincorporation of the Company in Delaware and prior to the initial public
offering will reflect a stock split of Palm's common stock as described in Note
15 to the consolidated financial statements. The above opinion is in the form
that will be signed by Deloitte & Touche LLP upon the effectiveness of such
events assuming that from November 29, 1999 to the effective date of such
events, no other events shall have occurred that would affect the accompanying
consolidated financial statements or notes thereto.
DELOITTE & TOUCHE LLP
San Jose, California
November 29, 1999
F-2
<PAGE>
PALM, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par and share amounts)
<TABLE>
<CAPTION>
Pro Forma
May 31, May 28, August 27, August 27,
1998 1999 1999 1999
-------- -------- ----------- -----------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents......... $ -- $ 478 $ 37,138 $
Accounts receivable, net of
allowance for doubtful accounts
of $4,451, $3,817 and $3,287..... 80,985 95,839 86,216
Inventories....................... 13,769 12,186 31,230
Deferred income taxes............. 8,092 20,688 23,412
Prepaids and other................ 192 1,038 1,129
-------- -------- -------- ----
Total current assets............ 103,038 130,229 179,125
Property and equipment, net......... 9,121 8,136 9,160
Goodwill, intangibles and other
assets............................. 175 13,829 13,009
Deferred income taxes............... 3,025 53 52
-------- -------- -------- ----
Total assets.................. $115,359 $152,247 $201,346 $
======== ======== ======== ====
LIABILITIES AND STOCKHOLDER'S
NET INVESTMENT
Current liabilities:
Accounts payable.................. $ 15,792 $ 35,577 $ 51,095 $
Payable to 3Com Corporation....... -- -- --
Other accrued liabilities......... 18,275 40,793 35,838
Notes payable..................... -- 1,350 1,118
-------- -------- -------- ----
Total current liabilities....... 34,067 77,720 88,051
-------- -------- -------- ----
Commitments and contingencies (Notes
7 and 13)
Stockholder's net investment:
Preferred stock, par value,
shares authorized pro
forma; none outstanding pro
forma............................ -- -- -- --
Common stock, par value,
shares authorized pro
forma; shares
outstanding pro forma............ -- -- -- --
3Com Corporation equity........... 81,292 74,660 113,413
Accumulated other comprehensive
income (loss).................... -- (133) (118)
-------- -------- -------- ----
Total stockholder's net
investment..................... 81,292 74,527 113,295
-------- -------- -------- ----
Total liabilities and
stockholder's net
investment................... $115,359 $152,247 $201,346 $
======== ======== ======== ====
</TABLE>
See notes to consolidated financial statements.
F-3
<PAGE>
PALM, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Years Ended Three Months Ended
---------------------------- ---------------------
May 25, May 31, May 28, August 28, August 27,
1997 1998 1999 1998 1999
-------- -------- -------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues.................. $114,157 $272,137 $563,525 $116,069 $176,505
Cost of revenues.......... 77,685 157,749 315,616 62,998 98,324
-------- -------- -------- -------- --------
Gross profit............ 36,472 114,388 247,909 53,071 78,181
-------- -------- -------- -------- --------
Operating expenses:
Sales and marketing..... 30,305 70,765 127,726 23,969 42,648
Research and
development............ 13,442 21,863 46,027 9,738 12,507
General and
administrative......... 6,238 15,299 23,692 6,233 7,160
Purchased in-process
technology............. -- -- 2,125 -- --
-------- -------- -------- -------- --------
Total operating
expenses............. 49,985 107,927 199,570 39,940 62,315
-------- -------- -------- -------- --------
Operating income (loss)... (13,513) 6,461 48,339 13,131 15,866
Interest and other
expense, net............. (515) (56) (223) (25) (63)
-------- -------- -------- -------- --------
Income (loss) before
income taxes............. (14,028) 6,405 48,116 13,106 15,803
Income tax provision
(credit)................. (6,166) 2,234 18,488 5,036 6,145
-------- -------- -------- -------- --------
Net income (loss)......... $ (7,862) $ 4,171 $ 29,628 $ 8,070 $ 9,658
======== ======== ======== ======== ========
Unaudited pro forma net
income per share:
Basic................... $ $
======== ========
Diluted................. $ $
======== ========
Shares used in computing
unaudited pro forma net
income per share amounts:
Basic...................
======== ========
Diluted.................
======== ========
Supplemental unaudited pro
forma net income per
share:
Basic................... $ $
======== ========
Diluted................. $ $
======== ========
Shares used in computing
supplemental unaudited
pro forma net income per
share amounts:
Basic...................
======== ========
Diluted.................
======== ========
</TABLE>
See notes to consolidated financial statements.
F-4
<PAGE>
PALM, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDER'S NET INVESTMENT
(In thousands)
<TABLE>
<CAPTION>
Accumulated
3Com Other
Corporation Comprehensive
Equity Income (Loss) Total
----------- ------------- --------
<S> <C> <C> <C>
Balances, May 27, 1996...................... $ 7,218 $ -- $ 7,218
Net loss.................................... (7,862) -- (7,862)
Net transfers from 3Com Corporation......... 36,301 -- 36,301
-------- ----- --------
Balances, May 25, 1997...................... 35,657 -- 35,657
Net income.................................. 4,171 -- 4,171
Net transfers from 3Com Corporation......... 41,464 -- 41,464
-------- ----- --------
Balances, May 31, 1998...................... 81,292 -- 81,292
Components of comprehensive income:
Net income................................ 29,628 -- 29,628
Accumulated translation adjustments....... -- (133) (133)
--------
Total comprehensive income.............. 29,495
Net transfers to 3Com Corporation........... (36,260) -- (36,260)
-------- ----- --------
Balances, May 28, 1999...................... 74,660 (133) 74,527
Components of comprehensive income:
Net income*............................... 9,658 -- 9,658
Accumulated translation adjustments*...... -- 15 15
--------
Total comprehensive income*............. 9,673
Net transfers from 3Com Corporation*........ 29,095 -- 29,095
-------- ----- --------
Balances, August 27, 1999*.................. $113,413 $(118) $113,295
======== ===== ========
</TABLE>
- --------
* Unaudited
See notes to consolidated financial statements.
F-5
<PAGE>
PALM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended Three Months Ended
---------------------------- ---------------------
May 25, May 31, May 28, August 28, August 27,
1997 1998 1999 1998 1999
-------- -------- -------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from operating
activities:
Net income (loss)......... $ (7,862) $ 4,171 $ 29,628 $ 8,070 $ 9,658
Adjustments to reconcile
net income (loss) to net
cash provided by (used
in) operating activities:
Depreciation and
amortization............ 685 2,029 4,565 615 2,085
Loss on disposal of
property and equipment.. 36 145 2,567 889 --
Deferred income taxes.... (3,344) (5,361) (8,880) (2,406) (2,723)
Purchased in-process
technology.............. -- -- 2,125 -- --
Changes in assets and
liabilities:
Accounts receivable..... (18,842) (56,783) (13,307) (5,862) 9,623
Inventories............. (13,269) (397) 1,650 5,072 (19,044)
Prepaids and other...... (142) (176) (805) (378) (91)
Accounts payable........ 4,710 10,874 19,437 (5,864) 15,518
Other accrued
liabilities............ 3,217 12,854 22,133 1,784 (4,955)
-------- -------- -------- ------- --------
Net cash provided by
(used in) operating
activities............ (34,811) (32,644) 59,113 1,920 10,071
-------- -------- -------- ------- --------
Cash flows from investing
activities:
Purchases of property and
equipment................ (2,543) (8,833) (5,347) (1,284) (2,289)
Business acquired in
purchase transaction, net
of cash acquired......... -- -- (16,831) -- --
Other, net................ 27 -- 97 -- --
-------- -------- -------- ------- --------
Net cash used in
investing activities.. (2,516) (8,833) (22,081) (1,284) (2,289)
-------- -------- -------- ------- --------
Cash flows from financing
activities:
Net transfers (to) from
3Com Corporation......... 36,301 41,464 (36,260) (636) 29,095
Other, net................ -- 13 (294) -- (217)
-------- -------- -------- ------- --------
Net cash provided by
(used in) financing
activities............ 36,301 41,477 (36,554) (636) 28,878
-------- -------- -------- ------- --------
Change in cash and
equivalents............... (1,026) -- 478 -- 36,660
Cash and equivalents,
beginning of period....... 1,026 -- -- -- 478
-------- -------- -------- ------- --------
Cash and equivalents, end
of period................. $ -- $ -- $ 478 $ -- $ 37,138
======== ======== ======== ======= ========
Other cash flow
information:
Interest paid............. $ -- $ -- $ 10 $ -- $ 9
======== ======== ======== ======= ========
Notes payable assumed in
purchase transaction..... $ -- $ -- $ 1,481 $ -- $ --
======== ======== ======== ======= ========
</TABLE>
See notes to consolidated financial statements.
F-6
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
1. Background and Basis of Presentation
On September 13, 1999, 3Com Corporation ("3Com") announced its plan to create
an independent publicly-traded company, Palm, Inc. ("Palm" or "the Company"),
comprised of 3Com's handheld computing business. After completion of Palm's
initial public offering, 3Com will own at least 80.1% of Palm's outstanding
common stock. 3Com currently intends, subject to the satisfactory resolution of
certain conditions, to distribute all of the shares of Palm's common stock that
3Com owns to 3Com's stockholders approximately six months ("the distribution
date") after Palm's initial public offering.
Palm develops, markets and sells a family of handheld computing device
products, licenses the Palm operating system to other device and information
appliance manufacturers and offers a wireless Internet access service. Palm
Computing, Inc. was originally incorporated in California in 1992 and was
acquired by U.S. Robotics Corporation (USR) in a pooling of interests
transaction in September 1995. Subsequent to 3Com's acquisition of USR in a
pooling of interests transaction in June 1997, Palm Computing, Inc. became a
wholly-owned subsidiary of 3Com. The accompanying consolidated financial
statements report the operations that comprised the handheld computing business
of 3Com, including Palm Computing, Inc.
3Com and Palm have entered into a Master Separation and Distribution
Agreement (see Note 14 to the consolidated financial statements). In accordance
with our separation agreement, 3Com will transfer to us the 3Com-owned assets
and liabilities which relate to our business prior to the date of our
separation from 3Com ("the separation date"), except for most of our accounts
receivable and accounts payable.
The consolidated financial statements of Palm reflect the historical results
of operations and cash flows of the handheld computing business of 3Com during
each respective period. The consolidated financial statements have been
prepared using 3Com's historical bases in the assets and liabilities and the
historical results of operations of Palm. Changes in stockholder's net
investment represent 3Com's transfer of its net investment in Palm, after
giving effect to the net income (loss) of Palm plus net cash transfers and
other transfers to and from 3Com.
The consolidated financial statements include allocations of certain 3Com
expenses, including centralized legal, accounting, treasury, real estate,
information technology, distribution, customer service, sales, marketing,
engineering, and other 3Com corporate services and infrastructure costs. The
expense allocations have been determined on the bases that 3Com and Palm
considered to be reasonable reflections of the utilization of services provided
or the benefit received by Palm. However, the financial information included
herein may not reflect the consolidated financial position, operating results,
changes in stockholder's net investment and cash flows of Palm in the future or
what they would have been had Palm been a separate, stand-alone entity during
the periods presented.
2. Significant Accounting Policies
Fiscal Year
Prior to June 1, 1998, our 52-53 week fiscal year ended on the Sunday nearest
to May 31. Effective June 1, 1998, we changed our fiscal year to a 52-53 week
fiscal year ending on the Friday
F-7
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
nearest to May 31. These changes did not have a significant effect on our
consolidated financial statements. Fiscal 1997, 1998 and 1999 contained 52
weeks, whereas fiscal 2000 will contain 53 weeks. For fiscal 2000, the first
three quarters will contain 13 weeks, whereas the fourth quarter will contain
14 weeks.
Use of Estimates in the Preparation of Consolidated Financial Statements
The preparation of consolidated financial statements in conformity with
generally accepted accounting principles requires us 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 consolidated
financial statements and the reported amounts of revenue and expenses during
the reporting periods. Actual results could differ from those estimates.
Interim Financial Information
The financial information as of August 27, 1999 and for the three months
ended August 28, 1998 and August 27, 1999 is unaudited and includes all
adjustments, consisting only of normal and recurring accruals, that management
considers necessary for a fair presentation of its consolidated financial
position, operating results and cash flows. Results for the three months ended
August 27, 1999 are not necessarily indicative of results to be expected for
the full fiscal year 2000 or for any future period.
Principles of Consolidation
The consolidated financial statements include the accounts of Palm and its
subsidiary. All significant intercompany balances and transactions are
eliminated in consolidation.
Cash and Cash Equivalents
Cash equivalents are highly liquid debt investments acquired with a remaining
maturity of three months or less. Historically, 3Com has managed cash and cash
equivalents on a centralized basis. Cash receipts associated with Palm's
business have been transferred to 3Com on a periodic basis and 3Com has funded
Palm's disbursements.
Concentration of Credit Risk
Financial instruments which potentially subject Palm to concentrations of
credit risk consist principally of accounts receivable. Palm sells the majority
of its products through distributors, retailers and resellers. Credit risk with
respect to accounts receivable is generally diversified due to the number of
entities comprising Palm's customer base and their dispersion across different
geographies. Palm generally sells on open account and performs periodic credit
evaluations of its customers' financial condition.
F-8
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
The following individual customers accounted for 10% or more of total
revenue:
<TABLE>
<CAPTION>
Years Ended Three Months Ended
----------------------- ---------------------
May 25, May 31, May 28, August 28, August 27,
1997 1998 1999 1998 1999
------- ------- ------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Company A......................... 28% 22% 24% 23% 35%
Company B......................... -- -- 14% 12% --
Company C......................... 11% -- -- -- --
</TABLE>
The following individual customers accounted for 10% or more of total
accounts receivable:
<TABLE>
<CAPTION>
May 31, May 28, August 27,
1998 1999 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Company A........................................... 28% 24% 37%
Company B........................................... -- 17% --
Company C........................................... -- -- --
</TABLE>
Inventories
Inventories are stated at the lower of standard cost (which approximates
first-in, first-out cost) or market.
Property and Equipment
Property and equipment are stated at cost. Depreciation and amortization are
computed over the shorter of the estimated useful lives, lease or license terms
on a straight-line basis--generally three to five years.
Long-Lived Assets
Palm evaluates the carrying value of long-lived assets, including goodwill,
whenever events or changes in circumstances indicate that the carrying value of
the asset may be impaired. An impairment loss is recognized when estimated
future cash flows expected to result from the use of the asset, including
disposition, is less than the carrying value of the asset. Purchased technology
and goodwill are included in other assets and are amortized over their
estimated useful lives, generally two to six years.
Software Development Costs
Costs for the development of new software and substantial enhancements to
existing software are expensed as incurred until technological feasibility has
been established, at which time any additional development costs would be
capitalized in accordance with Statement of Financial Accounting Standards
(SFAS) No. 86, Computer Software To Be Sold, Leased, or Otherwise Marketed. We
believe our current process for developing software is essentially completed
concurrently with the establishment of technological feasibility; accordingly,
no costs have been capitalized to date.
F-9
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
3Com Corporation Equity
3Com Corporation equity represents 3Com's net investment in and advances to
Palm. No intercompany interest income or expense has been allocated to, or
included in, the accompanying financial statements.
Revenue Recognition
Revenue is recognized when earned. Revenue from product sales is recorded
when related products are shipped, risk of loss has passed to the customer and
collection of the resulting receivable is deemed probable. In fiscal 1997, 1998
and 1999 and for the three months ended August 28, 1998 and August 27, 1999
(unaudited), product sales accounted for substantially all of our revenue.
Revenues from software license agreements are recognized on a per-unit royalty
basis or as specified in the agreement in accordance with applicable accounting
guidance, including American Institute of Certified Public Accountants (AICPA)
Statement of Position (SOP) 97-2, Software Revenue Recognition, and SOP 98-9,
Modification of SOP 97-2, with Respect to Certain Transactions. Related
maintenance and support revenue is recognized ratably over the term of the
agreement. Revenue from subscriptions to our wireless Internet access service
is recognized over the service period.
Provisions are recorded at the time of sale for estimated product returns,
warranty, royalties and post-contract support obligations. Provisions for price
protection are recorded at the time a price reduction decision is made. Palm
provides a 12-month limited warranty for its products.
Advertising
Advertising costs are expensed as incurred. Cooperative advertising and
marketing development obligations for channel customers are expensed at the
time the related revenue is recognized.
Income Taxes
Palm's operating results historically have been included in 3Com's
consolidated U.S. and state income tax returns and in tax returns of certain
3Com foreign subsidiaries. The provision for income taxes in Palm's
consolidated financial statements has been determined on a separate-return
basis. Deferred tax assets and liabilities are recognized for the expected tax
consequences of temporary differences between the tax bases of assets and
liabilities and their reported amounts.
Foreign Currency Translation
The majority of Palm's revenue is denominated in U.S. dollars. For foreign
operations with the local currency as the functional currency, assets and
liabilities are translated at year-end exchange rates, and statements of
operations are translated at the average exchange rates during the year. Gains
or losses resulting from foreign currency translation are included as a
component of other comprehensive income (loss).
For Palm entities with the U.S. dollar as the functional currency, foreign
currency denominated assets and liabilities are translated at the year-end
exchange rates except for inventories, prepaid
F-10
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
expenses, and property and equipment, which are translated at historical
exchange rates. Gains or losses resulting from foreign currency translation are
included in interest and other expense, net in the consolidated statements of
operations and were not significant for any period presented.
Stock-Based Compensation
Palm accounts for employee stock plans under the intrinsic value method
prescribed by Accounting Principles Board (APB) Opinion No. 25, Accounting for
Stock Issued to Employees.
Earnings Per Share
Historical Earnings Per Share
The historical capital structure of Palm Computing, Inc. is not
representative of the future capital structure of Palm. In addition, the
accompanying consolidated financial statements report the operations that
comprised the 3Com handheld computing business, which included operations in
addition to Palm Computing, Inc. and its subsidiary. Accordingly, the
historical net income (loss) per share and weighted average number of common
shares outstanding are not shown for any of the periods presented.
Unaudited Pro Forma Net Income Per Share
All of the outstanding Palm common stock is owned by 3Com. As discussed in
Note 15 to the consolidated financial statements, Palm effected a stock split
resulting in common shares outstanding prior to the initial public
offering. Unaudited pro forma basic net income per share amounts are computed
by dividing the net income for the period by the pro forma common shares
outstanding of shares after giving effect to such stock split.
Unaudited pro forma diluted net income per share amounts are computed by also
including the estimated effect of dilutive stock options, which totaled
shares for the year ended May 28, 1999 and shares for the
three months ended August 27, 1999. The effect of dilutive stock options was
computed using the treasury stock method assuming an initial public offering
price of $ per share.
The estimated number of dilutive stock options assumes that all of the
outstanding 3Com stock options held by Palm employees are converted into Palm
stock options. The actual number of 3Com stock options to be converted into
Palm stock options will not be determined until the individual employee options
are converted into Palm stock options at the distribution date. See Note 8 to
the consolidated financial statements for a description of how 3Com stock
options will be converted into Palm stock options.
Supplemental Unaudited Pro Forma Net Income Per Share
As discussed in Note 15 to the consolidated financial statements, Palm
declared a dividend equal to 3Com's tax basis in Palm in the amount of $
million and intends to pay such dividend to 3Com using a portion of the
proceeds from the initial public offering. Supplemental unaudited pro forma
basic net income per share amounts include the effect of such dividend and are
calculated using pro forma common shares outstanding of shares plus the
shares of common stock whose proceeds will be used to pay the
dividend, assuming an initial public offering price of $ per share,
reduced by estimated per share offering costs. Supplemental unaudited pro forma
diluted net income per share has been computed by also including the estimated
dilutive effect of stock options.
F-11
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
Unaudited Pro Forma Balance Sheet
The unaudited pro forma balance sheet as of August 27, 1999 gives retroactive
effect to the dividend discussed in Note 15 to the consolidated financial
statements, as though it had been declared as of that date. The unaudited pro
forma balance sheet also gives effect to the authorizations of preferred and
common stock and the stock split to increase the outstanding amount of our
common stock as discussed in Note 15, the reclassification of approximately $49
million from 3Com Corporation equity to an intercompany payable to 3Com at
August 27, 1999 which we intend to repay using a portion of the proceeds from
the initial public offering, as well as the retention of most of our accounts
receivable and accounts payable by 3Com at the time of our separation, as
described in Note 14 to the consolidated financial statements, as though such
retention had occurred as of August 27, 1999.
Comprehensive Income (Loss)
On June 1, 1998, we adopted SFAS No. 130, "Reporting Comprehensive Income,"
which establishes standards for reporting and displaying comprehensive income.
Accumulated other comprehensive income (loss) presented in the accompanying
consolidated balance sheets consists of accumulated foreign translation
adjustments.
Effects of Recent Accounting Pronouncements
In June 1998 and June 1999, the Financial Accounting Standards Board (FASB)
issued SFAS 133, Accounting for Derivative Instruments and Hedging Activities
and SFAS 137, Accounting for Derivative Instruments and Hedging Activities-
Deferral of the Effective Date of FASB Statement No. 133. These statements
require companies to record derivatives on the balance sheet as assets or
liabilities, measured at fair value. Gains or losses resulting from changes in
the values of those derivatives would be accounted for depending on the use of
the derivative and whether it qualifies for hedge accounting. SFAS 133 will be
effective for Palm's fiscal year ending May 31, 2002. We believe that the
adoption of these statements will not have a significant impact on our
financial results.
In March 1998, the American Institute of Certified Public Accountants
("AICPA") issued Statement of Position ("SOP") No. 98-1, Accounting for the
Costs of Computer Software Developed or Obtained for Internal Use. SOP No. 98-1
requires that entities capitalize certain costs related to internal-use
software once certain criteria have been met. We adopted SOP 98-1 in the first
quarter of fiscal 2000. The adoption of this statement did not have a
significant impact on our financial results.
3. Business Combination
The acquisition of Smartcode Technologie SARL ("Smartcode") on February 8,
1999 was accounted for as a purchase, and the consolidated statements of
operations include the operating results of the acquired company from the
acquisition date. Acquired assets and liabilities were recorded at their
estimated fair values at the date of acquisition, and the aggregate purchase
price plus costs directly attributable to the completion of the acquisition
have been allocated to the assets and liabilities acquired. No significant
adjustments were required to conform the accounting policies of the acquired
company.
Palm acquired Smartcode for an aggregate purchase price of $17.4 million in
cash including $200,000 of costs directly attributable to the completion of the
acquisition. Approximately $2.1 million of
F-12
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
the total purchase price represented purchased in-process technology that had
not yet reached technological feasibility, had no alternative future use and
was charged to operations in the third quarter of fiscal 1999. This purchase
resulted in approximately $14.4 million of goodwill and other intangible assets
that are being amortized over their estimated useful lives. Smartcode was a
provider of wireless data communications and Internet access software
technology and is based in France.
Unaudited pro forma statement of operations information has not been
presented because the effect of this acquisition was not material.
4. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
May 31, May 28, August 27,
1998 1999 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Finished goods...................................... $ 8,809 $ 5,900 $22,439
Work in process..................................... 1,089 4,011 8,651
Purchased components................................ 3,871 2,275 140
------- ------- -------
Total............................................. $13,769 $12,186 $31,230
======= ======= =======
</TABLE>
5. Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
<TABLE>
<CAPTION>
May 31, May 28, August 27,
1998 1999 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Equipment......................................... $ 7,945 $11,971 $13,995
Leasehold improvements............................ 4,372 1,398 1,576
Furniture and fixtures............................ 60 685 786
------- ------- -------
Total........................................... 12,377 14,054 16,357
Accumulated depreciation and amortization......... (3,256) (5,918) (7,197)
------- ------- -------
Property and equipment, net..................... $ 9,121 $ 8,136 $ 9,160
======= ======= =======
</TABLE>
6. Other Accrued Liabilities
Other accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
May 31, May 28, August 27,
1998 1999 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Accrued payroll and related expenses.............. $ 3,217 $ 4,871 $ 5,097
Accrued product warranty.......................... 4,112 11,329 12,097
Accrued cooperative advertising and marketing
development expenses............................. 3,403 7,195 6,881
Accrued price protection.......................... 224 6,994 1,642
Deferred revenue.................................. 3,845 948 1,918
Other............................................. 3,474 9,456 8,203
------- ------- -------
Other accrued liabilities....................... $18,275 $40,793 $35,838
======= ======= =======
</TABLE>
F-13
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
7. Borrowing Arrangements and Commitments
Certain of our facilities are leased from third parties under operating
leases. Leases expire at various dates from November 1999 through May 2005, and
certain facility leases have renewal options with rentals based upon changes in
the Consumer Price Index or the fair market rental value of the property. At
the separation date, Palm intends to lease certain facilities from 3Com for up
to 29 months with annual increases of approximately 3%. See Note 14 to the
consolidated financial statements for further discussion of the Real Estate
Matters Agreement between Palm and 3Com.
Future operating lease commitments are as follows (in thousands):
<TABLE>
<CAPTION>
Third
Fiscal Year Parties 3Com
----------- ------- -------
<S> <C> <C>
2000...................................................... $ 820 $ 2,170
2001...................................................... 856 9,532
2002...................................................... 775 10,596
2003...................................................... 794 1,804
2004...................................................... 813 --
Thereafter................................................ 509 --
------ -------
Total................................................... $4,567 $24,102
====== =======
</TABLE>
Rent expense was $2.7 million, $2.3 million, and $3.0 million for fiscal
1997, 1998 and 1999.
As of May 28, 1999, Palm had $1.4 million of debt acquired in the Smartcode
acquisition, and the interest rate on these obligations ranged from
approximately 6% to 9%. These obligations were repaid during the second quarter
of fiscal 2000.
On November 27, 1999, 3Com sold to a third party the manufacturing plant that
produces the majority of Palm's products. Concurrently, Palm entered into a
two-year supply agreement with the buyer of the manufacturing plant which
commits Palm to purchase a minimum of 450,000 units of Palm products per
quarter. Any overage in purchase of products of no more than 20% that occurs
during any quarter may be credited towards the subsequent quarterly period
commitment. Any deficit in purchase of products of no more than 20% in any
quarter may be made up in the next quarter to the extent there is not a deficit
in such subsequent quarter. Failure by Palm to meet the minimum commitment is
subject to a 90-day notice and cure period. In addition, any failure of the
manufacturer to make the minimum commitment available to Palm in accordance
with Palm's orders in any quarter relieves Palm of its obligation to reach its
minimum commitment in such quarter to the extent of the manufacturer's
shortfall.
Palm purchases product components from a vendor with which 3Com has agreed to
certain minimum purchase goals over a five-year period. 3Com's agreement with
the vendor provides for an incremental payment to be made to the vendor by 3Com
for any calendar year in which the minimum purchase goal is not met. In
connection with their separation, 3Com and Palm have agreed that Palm will
assume responsibility for 25% of the minimum purchase goal and 3Com will retain
responsibility for the remainder. In the event that Palm does not purchase its
share of the minimum annual purchase goal from the vendor in any of the five
calendar years, Palm will make an incremental payment to 3Com for the
applicable calendar year. In the event that Palm purchases none of its
F-14
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
share of the minimum annual purchase goal in each year, it would be required to
make payments up to a maximum of the following payments: $1.3 million for 1999,
$1.9 million for 2000, $2.8 million for 2001, $3.7 million for 2002 and $4.9
million for 2003. The aggregate of such incremental payments in no event will
exceed $14.6 million.
8. Employee Stock Plans
Employee Stock Purchase Plan
Under the 3Com employee stock purchase plan, eligible Palm employees have
generally been able to contribute up to 10% of their compensation, as defined,
to the purchase of shares of 3Com's common stock at a price of 85% of the lower
of the fair market value as of the beginning or the end of the offering period.
Effective on or before the initial public offering of Palm common stock, Palm
intends to sponsor an employee stock purchase plan which is comparable to the
3Com plan.
Employee Stock Option Plans
3Com has stock option plans under which Palm employees and directors may be
granted options to purchase common stock. Options are generally granted at not
less than the fair market value at grant date, vest over a two- to five-year
period and expire five to ten years after the grant date.
Prior to the distribution date, Palm intends to establish a stock option plan
for eligible Palm employees. 3Com options held by Palm employees are expected
to be converted into Palm stock options at the distribution date. The number of
shares and the exercise price of the 3Com options that convert into Palm
options will be adjusted using a conversion formula. The conversion of 3Com
options into Palm options will be done in such a manner that (1) the aggregate
intrinsic value of the options immediately before and after the exchange are
the same, (2) the ratio of the exercise price per option to the market value
per share is not reduced, and (3) the vesting provisions and option period of
the replacement Palm options are the same as the original vesting terms and
option period of the 3Com options. It is currently unknown how many 3Com
options held by Palm employees will be converted into Palm options.
Restricted Stock Plan
3Com has a restricted stock plan, under which shares of common stock are
reserved for issuance at no cost to key employees. Compensation expense, equal
to the fair market value on the date of the grant, is recognized as the granted
shares vest over a one- to four-year period. Certain Palm employees participate
in the 3Com restricted stock plan and the unvested portion of their grants will
be forfeited at the distribution date. Each Palm employee who forfeits 3Com
restricted stock will receive Palm restricted stock.
Director Stock Plan
3Com has a director stock plan, under which shares of common stock are issued
to members of its Board of Directors at an exercise price equal to the fair
market value on the date of grant and have historically vested over 24-month
increments. Grants made after July 21, 1999 were fully vested at the grant
date. Effective on or before the initial public offering of Palm common stock,
Palm also intends to
F-15
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
sponsor a director option plan. For 3Com board members who resign from the 3Com
board and join the Palm Board of Directors, their unvested 3Com options will
expire 90 days after resignation.
Accounting for Stock-Based Compensation
As permitted under SFAS 123, Palm has elected to follow APB 25 and related
interpretations in accounting for stock-based awards to employees. Under APB
25, Palm generally recognizes no compensation expense with respect to such
awards.
Pro forma information regarding net income (loss) and earnings per share is
required by SFAS 123. This information is required to be determined as if Palm
had accounted for stock-based awards to its employees, including employee stock
options and shares issued under the Employee Stock Purchase Plan, collectively
called "options", granted subsequent to May 31, 1995 under the fair value
method of that Statement. The fair value of the options granted in fiscal 1997,
1998 and 1999 reported below has been estimated at the date of grant using the
Black-Scholes option pricing model with the following assumptions:
<TABLE>
<CAPTION>
Employee Stock Employee Stock
Option Plans Purchase Plan
---------------- ----------------
1997 1998 1999 1997 1998 1999
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Risk-free interest rate..................... 6.1% 5.5% 5.3% 5.4% 5.5% 4.9%
Volatility.................................. 54.0% 56.0% 62.0% 54.0% 56.0% 62.0%
Dividend yield.............................. 0.0% 0.0% 0.0% 0.0% 0.0% 0.0%
</TABLE>
As of May 25, 1997, the expected life of options under the Employee Stock
Option Plan was estimated at approximately one year after the vesting date for
directors and nondirectors. As of May 31, 1998, the expected lives of options
under the Employee Stock Option Plan were estimated at approximately three
years after the vesting date for directors and approximately one year after the
vesting date for nondirectors. As of May 28, 1999, the expected lives of
options under the Employee Stock Option Plan were estimated at three and one-
half years after the vesting date for directors and approximately two years
after the vesting date for nondirectors. As of May 25, 1997, May 31, 1998 and
May 28, 1999, the expected life of options under the Employee Stock Purchase
Plan was estimated at six months.
The Black-Scholes option valuation model was developed for use in estimating
the fair value of traded options that have no vesting restrictions and are
fully transferable. In addition, option valuation models require the input of
highly subjective assumptions, including the expected stock price volatility.
The weighted average estimated fair value of 3Com employee stock options
granted during fiscal 1997, 1998 and 1999 was $22.61, $13.30 and $15.53 per
share, respectively. The weighted average estimated fair value of shares
granted under the Employee Stock Purchase Plan during fiscal 1997, 1998 and
1999 was $11.24, $12.47 and $9.02 per share, respectively. Because 3Com options
held by Palm employees and directors have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in the opinion
of management, the existing models do not necessarily provide a reliable single
measure of the fair value of these options.
F-16
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
For purposes of pro forma disclosures under SFAS 123, the estimated fair
value of the options is assumed to be amortized to expense over the options'
vesting period. Pro forma information related to the 3Com options held by Palm
employees and directors follows (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Years Ended
---------------------------
May 25, May 31, May 28,
1997 1998 1999
-------- -------- -------
<S> <C> <C> <C>
Net income (loss):
As reported...................................... $ (7,862) $ 4,171 $29,628
Pro forma........................................ $(22,162) $(10,235) $15,664
Net income (loss) per share:
As reported...................................... $ $ $
Pro forma........................................ $ $ $
As reported--diluted............................. $ $ $
Pro forma--diluted............................... $ $ $
</TABLE>
The effects on pro forma disclosures of applying SFAS 123 are not likely to
be representative of the effects on pro forma disclosures of future years.
Because SFAS 123 is applicable only to options granted subsequent to May 31,
1995, the full effect on pro forma net income and earnings per share was not
reflected for periods prior to fiscal 1999.
9. Financial Instruments
The following summary disclosures are made in accordance with the provisions
of SFAS No. 107, Disclosures About Fair Value of Financial Instruments, which
requires the disclosure of fair value information about both on- and off-
balance sheet financial instruments where it is practicable to estimate the
value. Fair value is defined in SFAS 107 as the amount at which an instrument
could be exchanged in a current transaction between willing parties, rather
than in a forced or liquidation sale, which is not Palm's intent.
Because SFAS 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements, any aggregation of the fair value
amounts presented would not represent the underlying value to Palm. Financial
instruments consist of cash and cash equivalents and notes payable. The
estimated fair value of cash and cash equivalents as of May 28, 1999 and August
27, 1999 (unaudited) approximates the carrying amount. The difference between
the fair value of the notes payable and their carrying value is not significant
based on current market rates.
F-17
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
10. Income Taxes
The provision (credit) for income taxes consists of (in thousands):
<TABLE>
<CAPTION>
Years Ended
-------------------------
May 25, May 31, May 28,
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Current:
Federal............................................ $(2,125) $ 6,421 $22,938
State.............................................. (697) 1,173 5,174
------- ------- -------
Total current.................................... (2,822) 7,594 28,112
------- ------- -------
Deferred:
Federal............................................ (2,679) (4,526) (7,825)
State.............................................. (665) (834) (1,799)
------- ------- -------
Total deferred................................... (3,344) (5,360) (9,624)
------- ------- -------
Total................................................ $(6,166) $ 2,234 $18,488
======= ======= =======
</TABLE>
The components of net deferred tax assets consist of (in thousands):
<TABLE>
<CAPTION>
May 31, May 28,
1998 1999
------- -------
<S> <C> <C>
Deferred tax assets:
Reserves not recognized for tax purposes..................... $ 7,828 $18,352
Tax credit carryforwards..................................... 2,966 2,024
Other........................................................ 323 365
------- -------
Deferred tax assets........................................ $11,117 $20,741
======= =======
</TABLE>
The provision (credit) for income taxes differs from the amount computed by
applying the federal statutory income tax rate to income (loss) before income
taxes as follows:
<TABLE>
<CAPTION>
Years Ended
------------------------
May 25, May 31, May 28,
1997 1998 1999
------- ------- -------
<S> <C> <C> <C>
Tax computed at federal statutory rate................. (35.0)% 35.0% 35.0%
State income taxes, net of federal effect.............. (6.3) 3.4 4.5
Research tax credits................................... (2.7) (4.7) (1.2)
Other.................................................. -- 1.2 0.1
----- ---- ----
Total................................................ (44.0)% 34.9% 38.4%
===== ==== ====
</TABLE>
Palm has federal research credit carryforwards of approximately $2 million
available as a result of its consolidated federal tax filing with 3Com. These
carryforwards expire through the year 2014.
See Note 14 to the consolidated financial statements for discussion of the
Tax Sharing Agreement between Palm and 3Com.
F-18
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
11. Business Segment Information
Palm operates in one reportable segment, handheld computing.
Geographic Information
Palm's headquarters and most of its operations are located in the United
States. Palm conducts its sales, marketing and customer service activities
throughout the world and also has a research and development facility in
France. Geographic revenue information is based on the location of the end
customer. Geographic long-lived assets information is based on the physical
location of the assets at the end of each period. Revenues from unaffiliated
customers and long-lived assets by geographic region are as follows (in
thousands):
<TABLE>
<CAPTION>
Years Ended Three Months Ended
-------------------------- ---------------------
May 25, May 31, May 28, August 28, August 27,
1997 1998 1999 1998 1999
-------- -------- -------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
United States................ $ 96,280 $198,630 $400,168 $ 91,462 $121,480
Other........................ 17,877 73,507 163,357 24,607 55,025
-------- -------- -------- -------- --------
Total...................... $114,157 $272,137 $563,525 $116,069 $176,505
======== ======== ======== ======== ========
</TABLE>
For fiscal 1997, 1998, 1999 and the three months ended August 28, 1998 and
August 27, 1999 (unaudited) no single country outside the United States
accounted for 10% or more of total revenues.
<TABLE>
<CAPTION>
May 31, May 28, August 27,
1998 1999 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Long-lived assets:
United States..................................... $8,231 $7,247 $8,031
United Kingdom.................................... 827 811 1,017
Other............................................. 63 78 112
------ ------ ------
Total........................................... $9,121 $8,136 $9,160
====== ====== ======
</TABLE>
At May 31, 1998, May 28, 1999 and August 27, 1999 (unaudited), no other
individual country had long-lived assets of 10% or more of total long-lived
assets.
12. Employee Benefit Plan
401(k) Plan
Palm's eligible U.S. employees may participate in a plan known as the 3Com
401(k) Plan ("the Plan") which was adopted to provide retirement benefits to
its employees. As allowed under Section 401(k) of the Internal Revenue Code,
the Plan provides tax-deferred salary deductions for eligible employees.
Participants may elect to contribute from 1% to 22% of their annual
compensation to the Plan each calendar year, limited to a maximum annual amount
as set periodically by the Internal Revenue Service. In addition, the Plan
provides for company matching contributions as determined by
F-19
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
the Board of Directors. 3Com matches 50% for each dollar on the first 6% of
target income contributed by the employee. Employees become vested in 3Com
matching contributions according to a three year vesting schedule based on
initial date of hire. Palm's expense related to matching contributions to the
401(k) was $171,000 in fiscal 1997, $178,000 in fiscal 1998 and $508,000 in
fiscal 1999.
On or about the distribution date, Palm intends to establish a separate
401(k) plan for its employees.
13. Litigation
We are a party to lawsuits in the normal course of our business. Litigation
in general, and intellectual property and securities litigation in particular,
can be expensive and disruptive to normal business operations. Moreover, the
results of complex legal proceedings are difficult to predict. We believe that
we have defenses to the case set forth below and are vigorously contesting this
matter. An unfavorable resolution of this lawsuit could adversely affect our
business, results of operations or financial condition.
On April 28, 1997, Xerox Corporation filed suit against U.S. Robotics
Corporation and U.S. Robotics Access Corp. in the United States District Court
for the Western District of New York. The case is now captioned: Xerox
Corporation v. U.S. Robotics Corporation, U.S. Robotics Access Corp, Palm
Computing, Inc. and 3Com Corporation, Civil Action No. 97-CV-6182T. The
complaint alleges willful infringement of a United States patent relating to
computerized interpretation of handwriting. The complaint further seeks
unspecified damages and injunctive relief. Xerox has asserted that products
utilizing Graffiti script recognition software made, used, offered for sale or
sold in the United States, or imported into the United States since January 21,
1997, infringe its patent. On June 25, 1999, the court stayed the action
pending reexamination of the patent by the United States Patent and Trademark
Office. The reexamination of the patent is currently pending. In connection
with our separation from 3Com, pursuant to the terms of the Indemnification and
Insurance Matters Agreement, Palm will indemnify and hold 3Com harmless for any
damages or losses which may arise out of this litigation. In particular, an
adverse determination in the Xerox litigation could subject Palm to substantial
damages and require it to indemnify its customers and licensees for damages
that they may suffer. Moreover, if there is an adverse determination, a license
may be necessary to continue using the Grafitti script recognition software in
Palm devices and the Palm platform. A license may not be available or on terms
acceptable to Palm. If upon an adverse determination Palm was unable to obtain
a license on terms acceptable to it, it could be required to modify its script
recognition software or license alternative script recognition software from
third parties for inclusion in Palm devices and the Palm platform.
We also file suits against others to protect our intellectual property, such
as the matters described below.
On July 22, 1999, Palm filed a copyright infringement action against Olivetti
and CompanionLink in the United States District Court for the Northern District
of California and obtained a preliminary injunction against further
distribution, sale, import or export of Olivetti Office USA's "Royal daVinci"
handheld device and the daVinci OS Software Development Kit, distributed by
CompanionLink Software, Inc. The injunction is to remain in effect pending the
outcome of the lawsuit. Palm also initiated a copyright infringement action in
Hong Kong on July 21, 1999, against EchoLink Design
F-20
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
Ltd., the company responsible for developing the operating system software
contained in the daVinci products. The High Court of the Hong Kong Special
Administrative Region issued an order the same day restraining EchoLink from
further copying, distribution, sale, import or export of Palm OS operating
system source code or EchoLink's "NEXUS OS" source code, which Palm maintains
infringes its copyrights.
14. Transactions with 3Com Corporation
Palm's costs and expenses include allocations from 3Com for centralized
legal, accounting treasury, real estate, information technology, distribution,
customer service, sales, marketing, engineering, and other 3Com corporate
services and infrastructure costs. These allocations have been determined on
bases that 3Com and Palm considered to be reasonable reflections of the
utilization of services provided or the benefit received by Palm. The
allocation methods include relative revenues, headcount or square footage.
Allocated costs included in the accompanying consolidated statements of
operations follow (in thousands).
<TABLE>
<CAPTION>
Years Ended Three Months Ended
----------------------- ---------------------
May 25, May 31, May 28, August 28, August 27,
1997 1998 1999 1998 1999
------- ------- ------- ---------- ----------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cost of revenues................. $4,374 $3,694 $ 9,238 $1,770 $2,920
Sales and marketing.............. 1,144 7,023 16,625 3,100 5,446
Research and development......... 1,573 845 3,437 528 1,647
General and administrative....... 2,574 5,212 14,085 2,485 3,952
Other income and expense, net.... 523 25 218 25 63
</TABLE>
Historically, Palm has outsourced all of its product manufacturing to 3Com
and other third parties.
For purposes of governing certain of the ongoing relationships between Palm
and 3Com at and after the separation date and to provide for an orderly
transition, Palm and 3Com have entered or will enter into various agreements. A
brief description of each of the agreements follows.
Master Separation and Distribution Agreement
The Master Separation and Distribution Agreement contains the key provisions
relating to the separation, initial public offering and the distribution. The
agreement lists the documents and items that the parties must deliver in order
to accomplish the transfer of assets and liabilities from 3Com to Palm,
effective on the separation date. The agreement also contains conditions that
must occur prior to the initial public offering and the distribution. The
parties also entered into both short-term and long-term covenants, including
covenants to enter into transitional services agreements, exchange information,
engage in certain auditing practices and resolve disputes in particular ways.
General Assignment and Assumption Agreement
The General Assignment and Assumption Agreement identifies the assets that
3Com will transfer to Palm and the liabilities that Palm will assume from 3Com
in the separation. The agreement also describes when and how these transfers
and assumptions will occur. In general, the
F-21
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
assets that will be transferred and the liabilities that will be assumed are
included in those that appear on the consolidated balance sheet, after
adjustment for certain assets and liabilities that will be retained by 3Com,
such as most of our accounts receivable and accounts payable, and for activity
that occurs between the balance sheet date and the separation date.
Intellectual Property Agreements
The Master Technology Ownership and License Agreement, the Master Patent
Ownership and License Agreement, the Master Trademark Ownership and License
Agreement and the Master Confidential Disclosure Agreement together are
referred to as the Intellectual Property Agreements. Under the Intellectual
Property Agreements, 3Com will confirm that Palm owns or will transfer to Palm
its rights in specified patents, patent applications, invention disclosures,
specified trademarks and other intellectual property related to Palm's current
business and research and development efforts. Neither 3Com nor Palm will sue
the other for claims of infringement related to existing patents. 3Com will
grant a license to Palm under certain patents owned by 3Com which were jointly
developed with Palm. Palm will commit to license its operating system to 3Com
on favorable terms pursuant to a separate agreement that the two parties will
negotiate. Both 3Com and Palm have agreed not to disclose confidential
information of the other party except in specific circumstances.
Employee Matters Agreement
The Employee Matters Agreement outlines how 3Com and Palm plan to allocate
assets, liabilities and responsibilities relating to current and former
employees of Palm and their participation in the benefits plans, including
stock plans, that 3Com currently sponsors and maintains. The agreement also
contains provisions describing some of Palm's employee benefit and employee
stock plans.
All eligible Palm employees will continue to participate in the 3Com benefits
plans on comparable terms and conditions to those for 3Com employees until the
distribution date or until Palm establishes benefit plans for its employees, or
elects not to establish comparable plans if it is not legally or financially
practical. Palm intends to establish its own benefit program no later than the
time of the distribution.
Once Palm establishes its own benefits plans, it may modify or terminate each
plan in accordance with the terms of that plan and its policies. No Palm
benefit plan will provide benefits that overlap benefits under the
corresponding 3Com benefit plan at the time of the distribution. Each Palm
benefit plan will provide that all service, compensation and other benefit
determinations that, as of the distribution, were recognized under the
corresponding 3Com benefits plan will be taken into account under that Palm
benefit plan.
Following the date of 3Com's distribution of its Palm common stock to its
stockholders, Palm will be under no obligation to maintain these plans in the
form in which they were established or at all. The transfer to Palm of
employees at certain of 3Com's international operations, and of certain
employee benefit plans, may not take place until Palm receives consents or
approvals or has satisfied other applicable requirements.
F-22
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
Tax Sharing Agreement
The Tax Sharing Agreement allocates 3Com's and Palm's responsibilities for
certain tax matters. The agreement requires Palm to pay 3Com for the
incremental tax costs of Palm's inclusion in consolidated, combined or unitary
tax returns with affiliated corporations. In determining these incremental
costs, the agreement takes into account not only the group's incremental tax
payments to the Internal Revenue Service or other taxing authorities, but also
the incremental use of tax losses of affiliates to offset Palm's taxable
income, and the incremental use of tax credits of affiliates to offset the tax
on Palm's income. The agreement also provides for compensation or reimbursement
as appropriate to reflect redeterminations of Palm's tax liability for periods
during which Palm joined in filing consolidated, combined or unitary tax
returns.
The tax sharing agreement also requires Palm to indemnify 3Com for certain
taxes and similar obligations, including (a) sales taxes on the sale of
products purchased by 3Com from Palm before the distribution, (b) customs
duties or harbor maintenance fees on products exported or imported by 3Com on
behalf of Palm, (c) the additional taxes that would result if an acquisition of
a controlling interest in Palm's stock after the distribution causes the
distribution not to qualify for tax-free treatment to 3Com, and (d) any taxes
resulting from transactions undertaken in preparation for the distribution.
Palm's indemnity obligations include any interest and penalties on taxes,
duties or fees for which Palm must indemnify 3Com.
Each member of a consolidated group for U.S. federal income tax purposes is
jointly and severally liable for the group's federal income tax liability.
Accordingly, Palm could be required to pay a deficiency in the group's federal
income tax liability for a period during which Palm was a member of the group
even if the Tax Sharing Agreement allocates that liability to 3Com or another
member.
The agreement also assigns responsibilities for certain administrative
matters such as the filing of returns, payment of taxes due, retention of
records, and the conduct of audits, examinations or similar proceedings.
Master Transitional Services Agreement
The Master Transitional Services Agreement governs the provision of
information technology services by 3Com and Palm to each other, on an interim
basis, for one year from the date of separation, unless extended for specific
services or otherwise indicated in the agreement. The services include data
processing and telecommunications services, such as voice telecommunications
and data transmission, and information technology support services, for
functions including accounting, financial management, tax, payroll, stockholder
and public relations, legal, procurement, and other administrative functions.
Specified charges for such services are generally intended to allow the
providing company to recover the direct and indirect costs of providing the
services, plus 5% for one year, and plus 10% for an extension of the agreements
beyond one year. The Master Transitional Services Agreement also will cover the
provision of certain additional transitional services identified from time to
time after the separation date that were inadvertently or unintentionally
omitted from the specified services, or that are essential to effectuate an
orderly transition under the separation agreement, so long as the provision of
such services would not significantly disrupt 3Com's operations or
significantly increase the scope of its responsibility under the agreement.
F-23
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
In addition, the Master Transitional Services Agreement will provide for the
replication of some computer systems, including hardware, software, data
storage or maintenance and support components. Generally, the party needing the
replicated system will bear the costs and expenses of replication. Generally,
the party purchasing new hardware or licensing new software will bear the costs
and expenses of purchasing the new hardware or obtaining the new software
licenses.
Real Estate Matters Agreement
The Real Estate Matters Agreement addresses real estate matters relating to
the 3Com leased and owned properties that 3Com will transfer to or share with
Palm. The agreement describes the manner in which 3Com will transfer to or
share with Palm various leased and owned properties. The Real Estate Matters
Agreement provides that Palm will be required to accept the transfer of all
sites allocated to Palm, even if a site has been damaged by a casualty before
the separation date. The Real Estate Matters Agreement also provides that all
reasonable costs required to effect the transfers, including landlord consent
fees and landlord attorneys' fees will be paid by 3Com.
Indemnification and Insurance Matters Agreement
Effective as of the separation date, subject to specified expections, Palm
and 3Com will each release the other from any liabilities arising from events
occurring on or before the separation date, including events occurring in
connection with the activities to implement the separation, the initial public
offering and the distribution. The agreement also contains provisions governing
indemnification. In general, Palm and 3Com will each indemnify the other from
all liabilities arising from their respective businesses or contracts, as well
as liabilities arising from a breach of the separation agreement or any
ancillary agreement. In addition, 3Com and Palm will each indemnify the other
against liability for specified environmental conditions. Palm will reimburse
3Com for the cost of any insurance coverage from the separation date to the
distribution date.
15. Subsequent Events
On November 30, 1999, Palm's Board of Directors and sole stockholder
approved the following:
. The 1999 Stock Plan. The 1999 Stock Plan becomes effective upon the
closing of the initial public offering. A total of shares will be
reserved for issuance under the 1999 Plan. In addition, the number of
shares reserved under the plan will automatically increase on the first
day of each fiscal year, beginning with our fiscal year 2001, in an
amount equal to the lesser of (a) shares, or (b) 5% of the shares
outstanding on the first day of the fiscal year, or (c) a lesser amount
determined by Palm's Board of Directors. The 1999 Stock Plan provides for
issuance of incentive stock options, nonstatutory stock options and stock
purchase rights to employees, directors and consultants.
. The 1999 Director Option Plan. The 1999 Director Option Plan becomes
effective upon the closing of the initial public offering. Under the 1999
Director Option Plan, a total of shares of common stock will be
reserved for the grant of nonstatutory stock options to non-employee
directors of Palm. In addition, the number of shares reserved under this
plan will automatically increase on the first day of each fiscal year,
beginning in fiscal year 2001, in an amount equal to shares or a
lesser amount determined by Palm's Board of Directors. The initial
options granted under the 1999 Director Option Plan shall vest over three
years and any subsequent annual stock option grants will vest over one
year and expire ten years from the date of grant.
F-24
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Three Months Ended August 28, 1998 and August 27, 1999
. The 1999 Employee Stock Purchase Plan. The 1999 Employee Stock Purchase
Plan becomes effective upon the closing of the initial public offering.
Under the Purchase Plan, eligible employees may purchase common stock
through payroll deductions, which may not exceed 10% of any employee's
compensation nor more than shares in any one purchase period. A
total of shares of common stock will be reserved for issuance under
the 1999 Employee Stock Purchase Plan. The number of shares reserved for
issuance under the 1999 Employee Stock Purchase Plan will automatically
increase annually, beginning with our fiscal year 2001, by an amount
equal to the lesser of (a) shares, or (b) 2% of the common shares
outstanding on the first day of the fiscal year, or (c) another amount as
may be determined by Palm's Board of Directors.
On , 2000, Palm's Board of Directors and sole stockholder approved the
following:
. The reincorporation of Palm Computing, Inc. in the state of Delaware as
Palm, Inc.
. An increase in the authorized number of shares of common stock to
shares and creation of newly undesignated preferred stock
totaling shares, contingent upon the approval of the
reincorporation of Palm in Delaware and the closing of the initial public
offering.
. A -for-one stock split of the outstanding shares of common stock. The
stock split was effected on , 2000. All shares and per share
amounts in these financial statements have been adjusted to give effect
to the stock split.
. The payment of a dividend of $ million to 3Com.
* * * * *
F-25
<PAGE>
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
No dealer, salesperson or other person is authorized to give any information
or to represent anything not contained in this prospectus. You must not rely
on any unauthorized information or representations. This prospectus is an
offer to sell only the shares offered hereby, but only under circumstances and
in jurisdictions where it is lawful to do so. The information contained in
this prospectus is current only as of its date.
--------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 3
Risk Factors............................................................. 7
Our Separation From 3Com................................................. 23
Special Note Regarding Forward-Looking Statements........................ 22
Use of Proceeds.......................................................... 25
Dividend Policy.......................................................... 25
Capitalization........................................................... 26
Dilution................................................................. 27
Selected Consolidated Financial Data..................................... 29
Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................... 30
Business................................................................. 42
Management............................................................... 55
Arrangements Between Palm and 3Com....................................... 67
Principal Stockholders................................................... 76
Description of Capital Stock ............................................ 77
Underwriting............................................................. 79
Shares Eligible for Future Sale.......................................... 81
Validity of Common Stock................................................. 81
Experts.................................................................. 81
Where You Can Find More Information...................................... 82
Index to Consolidated Financial Statements............................... F-1
</TABLE>
--------------
Through and including , 2000 (the 25th day after the date of this
prospectus), all dealers effecting transactions in these securities, whether
or not participating in this offering, may be required to deliver a
prospectus. This is in addition to a dealer's obligation to deliver a
prospectus when acting as an underwriter and with respect to an unsold
allotment or subscription.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
Shares
Palm, Inc.
Common Stock
--------------
[LOGO]
[PALM, INC. LOGO APPEARS HERE]
--------------
Goldman, Sachs & Co.
Morgan Stanley Dean Witter
Merrill Lynch & Co.
Robertson Stephens
Representatives of the Underwriters
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
<PAGE>
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 in connection with the sale and
distribution of the securities being registered. All amounts are estimated
except the Securities and Exchange Commission registration fee and the
registration fee. Palm has agreed to pay these costs and expenses.
<TABLE>
<CAPTION>
Item Amount
---- -------
<S> <C>
Securities and Exchange Commission registration fee................. $26,400
NASD registration fee............................................... 10,500
Nasdaq Stock Market original and continued listing fees............. *
Blue Sky qualification fees and expenses............................ 12,000
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Transfer agent and registrar fees................................... *
Printing and engraving expenses..................................... *
Miscellaneous expenses.............................................. *
-------
Total............................................................. $
=======
</TABLE>
- --------
*To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Palm is incorporated under the laws of the State of Delaware. Section 145
("Section 145") of the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended (the "General Corporation Law"), inter
alia, provides that a Delaware corporation may indemnify any persons who were,
are or are threatened to be made, parties to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative
or investigative (other than an action by or in the right of such corporation),
by reason of the fact that such person is or was an officer, director, employee
or agent of such corporation, or is or was serving at the request of such
corporation as a director, officer, employee or agent of another corporation or
enterprise. The indemnity may include expenses (including attorneys' fees),
judgments, fines and amounts paid in settlement actually and reasonably
incurred by such person in connection with such action, suit or proceeding,
provided such person acted in good faith and in a manner he reasonably believed
to be in or not opposed to the corporation's best interests and, with respect
to any criminal action or proceeding, had no reasonable cause to believe that
his conduct was illegal.
Section 145 further authorizes a corporation to purchase and maintain
insurance on behalf of any person who is or was a director, officer, employee
or agent of the corporation, or is or was serving at the request of the
corporation as a director, officer, employee or agent of another corporation or
enterprise, against any liability asserted against him and incurred by him in
any such capacity, arising out of his status as such, whether or not the
corporation would otherwise have the power to indemnify him under Section 145.
Palm's Certificate of Incorporation and Bylaws provide for the
indemnification of officers and directors to the fullest extent permitted by
the General Corporation Law.
All of Palm's directors and officers will be covered by insurance policies
maintained by Palm against specified liabilities for actions taken in their
capacities as such, including liabilities under the Securities Act of 1933, as
amended. In addition, Palm has entered into indemnity agreements with its
directors and executive officers (a form of which is filed as Exhibit 10.9 to
this Registration Statement) that obligate Palm to indemnify such directors and
executive officers to the fullest extent permitted by the General Corporation
Law.
II-1
<PAGE>
Item 15. Exhibits and Financial Statement Schedules
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Master Separation and Distribution Agreement between 3Com and the
registrant effective as of December 13, 1999.
2.2 Form of General Assignment and Assumption Agreement between 3Com and
the registrant.
2.3 Form of Master Technology Ownership and License Agreement between 3Com
and the registrant.
2.4 Form of Master Patent Ownership and License Agreement between 3Com and
the registrant.
2.5 Form of Master Trademark Ownership and License Agreement between 3Com
and the registrant.
2.6 Form of Employee Matters Agreement between 3Com and the registrant.
2.7 Form of Tax Sharing Agreement between 3Com and the registrant.
2.8 Form of Master Transitional Services Agreement between 3Com and the
registrant.
2.9 Form of Real Estate Matters Agreement between 3Com and the registrant.
2.10 Form of Master Confidential Disclosure Agreement between 3Com and the
registrant.
2.11 Form of Indemnification and Insurance Matters Agreement between 3Com
and the registrant.
2.12 Form of Non-U.S. Plan.
3.1* Certificate of Incorporation.
3.2* Bylaws.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* 1999 Stock Plan.
10.2* 1999 Stock Plan Agreements.
10.3* 1999 Employee Stock Purchase Plan.
10.4* 1999 Employee Stock Purchase Plan Agreements.
10.5* 1999 Director Option Plan.
10.6* 1999 Director Option Plan Agreements.
10.7 Management Retention Agreement dated as of December 1, 1999 by and
between Carl J. Yankowski and the registrant.
10.8* Form of Indemnification Agreement entered into by the registrant with
each of its directors and executive officers.
10.9* RAM Mobile Data USA Limited Partnership Value Added Reseller Agreement
between RAM Mobile Data USA Limited Partnership and the registrant.
10.10* Supply Agreement between Manufacturers' Services Salt Lake City
Operations, Inc. and the registrant.
10.11* Common Stock Purchase Agreement between America Online and the
registrant.
10.12* Common Stock Purchase Agreement between Motorola and the registrant.
10.13* Common Stock Purchase Agreement Between Nokia and the registrant.
21.1* Subsidiaries of Palm.
23.1* Independent Auditors' Consent and Report on Schedule
23.2* Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
24.1 Power of Attorney (contained on page II-4).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
II-2
<PAGE>
(b)Financial Statement Schedules.
<TABLE>
<S> <C>
Valuation and Qualifying Accounts and Reserves........................... S-1
</TABLE>
Item 16. Undertakings
The Registrant hereby undertakes to provide 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.
Insofar as the indemnification for liabilities arising under the Securities
Act of 1933 may be permitted as to directors, officers and controlling persons
of the Registrant pursuant to the provisions described in Item 14, or
otherwise, the Registrant has been advised that in the opinion of the SEC, such
indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payments by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the Registrant
in the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the securities
being registered, the Registrant will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Act and will be governed by the final
adjudication of such issue.
The undersigned Registrant hereby undertakes that:
(1) for purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in a
form of prospectus filed by the registrant pursuant to Rule 424(b)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective; and
(2) for the purpose of determining any liability under the Securities Act
of 1933, 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 this offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-3
<PAGE>
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 Santa Clara, State of
California, on December 13, 1999.
/s/ Carl J. Yankowski
_____________________________________
Carl J. Yankowski
Chief Executive Officer and
Director
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Carl J. Yankowski, Judy Bruner and Stephen Yu,
and each of them, his or her attorneys-in-fact, each with the power of
substitution, for him or her in any and all capacities, to sign any and all
amendments to this Registration Statement (including post-effective
statements), 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, as
amended, and all post-effective amendments thereto, and to file the same, with
exhibits thereto and other 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 or she might or could do
in person, hereby ratifying and confirming all that such attorneys-in-fact, or
his or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof. This Power of Attorney may be signed in several counterparts.
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ Carl J. Yankowski Chief Executive Officer and December 13, 1999
______________________________________ Director (Principal
Carl J. Yankowski Executive Officer)
/s/ Judy Bruner Senior Vice President and December 13, 1999
______________________________________ Chief Financial Officer
Judy Bruner (Principal Financial and
Accounting Officer)
/s/ Eric A. Benhamou Director December 13, 1999
______________________________________
Eric A. Benhamou
/s/ James L. Barksdale Director December 13, 1999
______________________________________
James L. Barksdale
/s/ Gordon A. Campbell Director December 13, 1999
______________________________________
Gordon A. Campbell
/s/ Susan G. Swenson Director December 13, 1999
______________________________________
Susan G. Swenson
</TABLE>
II-4
<PAGE>
PALM, INC.
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999
(In thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and End of
Description of Period Expenses Deductions Period
----------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Year ended May 25, 1997:
Allowance for doubtful accounts... $ 39 $ 567 $ (5) $ 601
Product return reserve............ 651 10,637 (4,042) 7,246
Accrued product warranty.......... 58 5,507 (3,912) 1,653
Year ended May 31, 1998:
Allowance for doubtful accounts... $ 601 $3,893 $ (43) $ 4,451
Product return reserve............ 7,246 8,982 (10,576) 5,652
Accrued product warranty.......... 1,653 17,527 (15,068) 4,112
Year ended May 28, 1999:
Allowance for doubtful accounts... $4,451 $4,271 $ (4,905) $ 3,817
Product return reserve............ 5,652 24,145 (12,254) 17,543
Accrued product warranty.......... 4,112 25,949 (18,732) 11,329
</TABLE>
S-1
<PAGE>
INDEX OF EXHIBITS
<TABLE>
<CAPTION>
Exhibit
Number Description
------- -----------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1 Master Separation and Distribution Agreement between 3Com and the
registrant effective as of December 13, 1999.
2.2 Form of General Assignment and Assumption Agreement between 3Com and
the registrant.
2.3 Form of Master Technology Ownership and License Agreement between 3Com
and the registrant.
2.4 Form of Master Patent Ownership and License Agreement between 3Com and
the registrant.
2.5 Form of Master Trademark Ownership and License Agreement between 3Com
and the registrant.
2.6 Form of Employee Matters Agreement between 3Com and the registrant.
2.7 Form of Tax Sharing Agreement between 3Com and the registrant.
2.8 Form of Master Transitional Services Agreement between 3Com and the
registrant.
2.9 Form of Real Estate Matters Agreement between 3Com and the registrant.
2.10 Form of Master Confidential Disclosure Agreement between 3Com and the
registrant.
2.11 Form of Indemnification and Insurance Matters Agreement between 3Com
and the registrant.
2.12 Form of Non-U.S. Plan.
3.1* Certificate of Incorporation.
3.2* Bylaws.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.
10.1* 1999 Stock Plan.
10.2* 1999 Stock Plan Agreements.
10.3* 1999 Employee Stock Purchase Plan.
10.4* 1999 Employee Stock Purchase Plan Agreements.
10.5* 1999 Director Option Plan.
10.6* 1999 Director Option Plan Agreements.
10.7 Management Retention Agreement dated as of December 1, 1999 by and
between Carl J. Yankowski and the registrant.
10.8* Form of Indemnification Agreement entered into by the registrant with
each of its directors and executive officers.
10.9* RAM Mobile Data USA Limited Partnership Value Added Reseller Agreement
between RAM Mobile Data USA Limited Partnership and the registrant.
10.10* Supply Agreement between Manufacturers' Services Salt Lake City
Operations, Inc. and the registrant.
10.11* Common Stock Purchase Agreement between America Online and the
registrant.
10.12* Common Stock Purchase Agreement between Motorola and the registrant.
10.13* Common Stock Purchase Agreement Between Nokia and the registrant.
21.1* Subsidiaries of Palm.
23.1* Independent Auditors' Consent and Report on Schedule
23.2* Consent of Wilson Sonsini Goodrich & Rosati (included in Exhibit 5.1).
24.1 Power of Attorney (contained on page II-4).
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
<PAGE>
Exhibit 2.1
Master Separation and Distribution Agreement
Between
3Com Corporation
and
Palm Computing, Inc.
Effective as of
December 13, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I SEPARATION................................................................. 2
Section 1.1 Separation Date................................................. 2
Section 1.2 Closing of Transactions......................................... 2
Section 1.3 Exchange of Secretary's Certificates............................ 2
ARTICLE II DOCUMENTS AND ITEMS TO BE DELIVERED ON THE SEPARATION DATE................ 2
Section 2.1 Documents to Be Delivered by 3Com............................... 2
Section 2.2 Documents to Be Delivered by Palm............................... 3
ARTICLE III THE IPO AND ACTIONS PENDING THE IPO...................................... 3
Section 3.1 Transactions Prior to the IPO................................... 3
Section 3.2 Cooperation..................................................... 4
Section 3.3 Conditions Precedent to Consummation of the IPO................. 4
ARTICLE IV THE DISTRIBUTION.......................................................... 5
Section 4.1 The Distribution................................................ 5
Section 4.2 Actions Prior to the Distribution............................... 6
Section 4.3 Sole Discretion of 3Com......................................... 6
Section 4.4 Conditions Precedent to Distribution............................ 6
Section 4.5 Fractional Shares............................................... 7
ARTICLE V COVENANTS AND OTHER MATTERS................................................ 8
Section 5.1 Other Agreements................................................ 8
Section 5.2 Further Instruments............................................. 8
Section 5.3 Additional Transitional Services Agreements..................... 8
Section 5.4 Agreement for Exchange of Information........................... 8
Section 5.5 Auditors and Audits; Annual and Quarterly Statements and
Accounting...................................................... 10
Section 5.6 Consistency with Past Practices................................. 12
Section 5.7 Payment of Expenses............................................. 12
Section 5.8 Foreign Subsidiaries............................................ 12
Section 5.9 Dispute Resolution.............................................. 12
Section 5.10 Governmental Approvals.......................................... 13
Section 5.11 No Representation or Warranty................................... 13
Section 5.12 Non-Solicitation of Employees................................... 14
Section 5.13 Employee Agreements............................................. 14
Section 5.14 Cooperation in Obtaining New Agreements......................... 15
Section 5.15 Property Damage to Palm Assets Prior to the Separation Date..... 16
ARTICLE VI MISCELLANEOUS............................................................. 16
Section 6.1 Limitation of Liability......................................... 16
Section 6.2 Entire Agreement................................................ 16
</TABLE>
<PAGE>
<TABLE>
<S> <C>
Section 6.3 Governing Law................................................... 17
Section 6.4 Termination..................................................... 17
Section 6.5 Notices......................................................... 17
Section 6.6 Counterparts.................................................... 17
Section 6.7 Binding Effect; Assignment...................................... 17
Section 6.8 Severability.................................................... 18
Section 6.9 Failure or Indulgence Not Waiver; Remedies Cumulative........... 18
Section 6.10 Amendment....................................................... 18
Section 6.11 Authority....................................................... 18
Section 6.12 Interpretation.................................................. 18
Section 6.13 Conflicting Agreements.......................................... 19
ARTICLE VII DEFINITIONS.............................................................. 19
Section 7.1 Affiliated Company.............................................. 19
Section 7.2 Governmental Approvals.......................................... 19
Section 7.3 Governmental Authority.......................................... 19
Section 7.4 Information..................................................... 19
Section 7.5 IPO Closing Date................................................ 19
Section 7.6 Palm Assets..................................................... 19
Section 7.7 Palm Group...................................................... 19
Section 7.8 Palm's Auditors................................................. 19
Section 7.9 Person.......................................................... 20
Section 7.10 Record Date..................................................... 20
Section 7.11 Subsidiary...................................................... 20
Section 7.12 3Com Group...................................................... 20
Section 7.13 3Com's Auditors................................................. 20
</TABLE>
<PAGE>
MASTER SEPARATION AND DISTRIBUTION AGREEMENT
This Master Separation and Distribution Agreement (this "Agreement") is
entered into as of December 13, 1999, between 3Com Corporation ("3Com"), a
Delaware corporation, and Palm Computing, Inc. ("Palm"), a California
corporation. Capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to such terms in Article VII hereof.
RECITALS
WHEREAS, 3Com currently owns all of the issued and outstanding common stock
of Palm;
WHEREAS, Palm is engaged in the handheld computing business and related
businesses as described in the IPO Registration Statement (the "Palm Business");
WHEREAS, the Boards of Directors of 3Com and Palm have each determined that
it would be appropriate and desirable for 3Com to contribute and transfer to
Palm, and for Palm to receive and assume, directly or indirectly, assets and
liabilities currently held by 3Com and associated with the Palm Business (the
"Separation");
WHEREAS, 3Com and Palm currently contemplate that, following the
contribution and assumption of assets and liabilities, Palm will make an initial
public offering ("IPO") of an amount of its common stock pursuant to a
registration statement on Form S-1 pursuant to the Securities Act of 1933, as
amended (the "IPO Registration Statement"), that will reduce 3Com's ownership of
Palm to not less than 80.1%;
WHEREAS, 3Com and Palm currently contemplate that in conjunction with the
IPO, Palm will reincorporate from the State of California to the State of
Delaware, and will change its name to Palm, Inc.;
WHEREAS, 3Com currently contemplates that, several months following such
IPO, 3Com will distribute, pro rata, to the holders of its common stock, $0.001
par value, all of the shares of Palm common stock owned by 3Com (the
"Distribution");
WHEREAS, 3Com and Palm intend that the Separation and the Distribution will
qualify as a tax-free reorganization under Sections 368(a)(1)(D) and 355 of the
Internal Revenue Code of 1986, as amended (the "Code"), and that this Agreement
is intended to be, and is hereby adopted as, a plan of reorganization under
Section 368 of the Code; and
WHEREAS, the parties intend in this Agreement, including the Exhibits
hereto, to set forth the principal arrangements between them regarding the
separation of the Palm Business.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:
<PAGE>
ARTICLE I
SEPARATION
Section 1.1 Separation Date. Unless otherwise provided in this
Agreement, or in any agreement to be executed in connection with this Agreement,
the effective time and date of each transfer of property, assumption of
liability, license, undertaking, or agreement in connection with the Separation
shall be 12:01 a.m., Pacific Time, February 26, 2000 or such other date as may
be fixed by the Board of Directors of 3Com (the "Separation Date").
Section 1.2 Closing of Transactions. Unless otherwise provided herein,
the closing of the transactions contemplated in Article II shall occur by the
lodging of each of the executed instruments of transfer, assumptions of
liability, undertakings, agreements, instruments or other documents executed or
to be executed with Wilson Sonsini Goodrich & Rosati ("WSGR"), 650 Page Mill
Road, Palo Alto, California 94304, to be held in escrow for delivery as provided
in Section 1.3.
Section 1.3 Exchange of Secretary's Certificates. Upon receipt of a
certificate of the Secretary or an Assistant Secretary of 3Com in the form
attached to this Agreement as Exhibit A, WSGR shall deliver to Palm on behalf of
3Com all of the items required to be delivered by 3Com hereunder pursuant to
Section 2.1 and each such item shall be deemed to be delivered to Palm as of the
Separation Date upon delivery of such certificate. Upon receipt of a certificate
of the Secretary or an Assistant Secretary of Palm in the form attached to this
Agreement as Exhibit B, WSGR shall deliver to 3Com on behalf of Palm all of the
items required to be delivered by Palm pursuant to Section 2.2 hereunder and
each such item shall be deemed to be delivered to 3Com as of the Separation Date
upon receipt of such certificate.
ARTICLE II
DOCUMENTS AND ITEMS TO BE DELIVERED ON THE SEPARATION DATE
Section 2.1 Documents to Be Delivered by 3Com. On the Separation Date or
such other date as agreed in connection with the Non-US Plan (as defined in
Section 5.8), 3Com will deliver, or will cause its appropriate Subsidiaries to
deliver, to Palm all of the following items and agreements (collectively,
together with all agreements and documents contemplated by such agreements, the
"Ancillary Agreements"):
(a) A duly executed General Assignment and Assumption Agreement (the
"Assignment Agreement") substantially in the form attached hereto as Exhibit C;
(b) A duly executed Master Technology Ownership and License Agreement
substantially in the form attached hereto as Exhibit D-1, a duly executed Master
Patent Ownership and License Agreement substantially in the form attached hereto
as Exhibit D-2 and a duly executed Master Trademark Ownership and License
Agreement substantially in the form attached as Exhibit D-3;
-2-
<PAGE>
(c) A duly executed Employee Matters Agreement substantially in the
form attached hereto as Exhibit E;
(d) A duly executed Tax Sharing Agreement substantially in the form
attached hereto as Exhibit F;
(e) A duly executed Master Transitional Services Agreement
substantially in the form attached hereto as Exhibit G;
(f) A duly executed Real Estate Matters Agreement substantially in
the form attached hereto as Exhibit H;
(g) A duly executed Master Confidential Disclosure Agreement
substantially in the form attached hereto as Exhibit I;
(h) A duly executed Indemnification and Insurance Matters Agreement
substantially in the form attached hereto as Exhibit J;
(i) A plan of Reorganization of Operations Outside the US, as
described in Exhibit K;
(j) Resignations of each person who is an officer or director of 3Com
or its Subsidiaries, immediately prior to the Separation Date, and who will be
employees of Palm from and after the Separation Date; and
(k) Such other agreements, documents or instruments as the parties
may agree are necessary or desirable in order to achieve the purposes hereof.
Section 2.2 Documents to Be Delivered by Palm. As of the Separation Date,
Palm will deliver to 3Com all of the following:
(a) In each case where Palm is a party to any agreement or instrument
referred to in Section 2.1, a duly executed counterpart of such agreement or
instrument; and
(b) Resignations of each person who is an officer or director of
Palm, immediately prior to the Separation Date, and who will be an employee of
3Com from and after the Separation Date.
ARTICLE III
THE IPO AND ACTIONS PENDING THE IPO
Section 3.1 Transactions Prior to the IPO. Subject to the conditions
specified in Section 3.3, 3Com and Palm shall use their reasonable commercial
efforts to consummate the IPO. Such efforts shall include, but not necessarily
be limited to, those specified in this Section 3.1
-3-
<PAGE>
(a) Registration Statement. Palm shall file the IPO Registration
Statement, and such amendments or supplements thereto as may be necessary in
order to cause the same to become and remain effective as required by law or by
the managing underwriters for the IPO (the "Underwriters"), including, but not
limited to, filing such amendments to the IPO Registration Statement as may be
required by the underwriting agreement to be entered into between Palm and the
Underwriters (the "Underwriting Agreement"), the Securities and Exchange
Commission (the "Commission") or federal, state or foreign securities laws. 3Com
and Palm shall also cooperate in preparing, filing with the Securities and
Exchange Commission and causing to become effective a registration statement
registering the common stock of Palm under the Securities and Exchange Act of
1934, as amended (the "Exchange Act"), and any registration statements or
amendments thereof which are required to reflect the establishment of, or
amendments to, any employee benefit and other plans necessary or appropriate in
connection with the IPO, the Separation, the Distribution or the other
transactions contemplated by this Agreement.
(b) Underwriting Agreement. Palm shall enter into the Underwriting
Agreement, in form and substance reasonably satisfactory to Palm, and shall
comply with its obligations thereunder.
(c) Nasdaq Listing. Palm shall prepare, file and use reasonable
commercial efforts to seek to make effective, an application for listing of the
common stock of Palm issued in the IPO on the Nasdaq National Market ("Nasdaq"),
subject to official notice of issuance.
Section 3.2 Cooperation. Palm shall consult with, and cooperate in all
respects with, 3Com in connection with the pricing of the common stock of Palm
to be offered in the IPO and shall, at 3Com's direction, promptly take any and
all actions necessary or desirable to consummate the IPO as contemplated by the
IPO Registration Statement and the Underwriting Agreement.
Section 3.3 Conditions Precedent to Consummation of the IPO. The IPO
closing is currently scheduled to occur on or before June 2, 2000 (the "IPO
Closing Date"). The obligations of the parties to use their reasonable
commercial efforts to consummate the IPO shall be conditioned on the
satisfaction of the following conditions:
(a) Registration Statement. The IPO Registration Statement shall
have been filed and declared effective by the Commission, and there shall be no
stop-order in effect with respect thereto.
(b) Blue Sky. The actions and filings with regard to state
securities and blue sky laws of the United States (and any comparable laws under
any foreign jurisdictions) shall have been taken and, where applicable, have
become effective or been accepted.
(c) Nasdaq Listing. The common stock of Palm to be issued in the IPO
shall have been accepted for listing on the Nasdaq, on official notice of
issuance.
(d) Underwriting Agreement. Palm shall have entered into the
Underwriting Agreement and all conditions to the obligations of Palm and the
Underwriters shall have been satisfied or waived.
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(e) Common Stock Ownership. 3Com shall be satisfied in its sole
discretion that it will own at least 80.1% of the outstanding common stock of
Palm following the IPO. All other conditions to permit the Distribution to
qualify as a tax-free distribution to 3Com, Palm and 3Com's stockholders shall,
to the extent applicable as of the time of the IPO, be satisfied. There shall be
no event or condition that is likely to cause any of such conditions not to be
satisfied as of the time of the Distribution or thereafter.
(f) No Legal Restraints. No order, injunction or decree issued by
any court or agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Separation or the IPO or any of
the other transactions contemplated by this Agreement shall be in effect.
(g) Separation. The Separation shall have become effective by
execution of this Agreement and the Ancillary Agreements.
(h) Other Actions. Such other actions as the parties hereto may,
based upon the advice of counsel, reasonably request to be taken prior to the
IPO in order to assure the successful completion of the IPO shall have been
taken.
(i) No Termination. This Agreement shall not have been terminated.
ARTICLE IV
THE DISTRIBUTION
Section 4.1 The Distribution.
(a) Delivery of Shares for Distribution. Subject to Section 4.4
hereof, on or prior to the date the Distribution is effective (the "Distribution
Date"), 3Com will deliver to the distribution agent (the "Distribution Agent")
to be appointed by 3Com to distribute to the stockholders of 3Com the shares of
common stock of Palm held by 3Com pursuant to the Distribution for the benefit
of holders of record of common stock of 3Com on the Record Date, a single stock
certificate, endorsed by 3Com, representing all of the outstanding shares of
common stock of Palm then owned by 3Com, and shall cause the transfer agent for
the shares of common stock of 3Com to instruct the Distribution Agent to
distribute on the Distribution Date the appropriate number of such shares of
common stock of Palm to each such holder or designated transferee or transferees
of such holder.
(b) Shares Received. Subject to Sections 4.4 and 4.5, each holder of
common stock of 3Com on the Record Date (or such holder's designated transferee
or transferees) will be entitled to receive in the Distribution a number of
shares of common stock of Palm equal to the number of shares of common stock of
3Com held by such holder on the Record Date multiplied by a fraction the
numerator of which is the number of shares of common stock of Palm beneficially
owned by 3Com on the Record Date and the denominator of which is the number of
shares of common stock of 3Com outstanding on the Record Date.
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(c) Obligation to Provide Information. Palm and 3Com, as the case
may be, will provide to the Distribution Agent all share certificates and any
information required in order to complete the Distribution on the basis
specified above.
Section 4.2 Actions Prior to the Distribution.
(a) Information Statement. 3Com and Palm shall prepare and mail,
prior to the Distribution Date, to the holders of common stock of 3Com, such
information concerning Palm and the Distribution and such other matters as 3Com
shall reasonably determine are necessary and as may be required by law. 3Com and
Palm will prepare, and Palm will, to the extent required under applicable law,
file with the Commission any such documentation which 3Com and Palm determine is
necessary or desirable to effectuate the Distribution, and 3Com and Palm shall
each use its reasonable commercial efforts to obtain all necessary approvals
from the Commission with respect thereto as soon as practicable.
(b) Blue Sky. 3Com and Palm shall take all such actions as may be
necessary or appropriate under the securities or blue sky laws of the United
States (and any comparable laws under any foreign jurisdiction) in connection
with the Distribution.
(c) Nasdaq Listing. Palm shall prepare and file, and shall use its
reasonable commercial efforts to have approved, an application for the
additional listing of the common stock of Palm to be distributed in the
Distribution on the Nasdaq, subject to official notice of distribution.
(d) Conditions. 3Com and Palm shall take all reasonable steps
necessary and appropriate to cause the conditions set forth in Section 4.4 to be
satisfied and to effect the Distribution on the Distribution Date.
Section 4.3 Sole Discretion of 3Com. 3Com currently intends, following
the consummation of the IPO, to complete the Distribution by December 1, 2000.
3Com shall, in its sole and absolute discretion, determine the date of the
consummation of the Distribution and all terms of the Distribution, including,
without limitation, the form, structure and terms of any transaction(s) and/or
offering(s) to effect the Distribution and the timing of and conditions to the
consummation of the Distribution. In addition, 3Com may at any time and from
time to time until the completion of the Distribution, modify or change the
terms of the Distribution, including, without limitation, by accelerating or
delaying the timing of the consummation of all or part of the Distribution. Palm
shall cooperate with 3Com in all respects to accomplish the Distribution and
shall, at 3Com's direction, promptly take any and all actions necessary or
desirable to effect the Distribution, including, without limitation, the
registration under the Securities Act of the common stock of Palm on an
appropriate registration form or forms to be designated by 3Com. 3Com shall
select any investment banker(s) and manager(s) in connection with the
Distribution, as well as any financial printer, solicitation and/or exchange
agent and outside counsel for 3Com; provided, however, that nothing herein shall
prohibit Palm from engaging (at its own expense) its own financial, legal,
accounting and other advisors in connection with the Distribution.
Section 4.4 Conditions Precedent to Distribution. The following are
conditions that must take place prior to the consummation of the Distribution.
The conditions are for the sole benefit of
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3Com and shall not give rise to or create any duty on the part of 3Com or the
3Com Board of Directors to waive or not waive any such condition.
(a) IRS Ruling. 3Com shall have obtained a private letter ruling
from the Internal Revenue Service in form and substance satisfactory to 3Com (in
its sole discretion), and such ruling shall remain in effect as of the
Distribution Date, to the effect that (i) the transfer by the 3Com Group to the
Palm Group of the property, subject to liabilities, held by 3Com of the Palm
Business, and Palm's assumption of liabilities held by 3Com related to the Palm
Business, followed by the distribution by 3Com of all of its Palm stock to the
stockholders of 3Com, will qualify as a reorganization under Sections
368(a)(1)(D) and 355 of the Code; (ii) no gain or loss will be recognized by
3Com on its transfer of property of the Palm Business to Palm; (iii) no gain or
loss will be recognized by Palm on its receipt of property of the Palm Business
from 3Com; and (iv) no gain or loss will be recognized by (and no amount will
otherwise be included in the income of) the stockholders of 3Com upon their
receipt of Palm common stock pursuant to the Distribution.
(b) Government Approvals. Any material governmental approvals and
consents necessary to consummate the Distribution shall have been obtained and
be in full force and effect;
(c) No Legal Restraints. No order, injunction or decree issued by
any court or agency of competent jurisdiction or other legal restraint or
prohibition preventing the consummation of the Distribution shall be in effect
and no other event outside the control of 3Com shall have occurred or failed to
occur that prevents the consummation of the Distribution; and
(d) No Material Adverse Effect. No other events or developments
shall have occurred subsequent to the IPO Closing Date that, in the judgment of
the Board of Directors of 3Com, would result in the Distribution having a
material adverse effect on 3Com or on the stockholders of 3Com.
Section 4.5 Fractional Shares. As soon as practicable after the
Distribution Date, 3Com shall direct the Distribution Agent to determine the
number of whole shares and fractional shares of common stock of Palm allocable
to each holder of record or beneficial owner of common stock of 3Com as of the
Record Date, to aggregate all such fractional shares and sell the whole shares
obtained thereby at the direction of 3Com, in open market transactions, at then
prevailing trading prices, and to cause to be distributed to each such holder or
for the benefit of each such beneficial owner to which a fractional share shall
be allocable such holder's or owner's ratable share of the proceeds of such
sale, after making appropriate deductions of the amount required to be withheld
for federal income tax purposes and after deducting an amount equal to all
brokerage charges, commissions and transfer taxes attributed to such sale. 3Com
and the Distribution Agent shall use their reasonable commercial efforts to
aggregate the shares of common stock of 3Com that may be held by any beneficial
owner thereof through more than one account in determining the fractional share
allocable to such beneficial owner.
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ARTICLE V
COVENANTS AND OTHER MATTERS
Section 5.1 Other Agreements. 3Com and Palm agree to execute or cause to
be executed by the appropriate parties and deliver, as appropriate, such other
agreements, instruments and other documents as may be necessary or desirable in
order to effect the purposes of this Agreement and the Ancillary Agreements.
Section 5.2 Further Instruments. At the request of Palm, and without
further consideration, 3Com will execute and deliver, and will cause its
applicable Subsidiaries to execute and deliver, to Palm and its Subsidiaries
such other instruments of transfer, conveyance, assignment, substitution and
confirmation and take such action as Palm may reasonably deem necessary or
desirable in order more effectively to transfer, convey and assign to Palm and
its Subsidiaries and confirm Palm's and its Subsidiaries' title to all of the
assets, rights and other things of value contemplated to be transferred to Palm
and its Subsidiaries pursuant to this Agreement, the Ancillary Agreements, and
any documents referred to therein, to put Palm and its Subsidiaries in actual
possession and operating control thereof and to permit Palm and its Subsidiaries
to exercise all rights with respect thereto (including, without limitation,
rights under contracts and other arrangements as to which the consent of any
third party to the transfer thereof shall not have previously been obtained). At
the request of 3Com and without further consideration, Palm will execute and
deliver, and will cause its applicable Subsidiaries to execute and deliver, to
3Com and its Subsidiaries all instruments, assumptions, novations, undertakings,
substitutions or other documents and take such other action as 3Com may
reasonably deem necessary or desirable in order to have Palm fully and
unconditionally assume and discharge the liabilities contemplated to be assumed
by Palm under this Agreement or any document in connection herewith and to
relieve the 3Com Group of any liability or obligation with respect thereto and
evidence the same to third parties. Neither 3Com nor Palm shall be obligated, in
connection with the foregoing, to expend money other than reasonable out-of-
pocket expenses, attorneys' fees and recording or similar fees. Furthermore,
each party, at the request of the other party hereto, shall execute and deliver
such other instruments and do and perform such other acts and things as may be
necessary or desirable for effecting completely the consummation of the
transactions contemplated hereby.
Section 5.3 Additional Transitional Services Agreements. 3Com and its
Subsidiaries and Palm and its Subsidiaries will enter into transitional services
agreements covering the provision of various transitional services, including
financial, accounting, real estate and site services, sales, customer support,
human resources, supply chain services and information technology services by
3Com (and its Subsidiaries) to Palm (and its Subsidiaries) or, in certain
circumstances, vice versa. Such services will generally be provided for a fee
equal to the direct costs and indirect costs of providing such services plus
five percent (5.0%). The transitional services agreements will generally provide
for a term of one year or less. However, some transitional services agreements
may be extended beyond the initial one year term, in which case the fee for such
services shall, generally, be increased to the direct costs and indirect costs
of providing such services plus ten percent (10.0%).
Section 5.4 Agreement for Exchange of Information.
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(a) Generally. Each of 3Com and Palm agrees to provide, or cause to
be provided, to each other, at any time before or after the Distribution Date,
as soon as reasonably practicable after written request therefor, any
Information in the possession or under the control of such party that the
requesting party reasonably needs (i) to comply with reporting, disclosure,
filing or other requirements imposed on the requesting party (including under
applicable securities laws) by a Governmental Authority having jurisdiction over
the requesting party, (ii) for use in any other judicial, regulatory,
administrative or other proceeding or in order to satisfy audit, accounting,
claims, regulatory, litigation or other similar requirements, (iii) to comply
with its obligations under this Agreement or any Ancillary Agreement or (iv) in
connection with the ongoing businesses of 3Com or Palm, as the case may be;
provided, however, that in the event that any party determines that any such
provision of Information could be commercially detrimental, violate any law or
agreement, or waive any attorney-client privilege, the parties shall take all
reasonable measures to permit the compliance with such obligations in a manner
that avoids any such harm or consequence.
(b) Internal Accounting Controls; Financial Information. After the
Separation Date, (i) each party shall maintain in effect at its own cost and
expense adequate systems and controls for its business to the extent necessary
to enable the other party to satisfy its reporting, accounting, audit and other
obligations, and (ii) each party shall provide, or cause to be provided, to the
other party and its Subsidiaries in such form as such requesting party shall
request, at no charge to the requesting party, all financial and other data and
information as the requesting party determines necessary or advisable in order
to prepare its financial statements and reports or filings with any Governmental
Authority.
(c) Ownership of Information. Any Information owned by a party that
is provided to a requesting party pursuant to this Section 5.4 shall be deemed
to remain the property of the providing party. Unless specifically set forth
herein, nothing contained in this Agreement shall be construed as granting or
conferring rights of license or otherwise in any such Information.
(d) Record Retention. To facilitate the possible exchange of
Information pursuant to this Section 5.4 and other provisions of this Agreement
after the Distribution Date, each party agrees to use its reasonable commercial
efforts to retain all Information in its respective possession or control on the
Distribution Date substantially in accordance with the policies of 3Com as in
effect on the Separation Date. However, except as set forth in the Tax Sharing
Agreement, at any time after the Distribution Date, each party may amend its
respective record retention policies at such party's discretion; provided,
however, that if a party desires to effect the amendment within three (3) years
after the Distribution Date, the amending party must give thirty (30) days prior
written notice of such change in the policy to the other party to this
Agreement.
(i) No party will destroy, or permit any of its Subsidiaries to
destroy, any Information that exists on the Separation Date (other than
Information that is permitted to be destroyed under the current record retention
policies of 3Com) and that falls under the categories listed in Section 5.4(a),
without first using its reasonable commercial efforts to notify the other party
of the proposed destruction and giving the other party the opportunity to take
possession of such Information prior to such destruction.
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(e) Limitation of Liability. No party shall have any liability to
any other party in the event that any Information exchanged or provided pursuant
to this Section 5.4 is found to be inaccurate, in the absence of gross
negligence or willful misconduct by the party providing such Information. No
party shall have any liability to any other party if any Information is
destroyed or lost after reasonable commercial efforts by such party to comply
with the provisions of Section 5.4(d).
(f) Other Agreements Providing for Exchange of Information. The
rights and obligations granted under this Section 5.4 are subject to any
specific limitations, qualifications or additional provisions on the sharing,
exchange or confidential treatment of Information set forth in this Agreement
and any Ancillary Agreement.
(g) Production of Witnesses; Records; Cooperation. After the
Distribution Date, except in the case of a legal or other proceeding by one
party against another party (which shall be governed by such discovery rules as
may be applicable under Section 5.9 or otherwise), each party hereto shall use
its reasonable commercial efforts to make available to each other party, upon
written request, the former, current and future directors, officers, employees,
other personnel and agents of such party as witnesses and any books, records or
other documents within its control or which it otherwise has the ability to make
available, to the extent that any such person (giving consideration to business
demands of such directors, officers, employees, other personnel and agents) or
books, records or other documents may reasonably be required in connection with
any legal, administrative or other proceeding in which the requesting party may
from time to time be involved, regardless of whether such legal, administrative
or other proceeding is a matter with respect to which indemnification may be
sought hereunder. The requesting party shall bear all costs and expenses in
connection therewith.
Section 5.5 Auditors and Audits; Annual and Quarterly Statements and
Accounting. Each party agrees that, for so long as 3Com is required in
accordance with United States generally accepted accounting principles to
consolidate Palm's results of operations and financial position:
(a) Selection of Auditors. Palm shall not select a different
accounting firm from that used by 3Com to serve as its (and its Subsidiaries')
independent certified public accountants ("Palm's Auditors") for purposes of
providing an opinion on its consolidated financial statements without 3Com's
prior written consent (which shall not be unreasonably withheld).
(b) Date of Auditors' Opinion and Quarterly Reviews. Palm shall use
its reasonable commercial efforts to enable the Palm Auditors to complete their
audit such that they will date their opinion on Palm's audited annual financial
statements on the same date that 3Com's independent certified public accountants
("3Com's Auditors") date their opinion on 3Com's audited annual financial
statements, and to enable 3Com to meet its timetable for the printing, filing
and public dissemination of 3Com's annual financial statements. Palm shall use
its reasonable commercial efforts to enable the Palm Auditors to complete their
quarterly review procedures such that they will provide clearance on Palm's
quarterly financial statements on the same date that 3Com's Auditors provide
clearance on 3Com's quarterly financial statements.
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(c) Annual and Quarterly Financial Statements. Palm shall provide to
3Com on a timely basis all Information that 3Com reasonably requires to meet its
schedule for the preparation, printing, filing, and public dissemination of
3Com's annual and quarterly financial statements. Without limiting the
generality of the foregoing, Palm will provide all required financial
Information with respect to Palm and its Subsidiaries to Palm's Auditors in a
sufficient and reasonable time and in sufficient detail to permit Palm's
Auditors to take all steps and perform all reviews necessary to provide
sufficient assistance to 3Com's Auditors with respect to financial Information
to be included or contained in 3Com's annual and quarterly financial statements.
Similarly, 3Com shall provide to Palm on a timely basis all financial
Information that Palm reasonably requires to meet its schedule for the
preparation, printing, filing, and public dissemination of Palm's annual and
quarterly financial statements. Without limiting the generality of the
foregoing, 3Com will provide all required financial Information with respect to
3Com and its Subsidiaries to 3Com's Auditors in a sufficient and reasonable time
and in sufficient detail to permit 3Com's Auditors to take all steps and perform
all reviews necessary to provide sufficient assistance to Palm's Auditors with
respect to Information to be included or contained in Palm's annual and
quarterly financial statements.
(d) Identity of Personnel Performing the Annual Audit and Quarterly
Reviews. Palm shall authorize Palm's Auditors to make available to 3Com's
Auditors both the personnel who performed or will perform the annual audits and
quarterly reviews of Palm and work papers related to the annual audits and
quarterly reviews of Palm, in all cases within a reasonable time prior to Palm's
Auditors' opinion date, so that 3Com's Auditors are able to perform the
procedures they consider necessary to take responsibility for the work of Palm's
Auditors as it relates to 3Com's Auditors' report on 3Com's financial
statements, all within sufficient time to enable 3Com to meet its timetable for
the printing, filing and public dissemination of 3Com's annual and quarterly
statements. Similarly, 3Com shall authorize 3Com's Auditors to make available to
Palm's Auditors both the personnel who performed or will perform the annual
audits and quarterly reviews of 3Com and work papers related to the annual
audits and quarterly reviews of 3Com, in all cases within a reasonable time
prior to 3Com's Auditors' opinion date, so that Palm's Auditors are able to
perform the procedures they consider necessary to take responsibility for the
work of 3Com's Auditors as it relates to Palm's Auditors' report on Palm's
statements, all within sufficient time to enable Palm to meet its timetable for
the printing, filing and public dissemination of Palm's annual and quarterly
financial statements.
(e) Access to Books and Records. Palm shall provide 3Com's internal
auditors and their designees access to Palm's and its Subsidiaries' books and
records so that 3Com may conduct reasonable audits relating to the financial
statements provided by Palm pursuant hereto as well as to the internal
accounting controls and operations of Palm and its Subsidiaries. Similarly, 3Com
shall provide Palm's internal auditors and their designees access to 3Com's and
its Subsidiaries' books and records so that Palm may conduct reasonable audits
relating to the financial statements provided by 3Com pursuant hereto as well as
to the internal accounting controls and operations of 3Com and its Subsidiaries
(f) Notice of Change in Accounting Principles. Palm shall give 3Com
as much prior notice as reasonably practical of any proposed determination of,
or any significant changes in, its accounting estimates or accounting principles
from those in effect on the Separation Date. Palm will consult with 3Com and, if
requested by 3Com, Palm will consult with 3Com's independent public
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accountants with respect thereto. 3Com shall give Palm as much prior notice as
reasonably practical of any proposed determination of, or any significant
changes in, its accounting estimates or accounting principles from those in
effect on the Separation Date.
(g) Conflict with Third-Party Agreements. Nothing in Sections 5.4
and 5.5 shall require Palm to violate any agreement with any third party
regarding the confidentiality of confidential and proprietary information
relating to that third party or its business; provided, however, that in the
event that Palm is required under Sections 5.4 and 5.5 to disclose any such
Information, Palm shall use all commercially reasonable efforts to seek to
obtain such third party's consent to the disclosure of such information.
Section 5.6 Consistency with Past Practices. At all times, 3Com and Palm
will conduct the Palm Business before the Separation Date in the ordinary
course, consistent with past practices.
Section 5.7 Payment of Expenses. Except as otherwise provided in this
Agreement, the Ancillary Agreements or any other agreement between the parties
relating to the Separation, the IPO or the Distribution, all costs and expenses
of the parties hereto in connection with the Separation, the IPO (including
underwriting discounts and commissions) and the Distribution and costs and
expenses of the parties hereto in connection with the Separation shall be
allocated between Palm and 3Com. Palm and 3Com shall each be responsible for
their own internal fees, costs and expenses incurred in connection with the
Separation, the IPO and the Distribution.
Section 5.8 Foreign Subsidiaries. 3Com and Palm shall cause each of
their foreign subsidiaries to execute such local transfer agreements,
assignments, assumptions, novations and other documents as shall be necessary to
carry out the plan described in Exhibit K (the "Non-US Plan") hereto to effect
the purposes of this Agreement with respect to their respective operations
outside the United States.
Section 5.9 Dispute Resolution.
(a) If a dispute, controversy or claim ("Dispute") arises between the
parties relating to the interpretation or performance of this Agreement or the
Ancillary Agreements, or the grounds for the termination hereof, appropriate
senior executives (e.g. director or V.P. level) of each party who shall have the
authority to resolve the matter shall meet to attempt in good faith to negotiate
a resolution of the Dispute prior to pursuing other available remedies. The
initial meeting between the appropriate senior executives shall be referred to
herein as the "Dispute Resolution Commencement Date." Discussions and
correspondence relating to trying to resolve such Dispute shall be treated as
confidential information developed for the purpose of settlement and shall be
exempt from discovery or production and shall not be admissible. If the senior
executives are unable to resolve the Dispute within thirty (30) days from the
Dispute Resolution Commencement Date, and either party wishes to pursue its
rights relating to such Dispute, then the Dispute will be mediated by a mutually
acceptable mediator appointed pursuant to the mediation rules of JAMS/Endispute
within thirty (30) days after written notice by one party to the other demanding
non-binding mediation. Neither party may unreasonably withhold consent to the
selection of a mediator or the location of the mediation. Both parties will
share the costs of the mediation equally, except that each party shall bear its
own costs
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and expenses, including attorney's fees, witness fees, travel expenses, and
preparation costs. The parties may also agree to replace mediation with some
other form of non-binding or binding ADR.
(b) Any Dispute which the parties cannot resolve through mediation
within ninety (90) days of the Dispute Resolution Commencement Date, unless
otherwise mutually agreed, shall be submitted to final and binding arbitration
under the then current Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), by three (3) arbitrators in Santa Clara County, California.
Such arbitrators shall be selected by the mutual agreement of the parties or,
failing such agreement, shall be selected according to the aforesaid AAA rules.
The arbitrators will be instructed to prepare and deliver a written, reasoned
opinion stating their decision within thirty (30) days of the completion of the
arbitration. The prevailing party in such arbitration shall be entitled to
expenses, including costs and reasonable attorneys' and other professional fees,
incurred in connection with the arbitration (but excluding any costs and fees
associated with prior negotiation or mediation). The decision of the arbitrator
shall be final and non-appealable and may be enforced in any court of competent
jurisdiction. The use of any ADR procedures will not be construed under the
doctrine of laches, waiver or estoppel to adversely affect the rights of either
party.
(c) Any Dispute regarding the following is not required to be
negotiated, mediated or arbitrated prior to seeking relief from a court of
competent jurisdiction: breach of any obligation of confidentiality;
infringement, misappropriation, or misuse of any intellectual property right;
any other claim where interim relief from the court is sought to prevent serious
and irreparable injury to one of the parties or to others. However, the parties
to the Dispute shall make a good faith effort to negotiate and mediate such
Dispute, according to the above procedures, while such court action is pending.
(d) Continuity of Service and Performance. Unless otherwise agreed
in writing, the parties will continue to provide service and honor all other
commitments under this Agreement and each Ancillary Agreement during the course
of dispute resolution pursuant to the provisions of this Section 5.9 with
respect to all matters not subject to such dispute, controversy or claim.
Section 5.10 Governmental Approvals. To the extent that the Separation
requires any Governmental Approvals, the parties will use their reasonable
commercial efforts to obtain any such Governmental Approvals.
Section 5.11 No Representation or Warranty. 3Com does not, in this
Agreement or any other agreement, instrument or document contemplated by this
Agreement, make any representation as to, warranty of or covenant with respect
to:
(a) the value of any asset or thing of value to be transferred to
Palm;
(b) the freedom from encumbrance of any asset or thing of value to be
transferred to Palm;
(c) the absence of defenses or freedom from counterclaims with
respect to any claim to be transferred to Palm; or
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(d) the legal sufficiency of any assignment, document or instrument
delivered hereunder to convey title to any asset or thing of value upon its
execution, deliver and filing.
Except as may expressly be set forth herein or in any Ancillary Agreement,
all assets to be transferred to Palm shall be transferred "AS IS, WHERE IS" and
Palm shall bear the economic and legal risk that any conveyance shall prove to
be insufficient to vest in Palm good and marketable title, free and clear of any
lien, claim, equity or other encumbrance.
Section 5.12 Non-Solicitation of Employees. 3Com and Palm each agree not
to solicit or recruit, without the other party's express written consent, the
other party's employees for a period of two (2) years following the Distribution
Date. To the extent this prohibition is waived, any recruitment efforts by
either 3Com or Palm during the period of one (1) year after the Distribution
Date shall be coordinated with each party's Senior Vice President of Human
Resources or his or her designate and appropriate management. Notwithstanding
the foregoing, this prohibition on solicitation does not apply to actions taken
by a party either: (a) solely as a result of an employee's affirmative response
to a general recruitment effort carried out through a public solicitation or
general solicitation, or (b) as a result of an employee's initiative.
Section 5.13 Employee Agreements. Definition. As used in this Section
5.13, "Employee Agreement" means the Conflicts, Confidential Information and
Assignment of Inventions Agreement and corresponding agreements in foreign
countries executed by each 3Com employee.
(a) Survival of 3Com Employee Agreement Obligations and 3Com's Common
Law Rights. The 3Com Employee Agreements of all former 3Com employees
transferred to Palm as of the Distribution Date shall remain in full force and
effect according to their terms; provided, however, that none of the following
acts committed by former 3Com employees within the scope of their Palm
employment shall constitute a breach of such 3Com Employee Agreements: (i) the
use or disclosure of Confidential Information (as that term is defined in the
former 3Com employee's 3Com Employee Agreement) for or on behalf of Palm, if
such disclosure is consistent with the rights granted to Palm and restrictions
imposed on Palm under this Agreement, any Ancillary Agreement or any other
agreement between the parties; (ii) the disclosure and assignment to Palm of
rights in proprietary developments authored or conceived by the former 3Com
employee after the Separation Date and resulting from the use of, or based upon
intellectual property (whether patented or not) which is retained by 3Com;
provided, however, that in no event shall such disclosure and assignment be
regarded as assigning the underlying intellectual property to Palm; (iii) the
rendering of any services, directly or indirectly, to Palm to the extent such
services are consistent with the assignment or license of rights granted to Palm
and the restrictions imposed on Palm under this Agreement, any Ancillary
Agreement or any other agreement between the parties; and (iv) solicitation of
the employees of one party by the other party prior to the Distribution Date (so
long as such solicitation does not violate Section 5.12 hereof). Further, 3Com
retains any rights it has under statute or common law with respect to actions by
its former employees to the extent such actions are inconsistent with the rights
granted to Palm and restrictions imposed on Palm under this Agreement, any
Ancillary Agreement or any other agreement between the parties.
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(b) Assignment, Cooperation for Compliance and Enforcement.
(i) 3Com retains all rights under the 3Com Employee Agreements
of all former 3Com employees necessary to permit 3Com to protect the rights and
interests of 3Com, but hereby transfers and assigns to Palm its rights under the
3Com Employee Agreements of all former 3Com employees to the extent required to
permit Palm to enjoin, restrain, recover damages from or obtain specific
performance of the 3Com Employee Agreements or obtain other remedies against any
employee who breaches his/her 3Com Employee Agreement.
(ii) 3Com and Palm agree, at their own respective cost and
expense, to use their reasonable efforts to cooperate as follows: (A) Palm shall
advise 3Com of: (1) any violation(s) of the 3Com Employee Agreement by former
3Com employees, and (2) any violation(s) of the Palm Employee Agreement which
affect 3Com's rights; and (B) 3Com shall advise Palm of any violations of the
3Com Employee Agreement by current or former 3Com employees which affect Palm's
rights; provided, however, that the foregoing obligations shall only apply to
violations which become known to an attorney within the legal department of the
party obligated to provide notice thereof.
(iii) 3Com and Palm each may separately enforce the 3Com
Employee Agreements of former 3Com employees to the extent necessary to
reasonably protect their respective interests, provided, however, that (i) Palm
shall not commence any legal action relating thereto without first consulting
with 3Com's General Counsel or his/her designee and (ii) 3Com shall not commence
any legal action relating thereto against any former 3Com employee who is at the
time an Palm employee without first consulting with Palm's General Counsel or
his/her designee. If either party, in seeking to enforce any 3Com Employee
Agreement, notifies the other party that it requires, or desires, such party to
join in such action, then the other party shall do so. In addition, if either
party commences or becomes a party to any action to enforce a 3Com Employee
Agreement of a former 3Com employee, the other party shall, whether or not it
becomes a party to the action, cooperate with the other party by making
available its files and employees who have information or knowledge relevant to
the dispute, subject to appropriate measures to protect the confidentiality of
any proprietary or confidential information that may be disclosed in the course
of such cooperation or action and subject to any relevant privacy laws and
regulations. Any such action shall be conducted at the expense of the party
bringing the action and the parties shall agree on a case by case basis on
compensation, if any, of the other party for the value of the time of such other
party's employees as reasonably required in connection with the action.
(iv) 3Com and Palm understand and acknowledge that matters
relating to the making, performance, enforcement, assignment and termination of
employee agreements are typically governed by the laws and regulations of the
national, federal, state or local governmental unit where an employee resides,
or where an employee's services are rendered, and that such laws and regulations
may supersede or limit the applicability or enforceability of this Section 5.13.
In such circumstances, 3Com and Palm agree to take action with respect to the
employee agreements that best accomplishes the parties' objectives as set forth
in this Section 5.13 and that is consistent with applicable law.
Section 5.14 Cooperation in Obtaining New Agreements. 3Com understands
that, prior to the Separation Date, Palm has derived benefits under certain
agreements and relationships between
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<PAGE>
3Com and third parties, which agreements and relationships are not being
assigned or transferred to Palm in connection with the Separation. Upon the
request of Palm, 3Com agrees to make introductions of appropriate Palm personnel
to 3Com's contacts at such third parties, and agrees to provide reasonable
assistance to Palm, at 3Com's own expense, so that Palm may enter into
agreements or relationships with such third parties under substantially
equivalent terms and conditions, including financial terms and conditions, that
apply to 3Com. Such assistance may include, but is not limited to, (i)
requesting and encouraging such third parties to enter into such agreements or
relationships with Palm, (ii) attending meetings and negotiating sessions with
Palm and such third parties, and (iii) participating in buying consortiums with
Palm. 3Com also understands that certain agreements between 3Com and third
parties which are being assigned to Palm in connection with the Separation may
require the consent of the applicable third party. 3Com shall assist Palm in
seeking and obtaining the consent of such third parties to such assignment. The
parties expect that the activities contemplated by this Section 5.14 will be
substantially completed by the Distribution Date, but in no event will 3Com have
any obligations hereunder after the first anniversary of the Distribution Date.
Section 5.15 Property Damage to Palm Assets Prior to the Separation Date.
In the event of any property damage, other than ordinary wear and tear,
to any Palm Assets held by 3Com which occurs prior to the Separation Date, 3Com
shall repair or otherwise address such damage in the ordinary course of business
consistent with past practices; provided, however, that nothing in this clause
shall restrict 3Com from disposing of any Assets in the ordinary course of
business consistent with past practices.
ARTICLE VI
MISCELLANEOUS
Section 6.1 Limitation of Liability. IN NO EVENT SHALL ANY MEMBER OF THE
3COM GROUP OR PALM GROUP BE LIABLE TO ANY OTHER MEMBER OF THE 3COM GROUP OR PALM
GROUP FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES
OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING
NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE
FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTY'S INDEMNIFICATION OBLIGATIONS
FOR LIABILITIES AS SET FORTH IN THE INDEMNIFICATION AND INSURANCE MATTERS
AGREEMENT.
Section 6.2 Entire Agreement. This Agreement, the Ancillary Agreements
and the Exhibits and Schedules referenced or attached hereto and thereto,
constitute the entire agreement between the parties with respect to the subject
matter hereof and thereof and shall supersede all prior written and oral and all
contemporaneous oral agreements and understandings with respect to the subject
matter hereof and thereof.
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<PAGE>
Section 6.3 Governing Law. This Agreement shall be construed in
accordance with and all Disputes hereunder shall be governed by the laws of the
State of California, excluding its conflict of law rules and the United Nations
Convention on Contracts for the International Sale of Goods. The Superior Court
of Santa Clara County and/or the United States District Court for the Northern
District of California shall have jurisdiction and venue over all Disputes
between the parties that are permitted to be brought in a court of law pursuant
to Section 5.9 above.
Section 6.4 Termination. This Agreement and all Ancillary Agreements may
be terminated and the Distribution abandoned at any time prior to the IPO
Closing Date by and in the sole discretion of 3Com without the approval of Palm.
This Agreement may be terminated at any time after the IPO Closing Date and
before the Distribution Date by mutual consent of 3Com and Palm. In the event of
termination pursuant to this Section 6.4, no party shall have any liability of
any kind to the other party.
Section 6.5 Notices. Notices, offers, requests or other communications
required or permitted to be given by either party pursuant to the terms of this
Agreement shall be given in writing to the respective parties to the following
addresses:
if to 3Com :
3Com Corporation
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
if to Palm:
Palm Computing, Inc.
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
or to such other address as the party to whom notice is given may have
previously furnished to the other in writing as provided herein. Any notice
involving non-performance, termination, or renewal shall be sent by hand
delivery, recognized overnight courier or, within the United States, may also be
sent via certified mail, return receipt requested. All other notices may also
be sent by fax, confirmed by first class mail. All notices shall be deemed to
have been given and received on the earlier of actual delivery or three (3) days
from the date of postmark.
Section 6.6 Counterparts. This Agreement, including the Ancillary
Agreement and the Exhibits and Schedules hereto and thereto and the other
documents referred to herein or therein, may be executed in counterparts, each
of which shall be deemed to be an original but all of which shall constitute one
and the same agreement.
Section 6.7 Binding Effect; Assignment. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective legal
representatives and successors, and
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<PAGE>
nothing in this Agreement, express or implied, is intended to confer upon any
other Person any rights or remedies of any nature whatsoever under or by reason
of this Agreement. This Agreement may be enforced separately by each member of
the 3Com Group and each member of the Palm Group. Neither party may assign this
Agreement or any rights or obligations hereunder, without the prior written
consent of the other party, and any such assignment shall be void; provided,
however, either party may assign this Agreement to a successor entity in
conjunction with such party's reincorporation.
Section 6.8 Severability. If any term or other provision of this
Agreement or the Exhibits or Schedules attached hereto is determined by a court,
administrative agency or arbitrator to be invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to either party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the fullest extent possible.
Section 6.9 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of either party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement or the Exhibits or Schedules attached hereto are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
Section 6.10 Amendment. No change or amendment will be made to this
Agreement or the Exhibits or Schedules attached hereto except by an instrument
in writing signed on behalf of each of the parties to such agreement.
Section 6.11 Authority. Each of the parties hereto represents to the
other that (a) it has the corporate or other requisite power and authority to
execute, deliver and perform this Agreement, (b) the execution, delivery and
performance of this Agreement by it have been duly authorized by all necessary
corporate or other actions, (c) it has duly and validly executed and delivered
this Agreement, and (d) this Agreement is a legal, valid and binding obligation,
enforceable against it in accordance with its terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equity principles.
Section 6.12 Interpretation. The headings contained in this Agreement, in
any Exhibit or Schedule hereto and in the table of contents to this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized term used in any Exhibit or
Schedule but not otherwise defined therein, shall have the meaning assigned to
such term in this Agreement. When a reference is made in this Agreement to an
Article or a Section, Exhibit or Schedule, such reference shall be to an Article
or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated.
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<PAGE>
Section 6.13 Conflicting Agreements. In the event of conflict between
this Agreement and any Ancillary Agreement or other agreement executed in
connection herewith, the provisions of such other agreement shall prevail.
ARTICLE VII
DEFINITIONS
Section 7.1 Affiliated Company. "Affiliated Company" of any Person means
any entity that controls, is controlled by, or is under common control with such
Person. As used herein, "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such entity, whether through ownership of voting securities or other interests,
by contract or otherwise.
Section 7.2 Governmental Approvals. "Governmental Approvals" means any
notices, reports or other filings to be made, or any consents, registrations,
approvals, permits or authorizations to be obtained from, any Governmental
Authority.
Section 7.3 Governmental Authority. "Governmental Authority" shall mean
any federal, state, local, foreign or international court, government,
department, commission, board, bureau, agency, official or other regulatory,
administrative or governmental authority.
Section 7.4 Information. "Information" means information, whether or not
patentable or copyrightable, in written, oral, electronic or other tangible or
intangible forms, stored in any medium, including studies, reports, records,
books, contracts, instruments, surveys, discoveries, ideas, concepts, know-how,
techniques, designs, specifications, drawings, blueprints, diagrams, models,
prototypes, samples, flow charts, data, computer data, disks, diskettes, tapes,
computer programs or other software, marketing plans, customer names,
communications by or to attorneys (including attorney-client privileged
communications), memos and other materials prepared by attorneys or under their
direction (including attorney work product), and other technical, financial,
employee or business information or data.
Section 7.5 IPO Closing Date. "IPO Closing Date" has the meaning set
forth in the Section 3.3 hereof.
Section 7.6 Palm Assets. "Palm Assets" has the meaning set forth in
Section 1.2 of the Assignment Agreement.
Section 7.7 Palm Group. "Palm Group" means Palm, each Subsidiary and
Affiliated Company of Palm immediately after the Separation Date or that is
contemplated to be a Subsidiary or Affiliated Company of Palm pursuant to the
Non-US Plan and each Person that becomes a Subsidiary or Affiliate Company of
Palm after the Separation Date.
Section 7.8 Palm's Auditors. "Palm's Auditors" means Palm's independent
certified public accountants.
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<PAGE>
Section 7.9 Person. "Person" means an individual, a partnership, a
corporation, a limited liability company, an association, a joint stock company,
a trust, a joint venture, an unincorporated organization and a governmental
entity or any department, agency or political subdivision thereof.
Section 7.10 Record Date. "Record Date" means the close of business on
the date to be determined by the Board of Directors of 3Com as the record date
for determining the stockholders of 3Com entitled to receive shares of common
stock of Palm in the Distribution.
Section 7.11 Subsidiary. "Subsidiary" of any Person means a corporation
or other organization whether incorporated or unincorporated of which at least a
majority of the securities or interests having by the terms thereof ordinary
voting power to elect at least a majority of the board of directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries; provided, however, that no Person that is not directly or
indirectly wholly-owned by any other Person shall be a Subsidiary of such other
Person unless such other Person controls, or has the right, power or ability to
control, that Person.
Section 7.12 3Com Group. "3Com Group" means 3Com, each Subsidiary and
Affiliated Company of 3Com (other than any member of the Palm Group) immediately
after the Separation Date, after giving effect to the Non-US Plan and each
Person that becomes a Subsidiary or Affiliate Company of 3Com after the
Separation Date.
Section 7.13 3Com's Auditors. "3Com's Auditors" means 3Com's independent
certified public accountants.
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<PAGE>
WHEREFORE, the parties have signed this Master Separation and Distribution
Agreement effective as of the date first set forth above.
3COM CORPORATION PALM COMPUTING, INC.
By: /s/ Eric A. Benhamou By: /s/ Judy Bruner
-------------------------- -----------------------------------
Name: Eric A. Benhamou Name: Judy Bruner
------------------------ ---------------------------------
Title: Chairman and CEO Title: Senior Vice President and CFO
----------------------- --------------------------------
<PAGE>
EXHIBITS
Exhibit A Certificate of Secretary of 3Com
Exhibit B Certificate of Secretary of Palm
Exhibit C General Assignment and Assumption Agreement
Exhibit D-1 Master Technology Ownership and License Agreement
Exhibit D-2 Master Patent Ownership and License Agreement
Exhibit D-3 Master Trademark Ownership and License Agreement
Exhibit E Employee Matters Agreement
Exhibit F Tax Sharing Agreement
Exhibit G Master Transitional Services Agreement
Exhibit H Real Estate Matters Agreement
Exhibit I Master Confidential Disclosure Agreement
Exhibit J Indemnification and Insurance Matters Agreement
Exhibit K Reorganization of Operations Outside the US (the Non-US Plan)
<PAGE>
EXHIBIT A
CERTIFICATE OF SECRETARY OF 3COM
<PAGE>
SECRETARY'S CERTIFICATE
I, ____________________, Secretary of 3Com Corporation, a corporation
organized and existing under the laws of the State of Delaware (the "Company"),
DO HEREBY CERTIFY that attached hereto are true and correct copies of certain
resolutions adopted in a telephone meeting of the 3Com Corporation Board of
Directors on _________, 1999, which resolutions have not been amended, modified,
rescinded and remain in full force and effect on the date hereof.
IN WITNESS WHEREOF, I have hereunder set my hand and affixed the seal of
3Com Corporation this __________________ day of ___________, 1999.
___________________________________
________________________, Secretary
<PAGE>
EXHIBIT B
CERTIFICATE OF SECRETARY OF PALM
<PAGE>
SECRETARY'S CERTIFICATE
I, ____________________, Secretary of Palm Computing, Inc., a corporation
organized and existing under the laws of the State of California (the
"Company"), DO HEREBY CERTIFY that attached hereto are true and correct copies
of certain resolutions adopted in a meeting of the Palm Computing, Inc. Board of
Directors on __________, 1999, which resolutions have not been amended,
modified, rescinded and remain in full force and effect on the date hereof.
IN WITNESS WHEREOF, I have hereunder set my hand and affixed the seal of
Palm Computing, Inc. this __________________ day of ___________, 1999.
___________________________________
________________________, Secretary
<PAGE>
EXHIBIT C
GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT
<PAGE>
EXHIBIT D-1
MASTER TECHNOLOGY OWNERSHIP AND LICENSE AGREEMENT
<PAGE>
EXHIBIT D-2
MASTER PATENT OWNERSHIP AND LICENSE AGREEMENT
<PAGE>
EXHIBIT D-3
MASTER TRADEMARK OWNERSHIP AND LICENSE AGREEMENT
<PAGE>
EXHIBIT E
EMPLOYEE MATTERS AGREEMENT
<PAGE>
EXHIBIT F
TAX SHARING AGREEMENT
<PAGE>
EXHIBIT G
MASTER TRANSITIONAL SERVICES AGREEMENT
<PAGE>
EXHIBIT H
REAL ESTATE MATTERS AGREEMENT
<PAGE>
EXHIBIT I
MASTER CONFIDENTIAL DISCLOSURE AGREEMENT
<PAGE>
EXHIBIT J
INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT
<PAGE>
EXHIBIT K
REORGANIZATION OF OPERATIONS
OUTSIDE THE US (THE NON-US PLAN)
<PAGE>
EXHIBIT 2.2
General Assignment and Assumption Agreement
between
3COM CORPORATION
and
PALM, INC.
______________, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I CONTRIBUTION AND ASSUMPTION........................................ 1
Section 1.1 Contribution of Assets and Assumption of Liabilities.... 1
Section 1.2 Palm Assets............................................. 2
Section 1.3 Palm Liabilities........................................ 3
Section 1.4 The Non-US Plan......................................... 5
Section 1.5 Methods of Transfer and Assumption...................... 5
Section 1.6 Governmental Approvals and Consents..................... 6
Section 1.7 Nonrecurring Costs and Expenses......................... 7
Section 1.8 Novation of Assumed Palm Liabilities.................... 7
ARTICLE II LITIGATION........................................................ 8
Section 2.1 Allocation.............................................. 8
Section 2.2 Cooperation............................................. 8
ARTICLE III MISCELLANEOUS.................................................... 9
Section 3.1 Entire Agreement........................................ 9
Section 3.2 Governing Law........................................... 9
Section 3.3 Notices................................................. 9
Section 3.4 Parties in Interest..................................... 9
Section 3.5 Counterparts............................................ 10
Section 3.6 Assignment.............................................. 10
Section 3.7 Severability............................................ 10
Section 3.8 Failure or Indulgence Not Waiver; Remedies Cumulative... 10
Section 3.9 Amendment............................................... 10
Section 3.10 Authority............................................... 10
Section 3.11 Interpretation.......................................... 10
Section 3.12 Conflicting Agreements.................................. 11
ARTICLE IV DEFINITIONS....................................................... 11
Section 4.1 3Com Group.............................................. 11
Section 4.2 Action.................................................. 11
Section 4.3 Affiliated Company...................................... 11
Section 4.4 Ancillary Agreement..................................... 11
Section 4.5 Assets.................................................. 11
Section 4.6 Contracts............................................... 13
Section 4.7 Delayed Transfer Assets................................. 13
Section 4.8 Distribution............................................ 13
Section 4.9 Distribution Date....................................... 13
Section 4.10 Governmental Approvals.................................. 13
Section 4.11 Governmental Authority.................................. 13
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
Section 4.12 Indemnification and Insurance Matters Agreement......... 13
Section 4.13 Insurance Policies...................................... 13
Section 4.14 Insured Palm Liabilities................................ 13
Section 4.15 Intellectual Property................................... 14
Section 4.16 IPO Registration Statement.............................. 14
Section 4.17 Liabilities............................................. 14
Section 4.18 Local Transfer Agreements............................... 14
Section 4.19 Non-US Plan............................................. 14
Section 4.20 OFLs.................................................... 14
Section 4.21 Palm Balance Sheet...................................... 15
Section 4.22 Palm Business........................................... 15
Section 4.23 Palm Contingent Gain.................................... 15
Section 4.24 Palm Contingent Liability............................... 16
Section 4.25 Palm Contracts.......................................... 16
Section 4.26 Palm Group.............................................. 17
Section 4.27 Palm Pro Forma Balance Sheet............................ 17
Section 4.28 Person.................................................. 17
Section 4.29 Retained Payables....................................... 17
Section 4.30 Retained Receivables.................................... 17
Section 4.31 Security Interest....................................... 17
Section 4.32 Separation.............................................. 18
Section 4.33 Separation Agreement.................................... 18
Section 4.34 Separation Date......................................... 18
Section 4.35 Subsidiary.............................................. 18
Section 4.36 Taxes................................................... 18
</TABLE>
-ii-
<PAGE>
GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT
This General Assignment and Assumption Agreement (this "Agreement") is
entered into on _________, 2000 between 3Com Corporation, a Delaware corporation
("3Com"), and Palm, Inc., a Delaware corporation ("Palm"). Capitalized terms
used herein and not otherwise defined herein shall have the meanings ascribed to
such terms in Article IV hereof.
RECITALS
WHEREAS, 3Com hereby and by certain other instruments of even date herewith
transfers or will transfer to Palm effective as of the Separation Date, certain
assets of the Palm Business owned by 3Com in accordance with the Master
Separation and Distribution Agreement dated as of December ___, 1999 between the
3Com and Palm Computing, Inc., a California company (the "Separation
Agreement").
WHEREAS, it is further intended between the parties that Palm assume
certain of the liabilities related to the Palm Business currently owed by 3Com,
as provided in this Agreement, the Separation Agreement or the other agreements
and instruments provided for in the Separation Agreement.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:
ARTICLE I
CONTRIBUTION AND ASSUMPTION
Section 1.1 Contribution of Assets and Assumption of Liabilities.
(a) Transfer of Assets. Effective on the Separation Date, 3Com hereby
assigns, transfers, conveys and delivers (or will cause any applicable
Subsidiary to assign, transfer, convey and deliver) to Palm, or, pursuant to
Section 1.4, to any applicable Palm Subsidiary, and Palm hereby accepts from
3Com, or applicable 3Com Subsidiary, and agrees to cause its applicable Palm
Subsidiary to accept, all of 3Com's and its applicable Subsidiaries' respective
right, title and interest in Palm Assets, other than the Delayed Transfer
Assets; provided, however, that any Palm Assets that are specifically assigned
or transferred pursuant to another Ancillary Agreement shall not be assigned or
transferred pursuant to this Section 1.1(a).
(b) Assumption of Liabilities. Effective on the Separation Date, Palm
hereby assumes and agrees faithfully to perform and fulfill (or will cause any
applicable Subsidiary to assume, perform and fulfill), all the Palm Liabilities
owed by 3Com, other than the Delayed Transfer Liabilities, in accordance with
their respective terms. Thereafter, Palm shall be responsible (or will cause any
applicable Subsidiary to be responsible) for all Palm Liabilities held by 3Com,
regardless of when or where such Liabilities arose or arise, or whether the
facts on which they are based occurred prior to,
<PAGE>
on or after the date hereof, regardless of where or against whom such
Liabilities are asserted or determined (including any Palm Liabilities arising
out of claims made by 3Com's or Palm's respective directors, officers,
consultants, independent contractors, employees or agents against any member of
the 3Com Group or the Palm Group) or whether asserted or determined prior to the
date hereof, and regardless of whether arising from or alleged to arise from
negligence, recklessness, violation of law, fraud or misrepresentation by any
member of the 3Com Group or the Palm Group or any of their respective directors,
officers, employees or agents.
(c) Delayed Transfer Assets and Liabilities. Each of the parties hereto
agrees that the Delayed Transfer Assets will be assigned, transferred, conveyed
and delivered, and the Delayed Transfer Liabilities will be assumed, in
accordance with the terms of the agreements that provide for such assignment,
transfer, conveyance and delivery, or such assumption, after the date of this
Agreement or as otherwise set forth on Schedule 1.1(c). Following such
assignment, transfer, conveyance and delivery of any Delayed Transfer Asset, or
the assumption of any Delayed Transfer Liability, the applicable Delayed
Transfer Asset or Delayed Transfer Liability shall be treated for all purposes
of this Agreement and the other Ancillary Agreements as a Palm Asset or as a
Palm Liability, as the case may be.
(d) Misallocated Assets. In the event that at any time or from time to
time (whether prior to, on or after the Separation Date), any party hereto (or
any member of such party's respective Group), shall receive or otherwise possess
any Asset that is allocated to any other Person pursuant to this Agreement or
any Ancillary Agreement, such party shall promptly transfer, or cause to be
transferred, such Asset to the Person so entitled thereto. Prior to any such
transfer, the Person receiving or possessing such Asset shall hold such Asset in
trust for any such other Person.
Section 1.2 Palm Assets.
(a) Included Assets. For purposes of this Agreement, "Palm Assets" shall
mean (without duplication) the following Assets, except as otherwise provided
for in any other Ancillary Agreement or other express agreement of the parties:
(i) all Assets reflected in the Palm Balance Sheet, subject to any
dispositions of such Assets subsequent to the date of the Palm Balance Sheet;
(ii) all Assets that have been written off, expensed or fully
depreciated that, had they not been written off, expensed or fully depreciated,
would have been reflected in the Palm Balance Sheet in accordance with the
principles and accounting policies under which the Palm Balance Sheet was
prepared;
(iii) all Assets acquired by 3Com or its Subsidiaries after the
date of the Palm Balance Sheet that would be reflected in the consolidated
balance sheet of Palm as of the Separation Date if such consolidated balance
sheet was prepared using the same principles and accounting policies under which
the Palm Balance Sheet was prepared, including any business transaction
-2-
<PAGE>
processing that may occur on 3Com systems on behalf of Palm during the period
between separation date to initialization of the processing systems required by
Palm;
(iv) all Assets that are used primarily by the Palm Business at the
Separation Date but are not reflected in the Palm Balance Sheet due to mistake
or omission; provided, however, that no Asset shall be a Palm Asset requiring
any transfer by 3Com unless Palm or its Subsidiaries have, on or before the
first anniversary of the Distribution Date, given 3Com or its Subsidiaries
notice that such Asset is a Palm Asset;
(v) all Palm Contingent Gains;
(vi) all Palm Contracts;
(vii) to the extent permitted by law and subject to the
Indemnification and Insurance Matters Agreement, all rights of any member of the
Palm Group under any of 3Com's Insurance Policies or other insurance policies
issued by Persons unaffiliated with 3Com; and
(viii) all Assets that are expressly contemplated by this Agreement,
the Separation Agreement or any other Ancillary Agreement (or Schedule
1.2(a)(xii) or any other Schedule hereto or thereto) as Assets to be transferred
to Palm or any other member of the Palm Group.
(b) Excluded Assets. For the purposes of this Agreement, "Excluded
Assets" shall mean:
(i) the Assets listed or described on Schedule 1.2(b)(i);
(ii) the Retained Receivables; and
(iii) any Assets that are expressly contemplated by the Separation
Agreement, this Agreement or any other Ancillary Agreement (or the Schedules
hereto or thereto) as Assets to be retained by 3Com or any other member of the
3Com Group.
Section 1.3 Palm Liabilities.
(a) Included Liabilities. For the purposes of this Agreement, "Palm
Liabilities" shall mean (without duplication) the following Liabilities, except
as otherwise provided for in any other Ancillary Agreement or other express
agreement of the parties:
(i) all Liabilities reflected in the Palm Balance Sheet, subject to
any discharge of such Liabilities subsequent to the date of the Palm Balance
Sheet;
(ii) all Liabilities of 3Com or its Subsidiaries that arise after
the date of the Palm Balance Sheet that would be reflected in the consolidated
balance sheet of Palm as of the Separation Date if such consolidated balance
sheet was prepared using the same principles and accounting policies under which
the Palm Balance Sheet was prepared;
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<PAGE>
(iii) all Liabilities that are related primarily to the Palm Business
at the Separation Date but are not reflected in the Palm Balance Sheet due to
mistake or unintentional omission; provided, however, that no Liability shall be
considered as a Palm Liability unless 3Com or its Subsidiaries, on or before the
first anniversary of the Distribution Date, has given Palm or its Subsidiaries
notice that such Liability is a Palm Liability;
(iv) all Palm Contingent Liabilities;
(v) all Liabilities (other than Liabilities for Taxes), whether
arising before, on or after the Separation Date, primarily relating to, arising
out of or resulting from:
(1) the operation of the Palm Business, as conducted at any
time prior to, on or after the Separation Date (including any Liability relating
to, arising out of or resulting from any act or failure to act by any director,
officer, employee, agent or representative (whether or not such act or failure
to act is or was within such Person's authority));
(2) the operation of any business conducted by any member of
the Palm Group at any time after the Separation Date (including any Liability
relating to, arising out of or resulting from any act or failure to act by any
director, officer, employee, agent or representative (whether or not such act or
failure to act is or was within such Person's authority)); or
(3) any Palm Assets;
(vi) all Liabilities relating to, arising out of or resulting from
any of the terminated, divested or discontinued businesses and operations listed
or described on Schedule 1.3(a)(vi); and
(vii) all Liabilities that are expressly contemplated by this
Agreement, Schedule 1.3(a)(vii), the Separation Agreement or any other Ancillary
Agreement (or the Schedules hereto or thereto) as Liabilities to be assumed by
Palm or any member of the Palm Group, and all agreements, obligations and
Liabilities of any member of the Palm Group under this Agreement or any of the
Ancillary Agreements.
Notwithstanding the foregoing, any Liabilities of any Subsidiaries of 3Com
listed on Schedule 2.1(b) of the Separation Agreement shall not be assumed
pursuant to Section 1.2(a), and the Palm Liabilities shall not include the
Excluded Liabilities referred to in Section 1.3(b) below.
(b) Excluded Liabilities. For the purposes of this Agreement, "Excluded
Liabilities" shall mean:
(i) all Liabilities listed or described in Schedule 1.3(b)(i);
(ii) the Retained Payables;
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(iii) all Insured Palm Liabilities;
(iv) all Liabilities that are expressly contemplated by this
Agreement, the Separation Agreement or any other Ancillary Agreement (or the
Schedules hereto or thereto) as Liabilities to be retained or assumed by 3Com or
any other member of the 3Com Group, and all agreements and obligations of any
member of the 3Com Group under the Separation Agreement, this Agreement or any
other Ancillary Agreement.
Section 1.4 The Non-US Plan. Each of 3Com and Palm shall take, and shall
cause each member of its respective Group to take, such action as reasonably
necessary to consummate the transactions contemplated by the Non-US Plan
(whether prior to, on or after the Separation Date). Notwithstanding anything in
this Agreement, the Separation Agreement or in any other Ancillary Agreement to
the contrary, no party to a Local Transfer Agreement shall be entitled to
receive or retain any Asset unless such party shall have paid any consideration
contemplated to be paid in connection therewith pursuant to the Non-US Plan.
Section 1.5 Methods of Transfer and Assumption.
(a) Terms of Other Ancillary Agreements Govern. The parties shall enter
into the other Ancillary Agreements, on or about the date of this Agreement. To
the extent that the transfer of any Palm Asset or the assumption of any Palm
Liability is expressly provided for by the terms of any other Ancillary
Agreement, the terms of such other Ancillary Agreement shall effect, and
determine the manner of, the transfer or assumption. It is the intent of the
parties that pursuant to Sections 1.1, 1.2 and 1.3, the transfer and assumption
of all other Palm Assets and Palm Liabilities, other than Delayed Transfer
Assets and Delayed Transfer Liabilities, shall be made effective as of the
Separation Date; provided, however, that circumstances in various jurisdictions
outside the United States may require the transfer of certain Assets and the
assumption of certain Liabilities to occur in such other manner and at such
other time as the parties shall agree, as provided in Section 1.4 hereof.
(b) Mistaken Assignments and Assumptions. In addition to those transfers
and assumptions accurately identified and designated by the parties to take
place but which the parties are not able to effect prior to the Separation Date,
there may exist (i) Assets that the parties discover were, contrary to the
agreements between the parties, by mistake or omission, transferred to Palm or
(ii) Liabilities that the parties discover were, contrary to the agreements
between the parties, by mistake or omission, assumed by Palm. The parties shall
cooperate in good faith to effect the transfer or re-transfer of such Assets,
and/or the assumption or re-assumption of such Liabilities, to or by the
appropriate party and shall not use the determination that remedial actions need
to be taken to alter the original intent of the parties hereto with respect to
the Assets to be transferred to or Liabilities to be assumed by Palm. Each
party shall reimburse the other or make other financial adjustments (e.g.,
without limitation, cash reserves) or other adjustments to remedy any mistakes
or omissions relating to any of the Assets transferred hereby or any of the
Liabilities assumed hereby.
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(c) Documents Relating to Other Transfers of Assets and Assumption of
Liabilities. In furtherance of the assignment, transfer and conveyance of Palm
Assets and the assumption of Palm Liabilities set forth in Sections 1.5(a) and
(b) and certain other Ancillary Agreements, simultaneously with the execution
and delivery hereof or as promptly as practicable thereafter, (i) 3Com shall
execute and deliver, and shall cause its Subsidiaries in accordance with Local
Transfer Agreements to execute and deliver, such bills of sale, stock powers,
certificates of title, assignments of contracts and other instruments of
transfer, conveyance and assignment as and to the extent necessary to evidence
the transfer, conveyance and assignment of all of 3Com's and its Subsidiaries'
right, title and interest in and to the Palm Assets to Palm and (ii) Palm shall
execute and deliver to 3Com and its Subsidiaries such assumptions of contracts
and other instruments of assumption as and to the extent necessary to evidence
the valid and effective assumption of the Palm Liabilities by Palm.
Section 1.6 Governmental Approvals and Consents.
(a) Transfer In Violation of Laws. If and to the extent that the valid,
complete and perfected transfer assignment or novation to the Palm Group of any
Palm Assets and Palm Liabilities (or from the Palm Group of any Non-Palm Assets)
would be a violation of applicable laws or require any Consent or Governmental
Approval in connection with the Separation, the IPO or the Distribution, then,
unless 3Com shall otherwise determine, the transfer, assignment or novation to
or from the Palm Group, as the case may be, of such Palm Assets or Non-Palm
Assets, respectively, shall be automatically deemed deferred and any such
purported transfer, assignment or novation shall be null and void until such
time as all legal impediments are removed and/or such Consents or Governmental
Approvals have been obtained. Notwithstanding the foregoing, such Asset shall
still be considered a Palm Asset for purposes of determining whether any
Liability is a Palm Liability; provided, however, that if such covenants or
Governmental Approvals have not been obtained within six months of the
Distribution Date, the parties will use their reasonable commercial efforts to
achieve an alternative solution in accordance with the parties' intentions.
(b) Transfers Not Consummated Prior to Separation Date. If the transfer,
assignment or novation of any Assets intended to be transferred or assigned
hereunder, including pursuant to the Non-US Plan, is not consummated prior to or
on the Separation Date, whether as a result of the provisions of Section 1.6(a)
or for any other reason, then the Person retaining such Asset shall thereafter
hold such Asset for the use and benefit, insofar as reasonably possible, of the
Person entitled thereto (at the expense of the Person entitled thereto). In
addition, the Person retaining such Asset shall take such other actions as may
be reasonably requested by the Person to whom such Asset is to be transferred in
order to place such Person, insofar as reasonably possible, in the same position
as if such Asset had been transferred as contemplated hereby and so that all the
benefits and burdens relating to such Palm Assets (or such Non-Palm Assets, as
the case may be), including possession, use, risk of loss, potential for gain,
and dominion, control and command over such Assets, are to inure from and after
the Separation Date to the Palm Group (or the 3Com Group, as the case may be).
If and when the Consents and/or Governmental Approvals, the absence of which
caused the deferral of transfer of any Asset pursuant to Section 1.6(a), are
obtained, the transfer of
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the applicable Asset shall be effected in accordance with the terms of this
Agreement and/or such other applicable Ancillary Agreement.
(c) Expenses. The Person retaining an Asset due to the deferral of the
transfer of such Asset shall not be obligated, in connection with the foregoing,
to expend any money unless the necessary funds are advanced by the Person
entitled to the Asset, other than reasonable out-of-pocket expenses, attorneys'
fees and recording or similar fees, all of which shall be promptly reimbursed by
the Person entitled to such Asset.
Section 1.7 Nonrecurring Costs and Expenses. Notwithstanding anything
herein to the contrary, any nonrecurring costs and expenses incurred by the
parties hereto to effect the transactions contemplated hereby which are not
allocated pursuant to the terms of the Separation Agreement, this Agreement or
any other Ancillary Agreement shall be the responsibility of the party which
incurs such costs and expenses.
Section 1.8 Novation of Assumed Palm Liabilities.
(a) Reasonable Commercial Efforts. Each of 3Com and Palm, at the request
of the other, shall use its reasonable commercial efforts to obtain, or to cause
to be obtained, any consent, substitution, approval or amendment required to
novate (including with respect to any federal government contract) or assign all
rights and obligations under agreements, leases, licenses and other obligations
or Liabilities (including Palm OFLs) of any nature whatsoever that constitute
Palm Liabilities or to obtain in writing the unconditional release of all
parties to such arrangements other than any member of the Palm Group, so that,
in any such case, Palm and its Subsidiaries will be solely responsible for such
Liabilities; provided, however, that neither 3Com, Palm nor their Subsidiaries
shall be obligated to pay any consideration therefor to any third party from
whom such consents, approvals, substitutions and amendments are requested.
(b) Inability to Obtain Novation. If 3Com or Palm is unable to obtain, or
to cause to be obtained, any such required consent, approval, release,
substitution or amendment, the applicable member of the 3Com Group shall
continue to be bound by such agreements, leases, licenses and other obligations
and, unless not permitted by law or the terms thereof (except to the extent
expressly set forth in this Agreement, the Separation Agreement or any other
Ancillary Agreement), Palm shall, as agent or subcontractor for 3Com or such
other Person, as the case may be, pay, perform and discharge fully, or cause to
be paid, transferred or discharged all the obligations or other Liabilities of
3Com or such other Person, as the case may be, thereunder from and after the
date hereof. 3Com shall, without further consideration, pay and remit, or cause
to be paid or remitted, to Palm or its appropriate Subsidiary promptly all
money, rights and other consideration received by it or any member of its
respective Group in respect of such performance (unless any such consideration
is an Excluded Asset). If and when any such consent, approval, release,
substitution or amendment shall be obtained or such agreement, lease, license or
other rights or obligations shall otherwise become assignable or able to be
novated, 3Com shall thereafter assign, or cause to be assigned, all its rights,
obligations and other Liabilities thereunder or any rights or obligations of any
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member of its respective Group to Palm without payment of further consideration
and Palm shall, without the payment of any further consideration, assume such
rights and obligations.
ARTICLE II
LITIGATION
Section 2.1 Allocation.
(a) Litigation to Be Transferred to Palm. Notwithstanding any contrary
provisions in the Indemnification and Insurance Matters Agreement, on the
Separation Date, the responsibilities for management of the litigation
identified in a litigation disclosure letter (the "Litigation Disclosure
Letter"), which will be delivered by 3Com to Palm on the Separation Date, shall
be transferred in their entirety from 3Com and its Subsidiaries to Palm and its
Subsidiaries. As of the Separation Date and thereafter, Palm shall manage the
defense of such litigation and shall cause its applicable Subsidiaries to do the
same. 3Com and its Subsidiaries must first obtain the prior consent of Palm or
its applicable Subsidiary for any action taken subsequent to the Separation Date
in connection with the litigation identified in the Litigation Disclosure
Letter, which consent cannot be unreasonably withheld or delayed. All other
matters relating to such litigation, including but not limited to
indemnification for such claims, shall be governed by the provisions of the
Indemnification and Insurance Matters Agreement.
(b) Litigation to be Defended by 3Com at Palm's Expense. Notwithstanding
any contrary provisions in the Indemnification and Insurance Matters Agreement,
3Com shall defend, and shall cause its applicable Subsidiaries to defend, the
litigation identified in the Litigation Disclosure Letter that is not delivered
by 3Com to Palm on the Separation Date. All other matters relating to such
litigation, including but not limited to indemnification for such claims, shall
be governed by the provisions of the Indemnification and Insurance Matters
Agreement .
Section 2.2 Cooperation. 3Com and Palm and their respective Subsidiaries
shall cooperate with each other in the defense of any litigation covered under
this Article II and afford to each other reasonable access upon reasonable
advance notice to witnesses and Information (other than Information protected
from disclosure by applicable privileges) that is reasonably required to defend
this litigation (as "Information" is defined pursuant to Section 5.4 of the
Separation Agreement). The foregoing agreement to cooperate includes, but is not
limited to, an obligation to provide access to qualified assistance to provide
information, witnesses and documents to respond to discovery requests in
specific lawsuits. In such cases, cooperation shall be timely so that the party
responding to discovery may meet all court-imposed deadlines. The party
requesting information shall reimburse the party providing information
consistent with the terms of Section 5.4 of the Separation Agreement. The
obligations set forth in this paragraph are more clearly defined in Section 5.4
of the Separation Agreement.
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ARTICLE III
MISCELLANEOUS
Section 3.1 Entire Agreement. This Agreement, the Separation Agreement,
the other Ancillary Agreements and the Exhibits and Schedules referenced or
attached hereto and thereto, constitutes the entire agreement between the
parties with respect to the subject matter hereof and shall supersede all prior
written and oral and all contemporaneous oral agreements and understandings with
respect to the subject matter hereof.
Section 3.2 Governing Law. This Agreement shall be construed in
accordance with and all Disputes hereunder shall be governed by the laws of the
State of California, excluding its conflict of law rules and the United Nations
Convention on Contracts for the International Sale of Goods. The Superior Court
of Santa Clara County and/or the United States District Court for the Northern
District of California shall have jurisdiction and venue over all Disputes
between the parties that are permitted to be brought in a court of law pursuant
to Section 5.9 of the Separation Agreement.
Section 3.3 Notices. Notices, offers, requests or other communications
required or permitted to be given by either party pursuant to the terms of this
Agreement shall be given in writing to the respective parties to the following
addresses:
if to 3Com:
3Com Corporation
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
if to Palm:
Palm, Inc.
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
or to such other address as the party to whom notice is given may have
previously furnished to the other in writing as provided herein. Any notice
involving non-performance, termination, or renewal shall be sent by hand
delivery, recognized overnight courier or, within the United States, may also be
sent via certified mail, return receipt requested. All other notices may also be
sent by fax, confirmed by first class mail. All notices shall be deemed to have
been given and received on the earlier of actual delivery or three (3) days from
the date of postmark.
Section 3.4 Parties in Interest. This Agreement, including the Exhibits
and Schedules hereto, and the other documents referred to herein, shall be
binding upon and inure solely to the
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benefit of each party hereto and their legal representatives and successors, and
nothing in this Agreement, express or implied, is intended to confer upon any
other Person any rights or remedies of any nature whatsoever under or by reason
of this Agreement.
Section 3.5 Counterparts. This Agreement, including the Exhibits and
Schedules hereto, and the other documents referred to herein, may be executed in
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
Section 3.6 Assignment. This Agreement shall inure to the benefit of and
be binding upon the parties hereto and their respective legal representatives
and successors. This Agreement may not be assigned by any party hereto, without
the other party's express written consent.
Section 3.7 Severability. If any term or other provision of this
Agreement or the Exhibits or Schedules attached hereto is determined by a
nonappealable decision by a court, administrative agency or arbitrator to be
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain in full force and effect so long as the economic or legal substance of
the transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the fullest extent
possible.
Section 3.8 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of any party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement or the Schedules or Exhibits attached hereto are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
Section 3.9 Amendment. No change or amendment will be made to this
Agreement except by an instrument in writing signed on behalf of each of the
parties to such agreement.
Section 3.10 Authority. Each of the parties hereto represents to the
other that (a) it has the corporate or other requisite power and authority to
execute, deliver and perform this Agreement, (b) the execution, delivery and
performance of this Agreement by it have been duly authorized by all necessary
corporate or other action, (c) it has duly and validly executed and delivered
this Agreement, and (d) this Agreement is a legal, valid and binding obligation,
enforceable against it in accordance with its terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equity principles.
Section 3.11 Interpretation. The headings contained in this Agreement, in
any Exhibit or Schedule hereto and in the table of contents to this Agreement
are for reference purposes only and
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shall not affect in any way the meaning or interpretation of this Agreement. Any
capitalized term used in any Schedule or Exhibit but not otherwise defined
therein, shall have the meaning assigned to such term in this Agreement. When a
reference is made in this Agreement to an Article or a Section, Exhibit or
Schedule, such reference shall be to an Article or Section of, or an Exhibit or
Schedule to, this Agreement unless otherwise indicated.
Section 3.12 Conflicting Agreements. In the event of conflict between
this Agreement and any other Ancillary Agreement or other agreement executed in
connection herewith, the provisions of such other agreement shall prevail (other
than (i) as otherwise provided herein and (ii) the Separation Agreement).
ARTICLE IV
DEFINITIONS
Section 4.1 3Com Group. "3Com Group" means 3Com, each Subsidiary and
Affiliated Company of 3Com (other than any member of the Palm Group) immediately
after the Separation Date, after giving effect to the Non-US Plan and each
Person that becomes a Subsidiary or Affiliate Company of 3Com after the
Separation Date.
Section 4.2 Action. "Action" means any demand, action, suit,
countersuit, arbitration, inquiry, proceeding or investigation by or before any
federal, state, local, foreign or international governmental authority or any
arbitration or mediation tribunal.
Section 4.3 Affiliated Company. "Affiliated Company" of any Person means
a Person that controls, is controlled by, or is under common control with such
Person. As used herein, "control" means the possession, directly or indirectly,
of the power to direct or cause the direction of the management and policies of
such entity, whether through ownership of voting securities or other interests,
by contract or otherwise.
Section 4.4 Ancillary Agreement. "Ancillary Agreement" has the meaning
set forth in Section 2.1 of the Separation Agreement.
Section 4.5 Assets. "Assets" means assets, properties and rights
(including goodwill), wherever located (including in the possession of vendors
or other third parties or elsewhere), whether real, personal or mixed, tangible,
intangible or contingent, in each case whether or not recorded or reflected or
required to be recorded or reflected on the books and records or financial
statements of any Person, including the following:
(i) all accounting and other books, records and files whether in
paper, microfilm, microfiche, computer tape or disc, magnetic tape or any other
form;
(ii) all apparatus, computers and other electronic data
processing equipment, , automobiles, trucks, aircraft, rolling stock, vessels,
motor vehicles and other transportation
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equipment, special and general tools, test devices, prototypes and models and
other tangible personal property, but excluding fixtures, machinery, equipment,
furniture and office equipment;
(iii) all inventories of materials, parts, raw materials,
supplies, work-in-process and finished goods and products;
(iv) all interests in real property of whatever nature, including
easements, whether as owner, mortgagee or holder of a Security Interest, lessor,
sublessor, lessee, sublessee or otherwise;
(vi) all interests in any capital stock or other equity interests
of any Subsidiary or any other Person; all bonds, notes, debentures or other
securities issued by any Subsidiary or any other Person; all loans, advances or
other extensions of credit or capital contributions to any Subsidiary or any
other Person; and all other investments in securities of any Person;
(vii) all license agreements, leases of personal property, open
purchase orders for raw materials, supplies, parts or services, unfilled orders
for the manufacture and sale of products and other contracts, agreements or
commitments;
(vii) all deposits, letters of credit and performance and surety
bonds;
(viii) all written technical information, data, specifications,
research and development information, engineering drawings, operating and
maintenance manuals, and materials and analyses prepared by consultants and
other third parties;
(ix) all Intellectual Property and licenses from third Persons
granting the right to use any Intellectual Property;
(x) all computer applications, programs and other software,
including operating software, network software, firmware, middleware, design
software, design tools, systems documentation and instructions;
(xi) all cost information, sales and pricing data, customer
prospect lists, supplier records, customer and supplier lists, customer and
vendor data, correspondence and lists, product literature, artwork, design,
development and manufacturing files, vendor and customer drawings, formulations
and specifications, quality records and reports and other books, records,
studies, surveys, reports, plans and documents;
(xii) all prepaid expenses, trade accounts and other accounts and
notes receivables;
(xiii) all rights under contracts or agreements, all claims or
rights against any Person arising from the ownership of any Asset, all rights in
connection with any bids or offers and all claims, choses in action or similar
rights, whether accrued or contingent;
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(xiv) all rights under insurance policies and all rights in the
nature of insurance, indemnification or contribution;
(xv) all licenses (including radio and similar licenses),
permits, approvals and authorizations which have been issued by any Governmental
Authority;
(xvi) cash or cash equivalents, bank accounts, lock boxes and
other deposit arrangements; and
(xvi) interest rate, currency, commodity or other swap, collar,
cap or other hedging or similar agreements or arrangements.
Section 4.6 Contracts. "Contracts" means any contract, agreement, lease,
license, sales order, purchase order, instrument or other commitment that is
binding on any Person or any part of its property under applicable law.
Section 4.7 Delayed Transfer Assets. "Delayed Transfer Assets" means any
Palm Assets that are expressly provided in this Agreement, the Separation
Agreement or any other Ancillary Agreement to be transferred after the date of
this Agreement.
Section 4.8 Distribution. "Distribution" means 3Com's pro rata
distribution to the holders of its common stock, $0.001 par value, following the
IPO as provided in the Separation Agreement, of all of the shares of Palm common
stock owned by 3Com.
Section 4.9 Distribution Date. "Distribution Date" has the meaning set
forth in Section 4.1 of the Separation Agreement.
Section 4.10 Governmental Approvals. "Governmental Approvals" means any
notices, reports or other filings to be made, or any consents, registrations,
approvals, permits or authorizations to be obtained from, any Governmental
Authority.
Section 4.11 Governmental Authority. "Governmental Authority" means any
federal, state, local, foreign or international court, government, department,
commission, board, bureau, agency, official or other regulatory, administrative
or governmental authority.
Section 4.12 Indemnification and Insurance Matters Agreement.
"Indemnification and Insurance Matters Agreement" means the Indemnification and
Insurance Matters Agreement attached as Exhibit J to the Separation Agreement.
Section 4.13 Insurance Policies. "Insurance Policies" means insurance
policies pursuant to which a Person makes a true risk transfer to an insurer.
Section 4.14 Insured Palm Liabilities. "Insured Palm Liabilities" means
any Palm Liability to the extent that (i) it is covered under the terms of
3Com's Insurance Policies in effect
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prior to the Distribution Date and (ii) Palm is not a named insured under, or
otherwise entitled to the benefits of, such Insurance Policies.
Section 4.15 Intellectual Property. "Intellectual Property" means all
domestic and foreign patents and patent applications, together with any
continuations, continuations-in-part or divisional applications thereof, and all
patents issuing thereon (including reissues, renewals and re-examinations of the
foregoing); design patents, invention disclosures; mask works; copyrights, and
copyright applications and registrations; Web addresses, trademarks, service
marks, trade names, and trade dress, in each case together with any applications
and registrations therefor and all appurtenant goodwill relating thereto; trade
secrets, commercial and technical information, know-how, proprietary or
confidential information, including engineering, production and other designs,
notebooks, processes, drawings, specifications, formulae, and technology;
computer and electronic data processing programs and software (object and source
code), data bases and documentation thereof; inventions (whether patented or
not); utility models; registered designs, certificates of invention and all
other intellectual property under the laws of any country throughout the world.
Section 4.16 IPO Registration Statement. "IPO Registration Statement"
means the registration statement on Form S-1 pursuant to the Securities Act of
1933, as amended, to be filed with the Securities and Exchange Commission
registering the shares of common stock of Palm to be issued in the initial
public offering, together with all amendments thereto.
Section 4.17 Liabilities. "Liabilities" means all debts, liabilities,
guarantees, assurances, commitments and obligations, whether fixed, contingent
or absolute, asserted or unasserted, matured or unmatured, liquidated or
unliquidated, accrued or not accrued, known or unknown, due or to become due,
whenever or however arising (including, without limitation, whether arising out
of any Contract or tort based on negligence or strict liability) and whether or
not the same would be required by generally accepted principles and accounting
policies to be reflected in financial statements or disclosed in the notes
thereto.
Section 4.18 Local Transfer Agreements. "Local Transfer Agreements"
means the agreements necessary to effect the Non-US Plan (as defined in the
Separation Agreement).
Section 4.19 Non-US Plan. "Non-US Plan" has the meaning set forth in
Section 5.8 of the Separation Agreement.
Section 4.20 OFLs. "OFLs" mean all liabilities, obligations,
contingencies, instruments and other Liabilities of any member of the 3Com Group
of a financial nature with third parties existing on the date hereof or entered
into or established between the date hereof and the Separation Date, including
any of the following:
(i) foreign exchange contracts;
(ii) letters of credit;
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(iii) guarantees of third party loans to customers;
(iv) surety bonds (excluding surety for workers' compensation
self-insurance);
(v) interest support agreements on third party loans to
customers;
(vi) performance bonds or guarantees issued by third parties;
(vii) swaps or other derivatives contracts; and
(viii) recourse arrangements on the sale of receivables or notes.
Section 4.21 Palm Balance Sheet. "Palm Balance Sheet" means the audited
consolidated balance sheet (including the notes thereto) of the Palm Business as
of August 27, 1999, that is included in the IPO Registration Statement.
Section 4.22 Palm Business. "Palm Business" means the business and
operations of the business of Palm as described in the IPO Registration
Statement and, except as otherwise expressly provided herein, any terminated,
divested or discontinued businesses or operations that at the time of
termination, divestiture or discontinuation primarily related to the Palm
Business as then conducted.
Section 4.23 Palm Contingent Gain. "Palm Contingent Gain" means any claim
or other right of a member of the 3Com Group or the Palm Group that primarily
relates to the Palm Business, whenever arising, against any Person other than a
member of the 3Com Group or the Palm Group, if and to the extent that (i) such
claim or right arises out of the events, acts or omissions occurring as of the
Separation Date (based on then existing law) and (ii) the existence or scope of
the obligation of such other Person as of the Separation Date was not
acknowledged, fixed or determined in any material respect, due to a dispute or
other uncertainty as of the Separation Date or as a result of the failure of
such claim or other right to have been discovered or asserted as of the
Separation Date. A claim or right meeting the foregoing definition shall be
considered a Palm Contingent Gain regardless of whether there was any Action
pending, threatened or contemplated as of the Separation Date with respect
thereto. In the case of any claim or right a portion of which arises out of
events, acts or omissions occurring prior to the Separation Date and a portion
of which arises out of events, acts or omissions occurring on or after the
Separation Date, only that portion that arises out of events, acts or omissions
occurring prior to the Separation Date shall be considered a Palm Contingent
Gain. For purposes of the foregoing, a claim or right shall be deemed to have
accrued as of the Separation Date if all the elements of the claim necessary for
its assertion shall have occurred on or prior to the Separation Date, such that
the claim or right, were it asserted in an Action on or prior to the Separation
Date, would not be dismissed by a court on ripeness or similar grounds.
Notwithstanding the foregoing, none of (i) any Insurance Proceeds, (ii) any
Excluded Assets, (iii) any reversal of any litigation or other reserve, or (iv)
any matters relating to Taxes (which are governed by the Tax Sharing Agreement)
shall be deemed to be a Palm Contingent Gain.
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<PAGE>
Section 4.24 Palm Contingent Liability. "Palm Contingent Liability" means
any Liability, other than Liabilities for Taxes (which are governed by the Tax
Sharing Agreement), of a member of the 3Com Group or the Palm Group that
primarily relates to the Palm Business, whenever arising, to any Person other
than a member of the 3Com Group or the Palm Group, if and to the extent that (i)
such Liability arises out of the events, acts or omissions occurring as of the
Separation Date and (ii) the existence or scope of the obligation of a member of
the 3Com Group or the Palm Group as of the Separation Date with respect to such
Liability was not acknowledged, fixed or determined in any material respect, due
to a dispute or other uncertainty as of the Separation Date or as a result of
the failure of such Liability to have been discovered or asserted as of the
Separation Date (it being understood that the existence of a litigation or other
reserve with respect to any Liability shall not be sufficient for such Liability
to be considered acknowledged, fixed or determined). In the case of any
Liability a portion of which arises out of events, acts or omissions occurring
prior to the Separation Date and a portion of which arises out of events, acts
or omissions occurring on or after the Separation Date, only that portion that
arises out of events, acts or omissions occurring prior to the Separation Date
shall be considered a Palm Contingent Liability. For purposes of the foregoing,
a Liability shall be deemed to have arisen out of events, acts or omissions
occurring prior to the Separation Date if all the elements necessary for the
assertion of a claim with respect to such Liability shall have occurred on or
prior to the Separation Date, such that the claim, were it asserted in an Action
on or prior to the Separation Date, would not be dismissed by a court on
ripeness or similar grounds. For purposes of clarification of the foregoing, the
parties agree that no Liability relating to, arising out of or resulting from
any obligation of any Person to perform the executory portion of any contract or
agreement existing as of the Separation Date, or to satisfy any obligation
accrued under any Plan (as defined in the Employee Matters Agreement) as of the
Separation Date, shall deemed to be a Palm Contingent Liability. For purposes of
determining whether a claim relating to the Year 2000 problem is a Palm
Contingent Liability, claims relating to products shipped prior to the
Separation Date shall be deemed to have arisen prior to the Separation Date.
Section 4.25 Palm Contracts. "Palm Contracts" means the following
contracts and agreements to which 3Com is a party or by which it or any of its
Assets is bound, whether or not in writing, except for any such contract or
agreement that is contemplated to be retained by 3Com or any member of the 3Com
Group pursuant to any provision of this Agreement or any other Ancillary
Agreement:
(i) any contract or agreement entered into in the name of, or
expressly on behalf of, any division or business unit of Palm;
(ii) any contract or agreement that relates primarily to the Palm
Business;
(iii) any contract or agreement that is otherwise expressly
contemplated pursuant to this Agreement, the Separation Agreement or any of the
other Ancillary Agreements to be assigned to Palm;
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<PAGE>
(iv) any guarantee, indemnity, representation, warranty or other
Liability of any member of the Palm Group or the 3Com Group in respect of any
other Palm Contract, any Palm Liability or the Palm Business (including
guarantees of financing incurred by customers or other third parties in
connection with purchases of products or services from the Palm Business); and
(v) any Palm OFL.
Section 4.26 Palm Group. "Palm Group" means Palm, each Subsidiary and
Affiliated Company of Palm immediately after the Separation Date or that is
contemplated to be a Subsidiary or Affiliated Company of Palm pursuant to the
Non-US Plan and each Person that becomes a Subsidiary or Affiliate Company of
Palm after the Separation Date.
Section 4.27 Palm Pro Forma Balance Sheet. "Palm Pro Forma Balance Sheet"
means the unaudited pro forma condensed consolidated balance sheet appearing in
the IPO Registration Statement.
Section 4.28 Person. "Person" means an individual, a partnership, a
corporation, a limited liability company, an association, a joint stock company,
a trust, a joint venture, an unincorporated organization and a governmental
entity or any department, agency or political subdivision thereof.
Section 4.29 Retained Payables. "Retained Payables" means (i) all
accounts payable and other obligations of payment for goods or services
purchased, leased or otherwise received in the conduct of the Palm Business that
as of the Separation Date are payable to a third Person by 3Com or any of 3Com's
Subsidiaries, whether past due, due or to become due, including any interest,
sales or use taxes, finance charges, late or returned check charges and other
obligations of 3Com or any of 3Com's Subsidiaries with respect thereto, and any
obligations related to any of the foregoing and (ii) all employee compensation
Liabilities and other miscellaneous Liabilities for which an adjustment is made
in the Palm Pro Forma Balance Sheet.
Section 4.30 Retained Receivables. "Retained Receivables" means (i) all
accounts receivable and other rights to payment for goods or services sold,
leased or otherwise provided in the conduct of the Palm Business that as of the
Separation Date are payable by a third Person to 3Com or any of 3Com's
Subsidiaries, whether past due, due or to become due, including any interest,
sales or use taxes, finance charges, late or returned check charges and other
obligations of the account debtor with respect thereto, and any proceeds of any
of the foregoing and (ii) all other miscellaneous Assets for which an adjustment
is made in the Palm Pro Forma Balance Sheet.
Section 4.31 Security Interest. "Security Interest" means any mortgage,
security interest, pledge, lien, charge, claim, option, right to acquire, voting
or other restriction, right-of-way, covenant, condition, easement, encroachment,
restriction on transfer, or other encumbrance of any nature whatsoever.
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<PAGE>
Section 4.32 Separation. "Separation" means the transfer and contribution
from 3Com to Palm, and Palm's receipt and assumption of, directly or indirectly,
substantially all of the Assets and Liabilities currently associated with the
Palm Business and the stock, investments or similar interests currently held by
3Com in subsidiaries and other entities that conduct such business.
Section 4.33 Separation Agreement. "Separation Agreement" means the
Master Separation and Distribution Agreement dated as of December ___, 1999, of
which this is an Exhibit thereto.
Section 4.34 Separation Date. "Separation Date" means the effective date
and time of each transfer of property, assumption of liability, license,
undertaking, or agreement in connection with the Separation, which shall be
12:01 a.m., Pacific Time, February 26, 2000, or such date as may be fixed by the
Board of Directors of 3Com.
Section 4.35 Subsidiary. "Subsidiary" of any Person means any corporation
or other organization whether incorporated or unincorporated of which at least a
majority of the securities or interest having by the terms thereof ordinary
voting power to elect at least a majority of the board of directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries; provided, however that no Person that is not directly or
indirectly wholly owned by any other Person shall be a Subsidiary of such other
Person unless such other Person controls, or has the right, power or ability to
control, that Person .
Section 4.36 Taxes. "Taxes" has the meaning set forth in the Tax Sharing
Agreement.
[SIGNATURES ON FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this General Assignment
and Assumption Agreement to be executed on its behalf by its officers thereunto
duly authorized on the day and year first above written.
3COM CORPORATION PALM, INC.
By:________________________________ By:_____________________________________
Name:______________________________ Name:___________________________________
Title:_____________________________ Title:__________________________________
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<PAGE>
SCHEDULES
Schedule 1.1(c) Delayed Transfer Assets and Liabilities
Schedule 1.2(a)(xii) Specific Palm Assets to be Transferred
Schedule 1.2(b)(i) Excluded Assets
Schedule 1.3(a)(vi) Divested Businesses Which Contain Liabilities to be
Transferred to Palm
Schedule 1.3(a)(vii) Specific Palm Liabilities
Schedule 1.3(b)(i) Excluded Liabilities
<PAGE>
Schedule 1.1(c) Delayed Transfer Assets and Liabilities
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<PAGE>
Schedule 1.2(a)(xii) Specific Palm Assets to be Transferred
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<PAGE>
Schedule 1.2(b)(i) Excluded Assets
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<PAGE>
Schedule 1.3(a)(vi) Divested Businesses Which Contain Liabilities to be
Transferred to Palm
-24-
<PAGE>
Schedule 1.3(a)(vii) Specific Palm Liabilities
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<PAGE>
Schedule 1.3(b)(i) Excluded Liabilities
-26-
<PAGE>
EXHIBIT 2.3
3COM/PALM CONFIDENTIAL
DRAFT - WSGR 12/01/1999
MASTER TECHNOLOGY OWNERSHIP AND
LICENSE AGREEMENT
between
3COM CORPORATION
and
PALM, INC.
Effective as of ________, 2000
<PAGE>
3COM/PALM CONFIDENTIAL
DRAFT - WSGR 12/01/1999
MASTER TECHNOLOGY OWNERSHIP AND LICENSE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 1 DEFINITIONS............................................. 1
1.1 ANCILLARY AGREEMENTS................................... 1
1.2 COPYRIGHTS............................................. 1
1.3 DATABASE RIGHTS........................................ 2
1.4 DISTRIBUTION DATE...................................... 2
1.5 GALAHAD PROJECT........................................ 2
1.6 GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT............ 2
1.7 INVENTION DISCLOSURE................................... 2
1.8 IPO REGISTRATION STATEMENT............................. 2
1.9 JOINT TECHNOLOGY....................................... 2
1.10 MASK WORK RIGHTS....................................... 2
1.11 MASTER CONFIDENTIAL DISCLOSURE AGREEMENT............... 3
1.12 MASTER PATENT OWNERSHIP AND ASSIGNMENT AGREEMENT....... 3
1.13 MASTER SEPARATION AND DISTRIBUTION AGREEMENT........... 3
1.14 PALM BUSINESS.......................................... 3
1.15 PALM COMPUTING PLATFORM................................ 3
1.16 PALM OS................................................ 3
1.17 PALM PRODUCTS DATABASE................................. 3
1.18 PALM TECHNOLOGY........................................ 3
1.19 PALM TECHNOLOGY DATABASE............................... 4
1.20 PATENTS................................................ 4
1.21 PERSON................................................. 4
1.22 SELL................................................... 4
1.23 SEPARATION DATE........................................ 4
1.24 SUBSIDIARY............................................. 4
1.25 TDC.................................................... 4
1.26 TECHNOLOGY............................................. 5
1.27 THIRD PARTY............................................ 5
ARTICLE 2 OWNERSHIP............................................... 5
2.1 OWNERSHIP OF PALM TECHNOLOGY........................... 5
2.2 JOINT TECHNOLOGY....................................... 6
2.3 PRIOR GRANTS........................................... 6
2.4 ASSIGNMENT DISCLAIMER.................................. 7
</TABLE>
-i-
<PAGE>
3COM/PALM CONFIDENTIAL
DRAFT - WSGR 12/01/1999
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE 3 LICENSES AND RIGHTS..................................... 7
3.1 PALM COMPUTING PLATFORM................................ 7
3.2 GALAHAD PROJECT AND TDC................................ 7
3.3 RIGHTS TO JOINT TECHNOLOGY............................. 8
3.4 NO PATENT LICENSES..................................... 9
3.5 THIRD PARTY TECHNOLOGY................................. 9
ARTICLE 4 CONFIDENTIALITY......................................... 9
ARTICLE 5 NO TERMINATION.......................................... 9
ARTICLE 6 DISPUTE RESOLUTION...................................... 9
6.1 MEDIATION.............................................. 9
6.2 ARBITRATION............................................ 10
6.3 COURT ACTION........................................... 10
6.4 CONTINUITY OF SERVICE AND PERFORMANCE.................. 11
ARTICLE 7 LIMITATION OF LIABILITY................................. 11
ARTICLE 8 MISCELLANEOUS PROVISIONS................................ 11
8.1 DISCLAIMER............................................. 11
8.2 NO IMPLIED LICENSES.................................... 12
8.3 INFRINGEMENT SUITS..................................... 12
8.4 NO OTHER OBLIGATIONS................................... 12
8.5 ENTIRE AGREEMENT....................................... 12
8.6 GOVERNING LAW.......................................... 13
8.7 DESCRIPTIVE HEADINGS................................... 13
8.8 NOTICES................................................ 13
8.9 NONASSIGNABILITY....................................... 14
8.10 SEVERABILITY........................................... 14
8.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE.. 14
8.12 AMENDMENT.............................................. 14
8.13 COUNTERPARTS........................................... 15
</TABLE>
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<PAGE>
MASTER TECHNOLOGY OWNERSHIP AND LICENSE AGREEMENT
This Master Technology Ownership and License Agreement (the "Agreement") is
effective as of ________, 2000 (the "Effective Date"), between 3Com Corporation,
a Delaware corporation ("3Com"), having an office at 5400 Bayfront Plaza, Santa
Clara, California, 95052 and Palm, Inc., a Delaware corporation ("Palm"), having
an office at 5400 Bayfront Plaza, Santa Clara, California, 95052.
WHEREAS, the Board of Directors of 3Com has determined that it is in the
best interest of 3Com and its stockholders to separate 3Com's existing
businesses into two independent businesses;
WHEREAS, as part of the foregoing, 3Com and Palm's predecessor, Palm
Computing, Inc., a California Corporation, have entered into a Master Separation
and Distribution Agreement (as defined below), which provides, among other
things, for the separation of certain Palm assets and Palm liabilities, the
initial public offering of Palm stock, the distribution of such stock and the
execution and delivery of certain other agreements in order to facilitate and
provide for the foregoing; and
WHEREAS, also as part of the foregoing, the parties desire to confirm
Palm's ownership or joint ownership of certain technology.
NOW, THEREFORE, in consideration of the mutual promises of the parties, and
of good and valuable consideration, it is agreed by and between the parties as
follows:
ARTICLE 1
DEFINITIONS
For the purpose of this Agreement the following capitalized terms are
defined in this Article 1 and shall have the meaning specified herein:
1.1 ANCILLARY AGREEMENTS. "Ancillary Agreements" shall have the meaning
set forth in the Master Separation and Distribution Agreement.
1.2 COPYRIGHTS. "Copyrights" mean (i) any copyright in any original works
of authorship fixed in any tangible medium of expression as set forth in 17
U.S.C. Section 101 et. seq., whether registered or unregistered, including any
applications for registration thereof, (ii) any corresponding foreign copyrights
under the laws of any jurisdiction, in each case, whether registered or
unregistered, and any applications for registration thereof, and (iii) moral
rights under the laws of any jurisdiction.
<PAGE>
1.3 DATABASE RIGHTS. "Database Rights" means any rights in databases under
the laws of the United States or any other jurisdiction, whether registered or
unregistered, and any applications for registration thereof.
1.4 DISTRIBUTION DATE. "Distribution Date" shall have the meaning set
forth in the Master Separation and Distribution Agreement.
1.5 GALAHAD PROJECT. "Galahad Project" means the development effort within
3Com's Wireless Connectivity Division (WCD) currently known internally as the
Galahad Project.
1.6 GENERAL ASSIGNMENT AND ASSUMPTION AGREEMENT. "General Assignment and
Assumption Agreement" means the General Assignment and Assumption Agreement
between the parties.
1.7 INVENTION DISCLOSURE. "Invention Disclosure" means a disclosure of an
invention (i) written for the purpose of allowing legal and business people to
determine whether to file a Patent application with respect to such invention
and (ii) recorded with a control number in the owning party's records.
1.8 IPO REGISTRATION STATEMENT. "IPO Registration Statement" means the
registration statement on Form S-1 pursuant to the Securities Act of 1933, as
amended, to be filed with the Securities and Exchange Commission registering the
shares of common stock of Palm to be issued in the initial public offering,
together with all amendments thereto.
1.9 JOINT TECHNOLOGY. "Joint Technology" means the manufacturing
Technology indicated to be jointly owned in the Palm Technology Database, and
Technology which has been jointly developed by the parties prior to the
Separation Date that is incorporated into Current Palm Products (as defined in
the Master Patent Ownership and Assignment Agreement); provided, however, that
Joint Technology shall not include any Technology developed under the Galahad
Project or work done by TDC, except as otherwise agreed by the parties in
writing.
1.10 MASK WORK RIGHTS. "Mask Work Rights" means (i) any rights in mask
works, as defined in 17 U.S.C. Section 901, whether registered or unregistered,
including applications for registration thereof, and (ii) any foreign rights in
semiconductor topologies under the laws of any jurisdiction, whether registered
or unregistered, including applications for registration thereof.
1.11 MASTER CONFIDENTIAL DISCLOSURE AGREEMENT. "Master Confidential
Disclosure Agreement" means the Master Confidential Disclosure Agreement between
3Com and Palm.
1.12 MASTER PATENT OWNERSHIP AND ASSIGNMENT AGREEMENT. "Master Patent
Ownership and Assignment Agreement" means the Master Patent Ownership and
Assignment Agreement between 3Com and Palm.
2
<PAGE>
1.13 MASTER SEPARATION AND DISTRIBUTION AGREEMENT. "Master Separation and
Distribution Agreement" means the Master Separation and Distribution Agreement
between 3Com and Palm.
1.14 PALM BUSINESS. "Palm Business" means the business and operations of
Palm as described in the IPO Registration Statement.
1.15 PALM COMPUTING PLATFORM. "Palm Computing Platform" means the Palm OS
and other related software and hardware technology and documentation generally
licensed by Palm to third party developers of handheld computing or
communication products.
1.16 PALM OS. "Palm OS" means the Palm operating system software files and
build tools.
1.17 PALM PRODUCTS DATABASE. "Palm Products Database" means the mutually
agreed Palm Products Database as of the Separation Date, as it may be updated by
the parties upon mutual agreement (signed by authorized officers) of the parties
to add Palm products as of the Separation Date.
1.18 PALM TECHNOLOGY. "Palm Technology" means (i) all Technology developed
solely by Palm or Subsidiaries of Palm or by its subcontractors for Palm or its
Subsidiaries, (ii) all Technology for which the direct costs were solely paid
for by Palm, (iii) the Palm Computing Platform, (iv) the manufacturing
technology that is indicated as to be owned by Palm in the Palm Technology
Database, and (v) all Technology developed or being developed solely by the Palm
Business as of the Separation Date. For the avoidance of doubt, the parties
agree that 3Com owns all right, title and interest in and to any Technology that
may have been jointly developed by the parties in the Galahad Project and any
projects with the TDC and any Technology either developed solely by 3Com or for
which the direct costs were solely paid for by 3Com.
1.19 PALM TECHNOLOGY DATABASE. "Palm Technology Database" means the
mutually agreed Palm Technology Database as of the Separation Date, as it may be
updated by the parties upon mutual agreement (signed by authorized officers) of
the parties to add Palm Technology as of the Separation Date.
1.20 PATENTS. "Patents" means patents, utility models, design patents,
design registrations, certificates of invention and other governmental grants
for the protection of inventions or industrial designs anywhere in the world and
all reissues, renewals, re-examinations and extensions of any of the foregoing.
1.21 PERSON. "Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization, and a governmental entity or any
department, agency or political subdivision thereof.
3
<PAGE>
1.22 SELL. To "Sell" a product means to sell, transfer, lease or otherwise
dispose of a product. "Sale" and "Sold" have the corollary meanings ascribed
thereto.
1.23 SEPARATION DATE. "Separation Date" means 12:01 a.m., Pacific Time,
February 26, 2000, or such other date as may be fixed by the Board of Directors
of 3Com.
1.24 SUBSIDIARY. "Subsidiary" of any Person means a corporation or other
organization, whether incorporated or unincorporated, of which at least a
majority of the securities or interests having by the terms thereof ordinary
voting power to elect at least a majority of the board of directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries; provided, however, that no Person that is not directly or
indirectly wholly-owned by any other Person shall be a Subsidiary of such other
Person unless such other Person controls, or has the right, power or ability to
control, that Person. For purposes of this Agreement, Palm shall be deemed not
to be a subsidiary of 3Com.
1.25 TDC. "TDC" means the 3Com Technology Development Center.
1.26 TECHNOLOGY. "Technology" means technological models, algorithms,
manufacturing processes, design processes, behavioral models, logic diagrams,
schematics, test vectors, know-how, computer and electronic data processing and
other apparatus programs and software (object code and source code), databases
and documentation thereof, trade secrets, technical information, specifications,
drawings, records, documentation, works of authorship or other creative works,
websites, ideas, knowledge, data or the like. The term Technology includes
Copyrights, Database Rights, Mask Work Rights, trade secrets and any other
intellectual property right, but expressly does not include (i) any trademark,
trade name, trade dress or service mark, or applications for registration
thereof or (ii) any Patents or applications therefor, including any of the
foregoing that may be based on Invention Disclosures that are covered by the
Master Patent Ownership and License Agreement between the parties, but does
include trade secret rights in and to inventions disclosed in such Patent
applications and Invention Disclosures.
1.27 THIRD PARTY. "Third Party" means a Person other than 3Com and its
Subsidiaries and Palm and its Subsidiaries.
ARTICLE 2
OWNERSHIP
2.1 OWNERSHIP OF PALM TECHNOLOGY. The parties hereby confirm that Palm
owns all right, title and interest in and to the Palm Technology. Subject to
Sections 2.3 and 2.4 below, to the extent that 3Com has any ownership rights in
and to the Palm Technology, 3Com hereby grants, conveys and assigns (and agrees
to cause its appropriate Subsidiaries to grant, convey and assign) to Palm, by
execution hereof (or, where appropriate or required, by execution of separate
4
<PAGE>
instruments of assignment), all its (and their) right, title and interest in and
to the Palm Technology, to be held and enjoyed by Palm, its successors and
assigns. 3Com further grants, conveys and assigns (and agrees to cause its
appropriate Subsidiaries to grant, convey and assign) to Palm all its (and
their) right, title and interest in and to any and all causes of action and
rights of recovery for past infringement of Copyrights, Database Rights and Mask
Work Rights in and to the Palm Technology, and for past misappropriation of
trade secrets in and to the Palm Technology. 3Com further covenants that 3Com
will, without demanding any further consideration therefor, at the request and
expense of Palm (except for the value of the time of 3Com employees), do (and
cause its Subsidiaries to do) all lawful and just acts that may be or become
necessary for evidencing, maintaining, recording and perfecting Palm's rights to
such Palm Technology consistent with 3Com's general business practice as of the
Separation Date, including but not limited to, execution and acknowledgement of
(and causing its Subsidiaries to execute and acknowledge) assignments and other
instruments in a form reasonably required by Palm for each Copyright, Mask Work
Right or Database Right jurisdiction.
2.2 JOINT TECHNOLOGY. The parties hereby confirm that 3Com and Palm
jointly own all right, title and interest in and to the Joint Technology.
(a) Subject to Sections 2.3 and 2.4 below, 3Com hereby grants, conveys
and assigns (and agrees to cause its appropriate Subsidiaries to grant, convey
and assign) to Palm an undivided one-half interest in and to the Joint
Technology to be held and enjoyed by Palm, its successors and assigns. 3Com
further grants, conveys and assigns (and agrees to cause its appropriate
Subsidiaries to grant, convey and assign) to Palm an undivided one-half interest
in and to any and all causes of action and rights of recovery for past
infringement of Copyrights, Database Rights and Mask Work Rights in and to the
Joint Technology, and for past misappropriation of trade secrets in and to the
Joint Technology. 3Com further covenants that 3Com will, without demanding any
consideration therefor, at the request and expense of Palm (except for the value
of the time of 3Com employees), do (and cause its Subsidiaries to do) all lawful
and just acts including the execution and acknowledgement of instruments, that
may be or become necessary for evidencing, maintaining and perfecting Palm's
rights to such Joint Technology consistent with 3Com's general business practice
as of the Separation Date, including but not limited to, execution and
acknowledgement of (and causing its Subsidiaries to execute and acknowledge)
assignments and other instruments in a form reasonably required by Palm for each
Copyright, Mask Work Right or Database Right jurisdiction.
(b) Subject to Sections 2.3 and 2.4 below, Palm hereby grants,
conveys and assigns (and agrees to cause its appropriate Subsidiaries to grant,
convey and assign) to 3Com an undivided one-half interest in and to the Joint
Technology to be held and enjoyed by 3Com, its successors and assigns. Palm
further grants, conveys and assigns (and agrees to cause its appropriate
Subsidiaries to grant, convey and assign) to 3Com an undivided one-half interest
in and to any and all causes of action and rights of recovery for past
infringement of Copyrights, Database Rights and Mask Work Rights in and to the
Joint Technology, and for past misappropriation of trade secrets in
5
<PAGE>
and to the Joint Technology. Palm further covenants that Palm will, without
demanding any consideration therefor, at the request and expense of 3Com (except
for the value of the time of Palm employees), do (and cause its Subsidiaries to
do) all lawful and just acts including the execution and acknowledgement of
instruments, that may be or become necessary for evidencing, maintaining and
perfecting 3Com's rights to such Joint Technology consistent with Palm's general
business practice as of the Separation Date, including but not limited to,
execution and acknowledgement of (and causing its Subsidiaries to execute and
acknowledge) assignments and other instruments in a form reasonably required by
3Com for each Copyright, Mask Work Right or Database Right jurisdiction.
2.3 PRIOR GRANTS.
(a) Palm acknowledges and agrees that the foregoing assignment is
subject to any and all licenses or other rights that may have been granted by or
to 3Com or its Subsidiaries with respect to the Palm Technology prior to the
Separation Date. 3Com shall respond to reasonable inquiries from Palm regarding
any such prior grants.
(b) 3Com acknowledges and agrees that the foregoing assignment is
subject t any and all licenses or other rights that may have been granted by or
to Palm or its Subsidiaries with respect to the 3Com Technology prior to the
Separation Date. Palm shall respond to reasonable inquiries from 3Com regarding
any such prior grants.
2.4 ASSIGNMENT DISCLAIMER. THE PARTIES ACKNOWLEDGE AND AGREE THAT THE
FOREGOING ASSIGNMENTS ARE MADE ON AN "AS IS," QUITCLAIM BASIS AND THAT NEITHER
PARTY NOR ANY SUBSIDIARY OF EITHER PARTY HAS MADE OR WILL MAKE ANY WARRANTY
WHATSOEVER, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION ANY
IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE,
ENFORCEABILITY OR NON-INFRINGEMENT. FURTHER, THE PARTIES ACKNOWLEDGE AND AGREE
THAT NEITHER PARTY NOR ANY SUBSIDIARY OF EITHER PARTY SHALL HAVE ANY OBLIGATION
UNDER THIS AGREEMENT TO MAINTAIN OR SUPPORT ANY OF THE TECHNOLOGY ASSIGNED UNDER
THIS AGREEMENT OR TO PROVIDE ANY UPGRADES OR ENHANCEMENTS THERETO TO THE OTHER
PARTY.
ARTICLE 3
LICENSES AND RIGHTS
3.1 PALM COMPUTING PLATFORM. In recognition of the fact that 3Com and Palm
were affiliated entities prior to the Separation Date, Palm agrees to grant a
license (i) to 3Com with respect to the Palm Computing Platform on favorable
terms, and (ii) to 3Com (IAD) with respect to certain portions of the Palm OS on
favorable terms. The parties agree to negotiate such licensing
6
<PAGE>
agreements reasonably and in good faith as promptly as they can reasonably
accomplish, but in no event later than the Distribution Date.
3.2 GALAHAD PROJECT AND TDC. The parties agree to negotiate reasonably and
in good faith joint development and licensing agreements with respect to
Technology developed in the Galahad Project and TDC (with respect to Palm
related projects) as promptly as they can reasonably accomplish, but in no event
later than the Distribution Date.
3.3 RIGHTS TO JOINT TECHNOLOGY.
(a) Each party has the right to (i) use and exploit the Joint
Technology, (ii) license the Joint Technology to Third Parties, and (iii)
transfer its ownership interest in any or all Joint Technology to any Third
Party, in each case (x) without restriction, (y) without the consent of the
other party, and (z) without the obligation to account to the other party for
profits derived therefrom.
(b) Should either party (the "Registering Party") desire at any time
to register Copyrights, Database Rights or Mask Work Rights in and to the Joint
Technology in any jurisdiction, such party shall notify the other party (the
"Non-Registering Party") in writing of its intent and the reasons therefor. The
Non-Registering Party promptly shall communicate in writing any objections it
may have. In the absence of any written objections within thirty (30) days after
the date of its notice, the Registering Party shall be free to proceed with the
desired registration in the name of both 3Com and Palm. In the event of any such
objections by the Non-Registering Party, the parties shall discuss and negotiate
reasonably and in good faith to resolve the objections based on each party's
business objectives with respect to the relevant item of Joint Technology. The
parties shall share equally any actual and reasonable out-of-pocket expenses
(expressly excluding the value of the time of either party's employees) incurred
in connection with any such registration. The Registering Party promptly shall
provide the Non-Registering Party with copies of each application and issued
registration under this Section 3.3(b).
(c) Should either party become aware of any actual infringement or
misappropriation of Joint Technology, such party shall promptly communicate the
details to the other party and the parties will meet and confer regarding any
enforcement action with respect to such Joint Technology. If the parties decide
jointly to bring an action for infringement or misappropriation of such Joint
Technology, the parties shall equally share all actual and reasonable expenses
associated therewith (except for the value of the time of each party's employees
in connection with the action; each party shall alone bear its employee
expenses) and any resulting damages or compensation, including any amounts paid
in settlement. If the parties decide not to jointly bring such an action, either
party or any of its Subsidiaries may, at its own expense (including, as the
parties shall agree on a case by case basis, compensation, if any, of the other
party for the value of time of the other party's employees as reasonably
required in connection with the action), enforce any Joint Technology against
any Third Party infringer or misappropriating Person without the consent of the
other party, subject to the following: (i) neither party shall have any
obligation to be joined as a party plaintiff in such action without its prior
written consent, which may
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be granted or withheld in its sole discretion, regardless of whether such
joinder is required in order to confer jurisdiction in the jurisdiction in which
the action is to be brought, (ii) if either party brings any such action on its
own, including cases in which the other party consents to be named as party
plaintiff, the party bringing the action agrees to defend, indemnify and hold
harmless the other party for all losses, costs, liabilities and expenses arising
out of or related to the bringing of such action, and (iii) the party bringing
such action may not take any action, or make any admissions, that may affect the
validity of any registration for Copyrights, Database Rights or Mask Work Rights
covering Joint Technology without the prior written consent of the other party.
If the enforcing party or its Subsidiaries recovers any damages or compensation
for any action the enforcing party or the Subsidiaries of the enforcing party
takes hereunder, including any settlement, the enforcing party or the
Subsidiaries of the enforcing party shall retain one hundred percent (100%) of
such damages. If the parties cooperate in any such enforcement action, then any
recovery of damages or compensation shall be allocated pursuant to mutual
agreement.
3.4 NO PATENT LICENSES. Nothing contained in this Agreement shall be
construed as conferring to either party by implication, estoppel or otherwise
any license or right under any Patent or applications therefor, whether or not
the exercise of any right herein granted necessarily employs an invention of any
existing or later issued Patent. The applicable licenses granted by 3Com to Palm
with respect to Patents are set forth in a separate Master Patent Ownership and
License Agreement.
3.5 THIRD PARTY TECHNOLOGY. The assignment of any applicable license
agreements with respect to Third Party Technology are set forth in the General
Assignment and Assumption Agreement.
ARTICLE 4
CONFIDENTIALITY
The terms of the Master Confidential Disclosure Agreement between the
parties shall apply to any Confidential Information (as defined therein) which
is the subject matter of this Agreement.
ARTICLE 5
NO TERMINATION
Each party acknowledges and agrees that its remedy for breach by the other
party of any provision hereof shall be, subject to the requirements of Article
6, to bring a claim to recover damages subject to the limits set forth in this
Agreement and to seek any other appropriate equitable relief, other than
termination of this Agreement. For the avoidance of doubt, the parties intend
that this Agreement continue in perpetuity.
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ARTICLE 6
DISPUTE RESOLUTION
6.1 MEDIATION. If a dispute, controversy or claim ("Dispute") arises
between the parties relating to the interpretation or performance of this
Agreement appropriate senior executives (e.g. director or V.P. level) of each
party who shall have the authority to resolve the matter shall meet to attempt
in good faith to negotiate a resolution of the Dispute prior to pursuing other
available remedies. The initial meeting between the appropriate senior
executives shall be referred to herein as the "Dispute Resolution Commencement
Date." Discussions and correspondence relating to trying to resolve such Dispute
shall be treated as Confidential Information developed for the purpose of
settlement and shall be exempt from discovery or production and shall not be
admissible. If the senior executives are unable to resolve the Dispute within
thirty (30) days from the Dispute Resolution Commencement Date, and either party
wishes to pursue its rights relating to such Dispute, then the Dispute will be
mediated by a mutually acceptable mediator appointed pursuant to the mediation
rules of JAMS/Endispute within thirty (30) days after written notice by one
party to the other demanding non-binding mediation. Neither party may
unreasonably withhold consent to the selection of a mediator or the location of
the mediation. Both parties will share the costs of the mediation equally,
except that each party shall bear its own costs and expenses, including
attorneys' fees, witness fees, travel expenses, and preparation costs. The
parties may also agree to replace mediation with some other form of non-binding
or binding alternate dispute resolution ("ADR").
6.2 ARBITRATION. Any Dispute which the parties cannot resolve through
mediation within ninety (90) days of the Dispute Resolution Commencement Date,
unless otherwise mutually agreed, shall be submitted to final and binding
arbitration under the then current Commercial Arbitration Rules of the American
Arbitration Association ("AAA"), by three (3) arbitrators in Santa Clara County,
California. Such arbitrators shall be selected by the mutual agreement of the
parties or, failing such agreement, shall be selected according to the aforesaid
AAA rules. The arbitrators will be instructed to prepare and deliver a written,
reasoned opinion stating their decision within thirty (30) days of the
completion of the arbitration. The prevailing party in such arbitration shall be
entitled to expenses, including costs and reasonable attorneys' and other
professional fees, incurred in connection with the arbitration (but excluding
any costs and fees associated with prior negotiation or mediation). The decision
of the arbitrator shall be final and non-appealable and may be enforced in any
court of competent jurisdiction. The use of any ADR procedures will not be
construed under the doctrine of laches, waiver or estoppel to adversely affect
the rights of either party.
6.3 COURT ACTION. Any Dispute regarding the following is not required to
be negotiated, mediated or arbitrated prior to seeking relief from a court of
competent jurisdiction: breach of any obligation of confidentiality;
infringement, misappropriation, or misuse of any intellectual property right;
any other claim where interim relief from the court is sought to prevent serious
and irreparable injury to one of the parties or to others. However, the parties
to the Dispute
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shall make a good faith effort to negotiate and mediate such Dispute, according
to the above procedures, while such court action is pending.
6.4 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in
writing, the parties will continue to provide service and honor all other
commitments under this Agreement during the course of dispute resolution
pursuant to the provisions of this Article 6 with respect to all matters not
subject to such dispute, controversy or claim.
ARTICLE 7
LIMITATION OF LIABILITY.
IN NO EVENT SHALL EITHER PARTY OR ITS SUBSIDIARIES BE LIABLE TO THE OTHER
PARTY OR ITS SUBSIDIARIES FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL
OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT,
WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES;
PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTY'S
OBLIGATIONS EXPRESSLY ASSUMED IN EXHIBIT J OF THE MASTER SEPARATION AND
DISTRIBUTION AGREEMENT; PROVIDED FURTHER THAT THE EXCLUSION OF PUNITIVE DAMAGES
SHALL APPLY IN ANY EVENT.
ARTICLE 8
MISCELLANEOUS PROVISIONS
8.1 DISCLAIMER. EACH PARTY ACKNOWLEDGES AND AGREES THAT ALL TECHNOLOGY AND
ANY OTHER INFORMATION OR MATERIALS PROVIDED HEREUNDER IS PROVIDED ON AN "AS IS"
BASIS, AND THAT NEITHER PARTY NOR ANY OF ITS SUBSIDIARIES MAKES ANY
REPRESENTATIONS OR EXTENDS ANY WARRANTIES WHATSOEVER, EXPRESS, IMPLIED OR
STATUTORY, WITH RESPECT THERETO, INCLUDING WITHOUT LIMITATION ANY IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE,
ENFORCEABILITY OR NON-INFRINGEMENT. Without limiting the generality of the
foregoing, neither party nor any of its Subsidiaries makes any warranty or
representation that any manufacture, use, importation, offer for sale or sale of
any product or service will be free from infringement of any Patent or other
intellectual property right of any Third Party.
8.2 NO IMPLIED LICENSES. Nothing contained in this Agreement shall be
construed as conferring any rights by implication, estoppel or otherwise, under
any intellectual property right, other than the rights expressly granted in this
Agreement with respect to the Palm Technology and
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the Joint Technology. Neither party is required hereunder to furnish or disclose
to the other any technical or other information, except as specifically provided
herein.
8.3 INFRINGEMENT SUITS. Neither party shall have any obligation hereunder
to institute any action or suit against Third Parties for infringement of any
Copyrights, Database Rights or Mask Work Rights or misappropriation of any trade
secret rights in or to any Technology licensed to the other party hereunder, or
to defend any action or suit brought by a Third Party which challenges or
concerns the validity of any of such rights or which claims that any Technology
assigned or licensed to the other party hereunder infringes any Patent,
Copyright, Database Right, Mask Work Right or other intellectual property right
of any Third Party or constitutes a misappropriated trade secret of any Third
Party. 3Com shall not have any right to institute any action or suit against
Third Parties for infringement of any of the Copyrights, Database Rights or Mask
Work Rights in or to the Palm Technology.
8.4 NO OTHER OBLIGATIONS. NEITHER PARTY ASSUMES ANY RESPONSIBILITIES OR
OBLIGATIONS WHATSOEVER, OTHER THAN THE RESPONSIBILITIES AND OBLIGATIONS
EXPRESSLY SET FORTH IN THIS AGREEMENT OR A SEPARATE WRITTEN AGREEMENT BETWEEN
THE PARTIES. Without limiting the generality of the foregoing, neither party,
nor any of its Subsidiaries, is obligated under this Agreement to provide any
technical assistance.
8.5 ENTIRE AGREEMENT. This Agreement, the Master Separation and
Distribution Agreement and the other Ancillary Agreements and the Exhibits and
Schedules referenced or attached hereto and thereto constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and shall supersede all prior written and oral and all contemporaneous
oral agreements and understandings with respect to the subject matter hereof and
thereof. This Agreement shall prevail in the event of any conflicting terms or
legends which may appear on any portion of the Palm Technology or the Joint
Technology. To the extent there is a conflict between this Agreement and the
Master Assignment and Assumption Agreement between the parties, the terms of
this Agreement shall govern. To the extent that the parties enter into specific
agreements regarding specific projects such as the Galahad Project or the Palm
Computing Platform license, such agreements shall supersede this Agreement with
respect to any common subject matter.
8.6 GOVERNING LAW. This Agreement shall be construed in accordance with
and all Disputes hereunder shall be governed by the laws of the State of
California, excluding its conflict of law rules and the United Nations
Convention on Contracts for the International Sale of Goods. The Superior Court
of Santa Clara County and/or the United States District Court for the Northern
District of California shall have jurisdiction and venue over all Disputes
between the parties that are permitted to be brought in a court of law pursuant
to Article 6 above.
8.7 DESCRIPTIVE HEADINGS. The headings contained in this Agreement, in any
Exhibit or Schedule hereto and in the table of contents to this Agreement are
for reference purposes
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only and shall not affect in any way the meaning or interpretation of this
Agreement. Any capitalized term used in any Exhibit or Schedule but not
otherwise defined therein, shall have the meaning assigned to such term in this
Agreement. When a reference is made in this Agreement to an Article or a
Section, Exhibit or Schedule, such reference shall be to an Article or Section
of, or an Exhibit or Schedule to, this Agreement unless otherwise indicated.
8.8 NOTICES. Notices, offers, requests or other communications required or
permitted to be given by either party pursuant to the terms of this Agreement
shall be given in writing to the respective parties to the following addresses:
if to 3Com:
3Com Corporation
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
if to Palm:
Palm, Inc.
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
or to such other address as the party to whom notice is given may have
previously furnished to the other in writing as provided herein. Any notice
involving non-performance or renewal shall be sent by hand delivery, recognized
overnight courier or, within the United States, may also be sent via certified
mail, return receipt requested. All other notices may also be sent by fax,
confirmed by first class mail. All notices shall be deemed to have been given
and received on the earlier of actual delivery or three (3) days from the date
of postmark.
8.9 NONASSIGNABILITY. Neither party may, directly or indirectly, in whole
or in part, whether by operation of law or otherwise, assign or transfer this
Agreement, without the other party's prior written consent, and any attempted
assignment, transfer or delegation without such prior written consent shall be
voidable at the sole option of such other party. Notwithstanding the foregoing,
each party (or its successive assignees or transferees hereunder) may, without
such consent, assign this Agreement to an entity that succeeds to all or
substantially all of the business or assets of such party as long as such Person
agrees to accept all of the terms set forth herein; provided, however, that the
rights and obligations set forth in Sections 3.1 and 3.2 may not be assigned or
transferred in any event (except in the case of a reincorporation of such party
in another state). Without limiting the foregoing, this Agreement will be
binding upon and inure to the benefit of the parties and their permitted
successors and assigns.
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8.10 SEVERABILITY. If any term or other provision of this Agreement is
determined by a court, administrative agency or arbitrator to be invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to either party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the fullest
extent possible.
8.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or
delay on the part of either party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor shall any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
8.12 AMENDMENT. No change or amendment will be made to this Agreement
except by an instrument in writing signed on behalf of each of the parties to
such agreement.
8.13 COUNTERPARTS. This Agreement, including the Ancillary Agreements and
the Exhibits and Schedules hereto and thereto and the other documents referred
to herein or therein, may be executed in counterparts, each of which shall be
deemed to be an original but all of which shall constitute one and the same
agreement.
WHEREFORE, the parties have signed this Master Technology Ownership and
License Agreement effective as of the date first set forth above.
3COM CORPORATION PALM, INC.
By:_______________________________ By:_______________________________
Name:_____________________________ Name:_____________________________
Title:____________________________ Title:____________________________
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EXHIBIT 2.4
MASTER PATENT OWNERSHIP AND LICENSE AGREEMENT
BETWEEN
3COM CORPORATION
AND
PALM, INC.
Effective as of _____, 2000
<PAGE>
MASTER PATENT OWNERSHIP AND LICENSE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
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<S> <C>
ARTICLE 1 DEFINITIONS............................................................. 1
1.1 ALLOCATED PATENT ASSETS DATABASE................................ 1
1.2 ASSIGNED PATENTS................................................ 2
1.3 BLUETOOTH....................................................... 2
1.4 DISTRIBUTION DATE............................................... 3
1.5 FIRST EFFECTIVE FILING DATE..................................... 3
1.6 GALAHAD PATENTS................................................. 3
1.7 GALAHAD PROJECT................................................. 3
1.8 INVENTION DISCLOSURE............................................ 3
1.9 MASTER SEPARATION AND DISTRIBUTION AGREEMENT.................... 3
1.10 PALM PATENTS.................................................... 3
1.11 PALM PRODUCTS................................................... 4
1.12 PATENTS......................................................... 4
1.13 PERSON.......................................................... 4
1.14 SEPARATION DATE................................................. 4
1.15 SUBSIDIARY...................................................... 4
1.16 THIRD PARTY..................................................... 5
1.17 THIRD PARTY PATENTS............................................. 5
1.18 3COM PATENTS.................................................... 5
1.19 3COM PRODUCTS................................................... 5
ARTICLE 2 OWNERSHIP............................................................... 5
2.1 OWNERSHIP OF PATENTS............................................ 5
2.2 PRIOR GRANTS.................................................... 6
2.3 ASSIGNMENT DISCLAIMER........................................... 6
ARTICLE 3 LICENSES AND COVENANTS NOT TO SUE....................................... 7
3.1 LICENSE GRANTS TO PALM WITH RESPECT TO GALAHAD PATENTS.......... 7
3.2 RESTRICTION ON 3COM LICENSING OF GALAHAD PATENTS................ 7
3.3 RESTRICTION ON PALM'S "HAVE MADE" RIGHTS TO GALAHAD PATENTS..... 7
3.4 COMBINATION EXCLUSION........................................... 7
3.5 PALM'S SUBLICENSE RIGHTS WITH RESPECT TO GALAHAD PATENTS........ 8
3.6 DURATION........................................................ 8
3.7 ACQUISITION OF PALM OR TRANSFER OF A BUSINESS OR SUBSIDIARY
RELATED TO GALAHAD PATENTS...................................... 8
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
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<S> <C>
3.8 COPIES OF PATENT APPLICATIONS AND INVENTION DISCLOSURES......... 10
3.9 THIRD PARTY PATENTS............................................. 10
3.10 3COM COVENANT NOT TO SUE........................................ 10
3.11 PALM COVENANT NOT TO SUE........................................ 12
ARTICLE 4 ADDITIONAL OBLIGATIONS.................................................. 13
4.1 ADDITIONAL OBLIGATIONS WITH REGARD TO ASSIGNED PATENTS.......... 14
4.2 ADDITIONAL OBLIGATIONS WITH REGARD TO GALAHAD PATENTS........... 14
4.3 STANDARDS BODIES................................................ 15
4.4 ASSIGNMENT OF PATENTS........................................... 15
4.5 RECORDATION OF LICENSES......................................... 15
ARTICLE 5 CONFIDENTIALITY......................................................... 16
ARTICLE 6 TERMINATION............................................................. 16
6.1 VOLUNTARY TERMINATION........................................... 16
6.2 SURVIVAL........................................................ 16
6.3 NO OTHER TERMINATION............................................ 16
ARTICLE 7 DISPUTE RESOLUTION...................................................... 17
7.1 MEDIATION....................................................... 17
7.2 ARBITRATION..................................................... 17
7.3 COURT ACTION.................................................... 17
7.4 CONTINUITY OF SERVICE AND PERFORMANCE........................... 18
ARTICLE 8 LIMITATION OF LIABILITY................................................. 18
ARTICLE 9 MISCELLANEOUS PROVISIONS................................................ 18
9.1 DISCLAIMER...................................................... 18
9.2 NO IMPLIED LICENSES............................................. 19
9.3 INFRINGEMENT SUITS.............................................. 19
9.4 NO OTHER OBLIGATIONS............................................ 19
9.5 ENTIRE AGREEMENT................................................ 19
9.6 GOVERNING LAW................................................... 19
9.7 DESCRIPTIVE HEADINGS............................................ 20
9.8 NOTICES......................................................... 20
9.9 NONASSIGNABILITY................................................ 20
9.10 SEVERABILITY.................................................... 21
9.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE........... 21
</TABLE>
-ii-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
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<S> <C>
9.12 AMENDMENT....................................................... 21
9.13 COUNTERPARTS.................................................... 21
</TABLE>
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MASTER PATENT OWNERSHIP AND LICENSE AGREEMENT
This Master Patent Ownership and License Agreement (the "Agreement") is
effective as of ________, 2000 (the "Effective Date"), between 3Com Corporation,
a Delaware corporation ("3Com"), having an office at 5400 Bayfront Plaza, Santa
Clara, California, 95052 and Palm, Inc., a Delaware corporation ("Palm"), having
an office at 5400 Bayfront Plaza, Santa Clara, California, 95052.
WHEREAS, the Board of Directors of 3Com has determined that it is in the
best interest of 3Com and its stockholders to separate 3Com's existing
businesses into two independent businesses;
WHEREAS, as part of the foregoing, 3Com and Palm's predecessor, Palm
Computing, Inc., a California Corporation, have entered into a Master Separation
and Distribution Agreement (as defined below), which provides, among other
things, for the separation of certain Palm assets and Palm liabilities, the
initial public offering of Palm stock, the distribution of such stock and the
execution and delivery of certain other agreements in order to facilitate and
provide for the foregoing;
WHEREAS, also as part of the foregoing, 3Com and Palm desire to confirm
Palm's ownership of all patents, patent applications and invention disclosures
invented by or for Palm and to record in Palm's name any such patents and patent
applications that are recorded in 3Com's name;
WHEREAS, Palm and 3Com desire to confirm 3Com's ownership of certain
jointly developed technology and Palm desires to receive and 3Com is willing to
grant to Palm certain licenses and rights under patents, patent applications and
invention disclosures covering such technology; and
WHEREAS, Palm and 3Com further desire to enter into reciprocal covenants
not to sue for patent infringement.
NOW, THEREFORE, in consideration of the mutual promises of the parties, and
of good and valuable consideration, it is agreed by and between the parties as
follows:
ARTICLE 1
DEFINITIONS
For the purpose of this Agreement the following capitalized terms are
defined in this Article 1 and shall have the meaning specified herein:
1.1 ALLOCATED PATENT ASSETS DATABASE. "Allocated Patent Assets Database"
means the mutually agreed Allocated Patent Assets Database as of the Separation
Date, as it may be updated by the parties upon mutual agreement to add Patents,
Patent applications and Invention Disclosures as of the Separation Date.
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1.2 ASSIGNED PATENTS. "Assigned Patents" means only those
(a) Patents, Patent applications and Invention Disclosures that are
recorded in 3Com's name and are allocated to Palm in the Allocated Patent Assets
Database;
(b) Patent applications filed on the foregoing Invention
Disclosures described in Section 1.2(a);
(c) continuations, continuations-in-part, divisions and
substitutions of any of the foregoing Patent applications described in Sections
1.2(a) and (b);
(d) Patents which may issue on any of the foregoing Patent
applications described in Sections 1.2(a)-(c);
(e) renewals, reissues, reexaminations and extensions of the
foregoing Patents described in Sections 1.2(a) and (d); and
(f) foreign Patent applications and Patents that are counterparts
of any of the foregoing Patent applications or Patents described in Sections
1.2(a)-(e), including any Patent application or Patent to the extent that it
claims priority from any of the foregoing Patent applications or Patents
described in Sections 1.2(a)-(e); but
(g) excluding from any Patent or Patent application described in
Sections 1.2(c)-(f) any claim (i) directed to subject matter that does not
appear in any Patent application having a First Effective Filing Date prior to
the Separation Date and (ii) of which neither Palm nor any person having a legal
duty to assign his/her interest therein to Palm is entitled to be named as an
inventor.
1.3 BLUETOOTH. "Bluetooth" means the short range wireless standard
currently being promulgated by the Bluetooth Special Interest Group, of which
3Com is an adopter.
1.4 CURRENT PALM PRODUCTS. "Current Palm Products" means Palm Products of
the businesses in which Palm or any of its Subsidiaries is engaged as of the
Separation Date, including any Palm Products under development as set forth in
3Com's High Level Product Plan for Fiscal Year 2000 or as otherwise agreed by
the parties, as well as future versions of such Palm Products, but only to the
extent that they use the same designs and/or technology as such Palm Products.
1.5 CURRENT 3COM PRODUCTS. "Current 3Com Products" means 3Com Products of
the businesses in which 3Com or any of its Subsidiaries is engaged as of the
Separation Date, including any 3Com Products under development as set forth in
3Com's High Level Product Plan for Fiscal Year 2000 or as otherwise agreed by
the parties, as well as future versions of such 3Com Products, but only to the
extent that they use the same designs and/or technology as such 3Com Products.
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1.6 DISTRIBUTION DATE. "Distribution Date" has the meaning set forth in
the Master Separation and Distribution Agreement.
1.7 FIRST EFFECTIVE FILING DATE. "First Effective Filing Date" means the
earliest effective filing date in the particular country for any Patent or any
application for any Patent. By way of example, it is understood that the First
Effective Filing Date for a United States Patent is the earlier of (i) the
actual filing date of the United States Patent application which issued into
such Patent, (ii) the priority date under 35 U.S.C. (S) 119 for such Patent, or
(iii) the priority date under 35 U.S.C. (S) 120 for such Patent.
1.8 GALAHAD PATENTS. "Galahad Patents" means any Patents, Patent
applications and Invention Disclosures arising from the Galahad Project which
have at least one inventor employed by Palm and at least one inventor employed
by 3Com.
1.9 GALAHAD PROJECT. "Galahad Project" means the development effort
within 3Com's Wireless Connectivity Division (WCD) currently known internally as
the Galahad Project.
1.10 INVENTION DISCLOSURE. "Invention Disclosure" means a disclosure of an
invention (i) written for the purpose of allowing legal and business people to
determine whether to file a Patent application with respect to such invention
and (ii) recorded with a control number in the owning party's records) with a
First Effective Filing Date before the Separation Date.
1.11 MASTER SEPARATION AND DISTRIBUTION AGREEMENT. "Master Separation and
Distribution Agreement" means the Master Separation and Distribution Agreement
between the parties.
1.12 PALM PATENTS. "Palm Patents" means:
(a) the Assigned Patents;
(b) every Patent to the extent entitled to a First Effective Filing
Date prior to the Separation Date provided that, at any time after the First
Effective Filing Date of any such Patent and prior to the Separation Date, Palm
(or any Subsidiary of Palm) has ownership or control of any such Patent; and
(c) applications for the foregoing Patents described in Section
1.10(b), including without limitation any continuations, continuations-in-part,
divisions and substitutions.
1.13 PALM PRODUCTS. "Palm Products" means any and all products and
services of the businesses in which Palm or any of its Subsidiaries is engaged
now or in the future, in all cases which products are designed or created
primarily by Palm (or by any sublicensed Subsidiary) and/or by a subcontractor
for Palm (or for any sublicensed Subsidiary).
1.14 PATENTS. "Patents" means patents, utility models, design patents,
design registrations, certificates of invention and other governmental grants
for the protection of inventions
3
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or industrial designs anywhere in the world and all reissues, renewals, re-
examinations and extensions of any of the foregoing.
1.15 PERSON. "Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
1.16 SEPARATION DATE. "Separation Date" means 12:01 a.m., Pacific Time,
February 26, 2000, or such other date as may be fixed by the Board of Directors
of 3Com.
1.17 SUBSIDIARY. "Subsidiary" of any Person means a corporation or other
organization, whether incorporated or unincorporated, of which at least a
majority of the securities or interests having by the terms thereof ordinary
voting power to elect at least a majority of the board of directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries; provided, however, that no Person that is not directly or
indirectly wholly-owned by any other Person shall be a Subsidiary of such other
Person unless such other Person controls, or has the right, power or ability to
control, that Person. For the purposes of this Agreement, Palm shall be deemed
not to be a Subsidiary of 3Com.
1.18 THIRD PARTY. "Third Party" means a Person other than 3Com and its
Subsidiaries and Palm and its Subsidiaries.
1.19 THIRD PARTY PATENTS. "Third Party Patents" means all Third Party
Patents licensed by 3Com or any Subsidiary of 3Com that, as of the Effective
Date, may be sublicensed to Palm (e.g., because Palm is a Subsidiary of 3Com)
under the terms of this Agreement without the requirement to pay a royalty or
other consideration to a Third Party (unless 3Com has the right to grant such a
sublicense to Palm on payment of a royalty and Palm agrees to pay such royalty
to such Third Party).
1.20 3COM PATENTS. "3Com Patents" means:
(a) every Patent to the extent entitled to a First Effective Filing
Date prior to the Separation Date provided that, at any time after the First
Effective Filing Date of any such Patent and prior to the Separation Date, 3Com
(or any Subsidiary of 3Com) has ownership or control of any such Patent; and
(b) applications for the foregoing Patents described in Section
1.18(a), including without limitation any continuations, continuations-in-part,
divisions and substitutions.
1.21 3COM PRODUCTS. "3Com Products" means any and all products and
services of the businesses in which 3Com or any of its Subsidiaries is engaged
now or in the future, in all cases which products are designed or created
primarily by 3Com (or by any sublicensed Subsidiary) and/or by a subcontractor
for 3Com (or for any sublicensed Subsidiary), as well as future versions of such
3Com Products.
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ARTICLE 2
OWNERSHIP
2.1 OWNERSHIP OF PATENTS.
(a) PALM PATENTS. The parties agree that Palm hereby retains
ownership of all right, title and interest in and to all Palm Patents.
(b) ASSIGNED PATENTS. Subject to Sections 2.2 and 2.3 below, 3Com
hereby grants, conveys and assigns (and agrees to cause its appropriate
Subsidiaries to grant, convey and assign) to Palm, by execution hereof (or,
where appropriate or required, by execution of separate instruments of
assignment), all its (and their) right, title and interest in and to the
Assigned Patents, to be held and enjoyed by Palm, its successors and assigns.
3Com further grants, conveys and assigns (and agrees to cause its appropriate
Subsidiaries to grant, convey and assign) to Palm all its (and their) right,
title and interest in and to any and all causes of action and rights of recovery
for past infringement of the Assigned Patents and the right to claim priority
from the Assigned Patents. 3Com will, without demanding any further
consideration therefor, at the request and expense of Palm (except for the value
of the time of 3Com employees), do (and cause its Subsidiaries to do) all lawful
and just acts, that may be or become necessary for prosecuting, sustaining,
obtaining continuations of, or reissuing said Assigned Patents and for
evidencing, maintaining, recording and perfecting Palm's rights to said Assigned
Patents, consistent with 3Com's general business practice as of the Separation
Date, including but not limited to execution and acknowledgement of (and causing
its Subsidiaries to execute and acknowledge) assignments and other instruments
in a form reasonably required by Palm for each Patent jurisdiction.
(c) GALAHAD PATENTS. Subject to Sections 2.2 and 2.3 below, Palm
hereby grants, conveys and assigns (and agrees to cause its appropriate
Subsidiaries to grant, convey and assign) to 3Com, by execution hereof (or,
where appropriate or required, by execution of separate instruments of
assignment), all its (and their) right, title and interest in and to the Galahad
Patents, to be held and enjoyed by 3Com, its successors and assigns. Palm
further grants, conveys and assigns (and agrees to cause its appropriate
Subsidiaries to grant, convey and assign) to 3Com all its (and their) right,
title and interest in and to any and all causes of action and rights of recovery
for past infringement of the Galahad Patents and the right to claim priority
from the Galahad Patents. Palm will, without demanding any further consideration
therefor, at the request and expense of 3Com (except for the value of the time
of Palm employees), do (and cause its Subsidiaries to do) all lawful and just
acts, that may be or become necessary for prosecuting, sustaining, obtaining
continuations of, or reissuing said Galahad Patents and for evidencing,
maintaining, recording and perfecting 3Com's rights to said Galahad Patents,
consistent with Palm's general business practice as of the Separation Date,
including but not limited to execution and acknowledgement of (and causing its
Subsidiaries to execute and acknowledge) assignments and other instruments
in a form reasonably required by 3Com for each Patent jurisdiction.
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2.2 PRIOR GRANTS. Palm acknowledges and agrees that the foregoing
assignments are subject to any and all licenses or other rights that may have
been granted by 3Com or its Subsidiaries with respect to the Assigned Patents
prior to the Separation Date. 3Com shall respond to reasonable inquiries from
Palm regarding any such prior grants.
2.3 ASSIGNMENT DISCLAIMER. EACH PARTY ACKNOWLEDGES AND AGREES THAT THE
FOREGOING ASSIGNMENTS ARE MADE ON AN "AS-IS," QUITCLAIM BASIS AND THAT NEITHER
PARTY NOR ANY SUBSIDIARY OF SUCH PARTY HAS MADE OR WILL MAKE ANY WARRANTY
WHATSOEVER, EXPRESS, IMPLIED OR STATUTORY, INCLUDING WITHOUT LIMITATION ANY
IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE,
ENFORCEABILITY, NON-INFRINGEMENT, OR VALIDITY OF PATENT CLAIMS (ISSUED OR
PENDING).
ARTICLE 3
LICENSES AND COVENANTS NOT TO SUE
3.1 LICENSE GRANTS TO PALM WITH RESPECT TO GALAHAD PATENTS. 3Com grants
(and agrees to cause its appropriate Subsidiaries to grant) to Palm, under the
Galahad Patents, an irrevocable, nonexclusive, worldwide, fully-paid, royalty-
free and non-transferable (except as set forth in Section 9.9) license to make
(including the right to practice methods, processes and procedures), have made
(except as restricted in Section 3.3 below), use, lease, sell, offer for sale
and import Palm Products.
3.2 RESTRICTION ON 3COM LICENSING OF GALAHAD PATENTS. 3Com agrees that it
will not license any of the Galahad Patents to any Third Party for use in
lightweight handheld mobile computing devices or operating systems for such
devices; provided, however, that 3Com retains the right to license the Galahad
Patents to Third Parties for such use for defensive purposes (i.e., to resolve a
claim of patent infringement brought against 3Com by a Third Party).
3.3 RESTRICTION ON PALM'S "HAVE MADE" RIGHTS TO GALAHAD PATENTS. The
license granted in Section 3.1 to have Palm Products made by a Third Party shall
(i) only apply when the portion of the "have made" Palm Product covered by the
Galahad Patents has been designed or created by Palm and/or one of Palm's
subcontractors (not such Third Party) who is not a direct competitor of 3Com in
the field of the Palm Product being designed or created and (ii) shall not apply
to (A) any methods used, or (B) any Palm Products or portions thereof that have
been manufactured or marketed, by a Third Party prior to Palm furnishing the
designs or creations to such Third Party.
3.4 COMBINATION EXCLUSION. Except as expressly provided herein, no
license or immunity is granted under this Agreement by 3Com, either directly or
by implication, estoppel or otherwise to any third parties acquiring Palm
Products from Palm for the combination of such Palm Products with other items or
for the use of such combination. Notwithstanding the previous sentence,
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3Com grants to the direct and indirect customers of Palm, an immunity from suit
under the Galahad Patents for the combination of any such Palm Products with
other Palm Products and their use in such combination where the Palm Products
have no other substantial noninfringing use aside from the combination with
other Palm Products sold or otherwise transferred by Palm directly or indirectly
to such customer.
3.5 PALM'S SUBLICENSE RIGHTS WITH RESPECT TO GALAHAD PATENTS.
(a) Palm may grant sublicenses to its Subsidiaries under the
license grant set forth in Section 3.1 within the scope of Palm's license
hereunder (with no right to grant further sublicenses other than, in the case of
a sublicensed Subsidiary, to another Subsidiary of Palm and as described in
Section 3.5(c) below).
(b) Any sublicense under Section 3.5(a) may be made effective
retroactively, but not prior to the sublicensee's becoming a Subsidiary of Palm.
(c) Any Palm Product for which a software license is granted by
Palm (or any sublicensed Subsidiary) to its distributors, resellers, OEM
customers, VAR customers, VAD customers, systems integrators and other channels
of distribution and to its end user customers (including, but not limited to,
the Palm operating system) shall be considered to be covered under the license
grant set forth in Section 3.1 within the scope of Palm's license hereunder, but
only to the extent that the Palm Product incorporates the technology covered by
the claims of the Galahad Patents.
(d) Palm shall have no rights to grant sublicenses to the Galahad
Patents, except as expressly provided in Section 3.5 (a), (b) and (c) above.
3.6 DURATION.
(a) All licenses granted herein with respect to each Patent shall
expire upon the expiration of the term of such Patent.
(b) All sublicenses granted pursuant to this Agreement to a
particular Subsidiary of Palm shall terminate the date that the Subsidiary
ceases to be a Subsidiary of Palm.
3.7 ACQUISITION OF PALM OR TRANSFER OF A BUSINESS OR SUBSIDIARY
RELATED TO GALAHAD PATENTS.
(a) If Palm, after the Separation Date, transfers all or
substantially all of its business or assets, or all or substantially all of the
business or assets to which the Galahad Patents relate, then regardless of
whether such transfer is part of (i) an asset sale to any Third Party, or (ii) a
sale of shares or securities in Palm or a Subsidiary to a Third Party (in each
case, any such Third Party shall be referred to herein as a "Transferee"), then
upon written request by Palm and the Transferee to 3Com within sixty (60) days
following the transfer, 3Com shall grant a royalty-free
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license to the Transferee with respect to the Galahad Patents under the same
terms of the license granted to Palm under this Agreement subject to the
following:
(i) the effective date of such license shall be the effective
date of transfer; and
(ii) the products and services of the Transferee that are
subject to such license shall be limited to the specific Palm Products in the
transferred business that are (A) commercially released as of the date of
transfer or which, prior to the transfer, (B) were planned for release within
three (3) months from the date of transfer and actually are commercially
released within three (3) months from the date of transfer and (C) for new
versions of such specific Palm Products covered by clauses (A) and (B) above
that have merely minor differences from such Palm Products with no additional
features; and
(iii) the Galahad Patents that are subject to such license shall
be limited to the Galahad Patents that are entitled to a First Effective Filing
Date before the date of such transfer; and
(iv) the Transferee shall have no right to grant sublicenses
(except as set forth in Section 3.5(c) above); and
(v) this Section 3.7 shall be excluded from such license in any
event and therefore 3Com shall have no obligation to grant a license to a
subsequent transferee;
(b) provided, that 3Com shall have no obligation to grant such
license unless the Transferee grants to 3Com a royalty-free license under a
comparable license grant as the license granted to Palm under this Agreement,
subject to the following:
(i) the effective date of such license shall be the effective
date of the transfer; and
(ii) the products and services of 3Com that are subject to such
license shall be all the 3Com Products; and
(iii) the Patents of the Transferee that are subject to such
license shall be the Patents owned or controlled by the Transferee claiming
inventions in the wireless field that are entitled to a First Effective Filing
Date on or before the date of such transfer and applications for such patents
(including without limitation any continuations, continuations-in-part,
divisions and substitutions); and
(c) provided, further, that in the event that 3Com and the Transferee
are engaged in litigation, arbitration or other formal dispute resolution
proceedings covering Patent infringement (pending in any court, tribunal, or
administrative agency or before any appointed or agreed upon arbitrator in any
jurisdiction worldwide), then 3Com shall have no obligation to grant such
license to the Transferee under this Section 3.7.
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3.8 COPIES OF PATENT APPLICATIONS AND INVENTION DISCLOSURES. 3Com agrees,
at its own expense from time to time upon Palm's request, to provide to Palm
copies of (i) the Assigned Patents and (ii) the Galahad Patents.
3.9 THIRD PARTY PATENTS. 3Com confirms that it has granted, and hereby
grants (and agrees to cause its appropriate Subsidiaries to grant) to Palm,
under the Third Party Patents, a nonexclusive, worldwide sublicense to make
(including the right to practice methods, processes and procedures), have made,
use, lease, sell, offer for sale and import any products and services subject to
any and all terms and conditions set forth in the applicable agreement between
3Com and the Third Party Patent owner, but only to the extent and for the period
of time 3Com has the legal right to grant such a sublicense. 3Com shall respond
to reasonable inquires from Palm regarding any Third Party Patents.
3.10 3COM COVENANT NOT TO SUE.
(a) 3Com irrevocably grants, on behalf of itself and its
Subsidiaries, at no charge, an immunity from suit to Palm and its Subsidiaries,
and its or their direct or indirect customers and Third Party manufacturers
(subject to the restrictions set forth in the next sentence) for infringement of
any 3Com Patent by any Current Palm Product. The foregoing covenant with respect
to Third Party manufacturers (i) shall apply only when the portion of the "have
made" Current Palm Product covered by the 3Com Patents has been designed or
created by Palm and/or one of Palm's subcontractors (not the Third Party
manufacturer) who is not a direct competitor of 3Com in the field of the Current
Palm Product being designed or created and (ii) shall not apply to (A) any
methods used, or (B) any products or portions thereof that have been
manufactured or marketed, by any Third Party prior to Palm furnishing the
designs or creations to such Third Party. No immunity is granted under the
foregoing covenant by 3Com, either directly or by implication, estoppel or
otherwise to any Third Parties acquiring Current Palm Products from Palm for the
combination of such Current Palm Products with other items or for the use of
such combination; provided, however, that the foregoing covenant shall apply to
the direct and indirect customers of Palm for the combination of any such
acquired Current Palm Products with other Palm Products and their use in such
combination where the acquired Current Palm Products have no other substantial
noninfringing use aside from the combination with other Palm Products sold or
otherwise transferred by Palm directly or indirectly to such customer.
(b) The foregoing covenant shall continue with respect to each 3Com
Patent for the term of such 3Com Patent.
(c) If Palm, after the Separation Date, transfers all or
substantially all of its business or assets, or transfers a Subsidiary or
business unit, then regardless of whether such transfer is part of (i) an asset
sale to any Third Party, or (ii) a sale of shares or securities in Palm or a
Subsidiary to a Third Party (in each case, any such Third Party shall be
referred to herein as a "Transferee"), then upon written request by Palm and the
Transferee to 3Com within sixty (60) days following the transfer, 3Com shall
grant an immunity from suit to the Transferee under the same terms as the
covenant set forth in Section 3.10 (a) and (b) above subject to the following:
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(i) the effective date of such covenant shall be the effective
date of transfer; and
(ii) the products and services of the Transferee that are subject
to such covenant shall be limited to the specific Current Palm Products in the
transferred business that are (A) commercially released as of the date of
transfer or which, prior to the transfer, (B) were planned for release within
three (3) months from the date of transfer and actually are commercially
released within three (3) months from the date of transfer and (C) for new
versions of such specific Current Palm Products covered by Clauses (i) or (ii)
above that have merely minor differences from such Current Palm Products with no
additional features; and
(iii) 3Com Patents that are subject to such covenant shall be
limited to the 3Com Patents that are entitled to a First Effective Filing Date
before the date of such transfer and, in the event that the transfer is a
transfer of a Subsidiary or business unit and not all or substantially all of
Palm's business or assets, then the 3Com Patents that are subject to such
covenant shall be limited to the 3Com Patents in the field of use of the
transferred Subsidiary or business; and
(iv) this Section 3.10(c) shall be excluded from such covenant in
any event and therefore 3Com shall have no obligation to grant a covenant not to
sue to any subsequent transferee;
(v) provided, however, that 3Com shall have no obligation to
grant such covenant unless the Transferee grants to 3Com and its customers and
suppliers a covenant not to sue at no charge on the following terms:
(1) the effective date of such covenant shall be the
effective date of the transfer; and
(2) the products and services of 3Com that are subject to
such covenant shall be the 3Com Products; and
(3) the Patents of the Transferee that are subject to such
covenant shall be all the Patents owned or controlled by the Transferee that are
entitled to a First Effective Filing Date before the date of such transfer and
applications for such Patents (including without limitation any continuations,
continuations-in-part, divisions and substitutions); and
(vi) provided, further, that in the event that 3Com and any such
Transferee are engaged in litigation, arbitration or other formal dispute
resolution proceedings covering Patent infringement (pending in any court,
tribunal, or administrative agency or before any appointed or agreed upon
arbitrator in any jurisdiction worldwide), then 3Com shall have no obligation to
grant such covenant under this Section 3.10(c).
3.11 PALM COVENANT NOT TO SUE
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(a) Palm irrevocably grants, on behalf of itself and its Subsidiaries,
at no charge, an immunity from suit to 3Com and its Subsidiaries, and its or
their direct or indirect customers and manufacturers (subject to the
restrictions set forth in the next sentence) for infringement of any Palm Patent
by any Current 3Com Product. The foregoing covenant with respect to Third Party
manufacturers (i) shall apply only when the portion of the "have made" Current
3Com Product covered by the Palm Patents has been designed or created by 3Com
and/or one of 3Com's subcontractors (not the Third Party manufacturer) who is
not a direct competitor of Palm in the field of the Current 3Com Product being
designed or created and (ii) shall not apply to (A) any methods used, or (B) any
products or portions thereof that have been manufactured or marketed by any
Third Party prior to 3Com furnishing the designs or creations to such Third
Party. No immunity is granted under the foregoing covenant by Palm, either
directly or by implication, estoppel or otherwise to any Third Parties acquiring
Current 3Com Products from 3Com for the combination of such Current 3Com
Products with other items or for the use of such combination; provided, however,
that the foregoing covenant shall apply to the direct and indirect customers of
3Com for the combination of any such acquired Current 3Com Products with other
3Com Products and their use in such combination where the acquired Current 3Com
Products have no other substantial noninfringing use aside from the combination
with other 3Com Products sold or otherwise transferred by 3Com directly or
indirectly to such customer.
(b) The foregoing covenant shall continue with respect to each Palm
Patent, for the term of such Palm Patent.
(c) If 3Com, after the Separation Date, transfers all or substantially
all of its business or assets, or transfers a Subsidiary or business unit, then
regardless of whether such transfer is part of (i) an asset sale to any Third
Party, or (ii) a sale of shares or securities in 3Com or a Subsidiary to a Third
Party (in each case, any such Third Party shall be referred to herein as a
"Transferee"), then upon written request by 3Com and the Transferee to Palm
within sixty(60) days following the transfer, Palm shall grant an immunity from
suit to the Transferee under the same terms as the covenant set forth in Section
3.11(a) and (b) above subject to the following:
(i) the effective date of such covenant shall be the effective
date of transfer; and
(ii) the products and services of the Transferee that are
subject to such covenant shall be limited to the specific Current 3Com Products
in the transferred business that are (A) commercially released as of the date of
transfer or which, prior to the transfer, (B) were planned for release within
three (3) months from the date of transfer and actually are commercially
released within three (3) months from the date of transfer and (C) for new
versions of such specific Current 3Com Products covered by clauses (i) or (ii)
above, that have merely minor differences from such Current 3Com Products with
no additional features; and
(iii) the Palm Patents that are subject to such covenant shall
be limited to the Palm Patents that are entitled to a First Effective Filing
Date before the date of such transfer and, in the event that the transfer is a
transfer of a Subsidiary or business unit and not all or substantially
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all of 3Com's business or assets, then the Palm Patents that are subject to such
covenant shall be limited to the Palm Patents in the field of use of the
transferred Subsidiary or business; and
(iv) this Section 3.11(c) shall be excluded from such covenant
in any event and therefore, Palm shall have no obligation to grant a covenant
not to sue to any subsequent transferee;
(v) provided, however, that Palm shall have no such obligation
to grant such covenant unless the Transferee grants to Palm and its customers
and suppliers a covenant not to sue at no charge on the following terms:
(1) the effective date of such covenant shall be the
effective date of the transfer; and
(2) the products and services of Palm that are subject to
such covenant shall be the Palm Products; and
(3) the Patents of the Transferee that are subject to such
covenant shall be all the Patents owned or controlled by the Transferee that are
entitled to a First Effective Filing Date before the date of such transfer and
applications for such Patents including without limitation any continuations,
continuations-in-part, divisions and substitutions; and
(vi) provided, further, that in the event that Palm and any such
Transferee are engaged in litigation, arbitration or other formal dispute
resolution proceedings covering Patent infringement (pending in any court,
tribunal, or administrative agency or before any appointed or agreed upon
arbitrator in any jurisdiction worldwide), then Palm shall have no obligation to
grant such covenant under this Section 3.11(c).
ARTICLE 4
ADDITIONAL OBLIGATIONS
4.1 ADDITIONAL OBLIGATIONS WITH REGARD TO ASSIGNED PATENTS.
(a) The parties will cooperate to effect a smooth transfer of the
responsibility for prosecution, maintenance and enforcement of the Assigned
Patents from 3Com to Palm. Until such transfer has been effected, 3Com agrees
to continue the prosecution and maintenance of, and ongoing litigation (if any)
with respect to, the Assigned Patents (including payment of maintenance fees),
and to maintain its files and records relating to the Assigned Patents using the
same standard of care and diligence that it uses with respect to 3Com's Patents.
Palm will reimburse 3Com for all actual and reasonable expenses (excluding the
value of the time of 3Com employees) to continue to prosecute and maintain the
Assigned Patents after the Separation Date until the transfer of
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responsibility for the Assigned Patents has been completed and to continue any
such ongoing litigation. The parties shall agree on a case by case basis on
compensation, if any, of 3Com for the value of time of 3Com's employees as
reasonably required in connection with any such litigation. 3Com will provide
Palm with the originals or copies of its files relating to the Assigned Patents
upon such transfer or at such earlier time as the parties may agree.
(b) 3Com shall provide continuing reasonable support to Palm with
respect to the Assigned Patents, including by way of example the following:
(i) executing all documents prepared by Palm necessary for
prosecution, maintenance, and litigation of the Assigned Patents,
(ii) making available to Palm or its counsel, inventors and other
persons employed by 3Com for interviews and/or testimony to assist in good faith
in further prosecution, maintenance or litigation of the Assigned Patents,
including the signing of documents related thereto,
(iii) forwarding copies of all correspondence sent and received
concerning the Assigned Patents within a reasonable period of time after receipt
by 3Com, and
(iv) making all relevant documents in the possession or control
of 3Com and corresponding to the Assigned Patents, or any licenses thereunder,
available to Palm or its counsel.
Any actual and reasonable out-of-pocket expenses associated with any such
assistance shall be borne by Palm, expressly excluding the value of the time of
such 3Com employees; provided, however, that in the case of assistance with
litigation, the parties shall agree on a case by case basis on compensation, if
any, of 3Com for the value of the time of 3Com's employees as reasonably
required in connection with such litigation.
4.2 ADDITIONAL OBLIGATIONS WITH REGARD TO GALAHAD PATENTS.
Palm shall provide continuing reasonable support to 3Com with respect to the
Galahad Patents, including by way of example the following:
(a) executing all documents prepared by 3Com necessary for
prosecution, maintenance, and litigation of the Galahad Patents,
(b) making available to 3Com or its counsel, inventors and other
persons employed by Palm for interviews and/or testimony to assist in good faith
in further prosecution, maintenance or litigation of the Galahad Patents,
including the signing of documents related thereto,
(c) forwarding copies of all correspondence sent and received
concerning the Galahad Patents within a reasonable period of time after receipt
by Palm, and
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(d) making all relevant documents in the possession or control of Palm
and corresponding to the Galahad Patents, or any licenses thereunder, available
to 3Com or its counsel.
Any actual and reasonable out-of-pocket expenses associated with such
assistance shall be borne by 3Com, expressly excluding the value of the time of
such Palm personnel; provided, however, that in the case of assistance with
litigation, the parties shall agree on a case by case basis on compensation, if
any, of Palm for the value of the time of Palm's employees as reasonably
required in connection with such litigation.
4.3 STANDARDS BODIES.
For a period of five (5) years from the Separation Date, the parties
agree to cooperate reasonably and in good faith with each other with respect to
the licensing of each party's Patents in the context of Bluetooth related
standards bodies, to the extent consistent with each party's own business
objectives.
4.4 ASSIGNMENT OF PATENTS.
3Com shall not assign or grant any rights under any of the Galahad
Patents unless such assignment or grant is made subject to the licenses granted
in this Agreement.
4.5 RECORDATION OF LICENSES.
(a) For any country, now or in the future, that requires the express
consent of all inventors or their assignees to the grant of licenses or rights
under Patents issued in such countries for joint inventions:
(i) each party shall give such consent, or shall obtain such
consent from its employees, its Subsidiaries or employees of any of its
Subsidiaries, as required to make full and effective any such licenses and
rights respecting any joint invention granted to a grantee hereunder by such
party; and
(ii) each party shall take steps that are reasonable under
the circumstances to obtain from Third Parties whatever other consents are
necessary to make full and effective such licenses and rights respecting any
joint invention purported to be granted by it hereunder. If, in spite of such
reasonable steps, such party is unable to obtain the requisite consents from
such Third Parties, the resulting inability of such party to make full and
effective its purported grant of such licenses and rights shall not be
considered to be a breach of this Agreement.
(b) Each party agrees, without demanding any further consideration,
to execute (and to cause its Subsidiaries to execute) all documents reasonably
requested by the other party to effect recordation of the license relationship
between the parties created by this Agreement.
ARTICLE 5
CONFIDENTIALITY
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The terms of the Master Confidential Disclosure Agreement between the
parties shall apply to any Confidential Information (as defined therein) which
is the subject matter of this Agreement.
ARTICLE 6
TERMINATION
6.1 VOLUNTARY TERMINATION. By written notice to 3Com, Palm may
voluntarily terminate all or a specified portion of the licenses and rights
granted to it hereunder by 3Com. Such notice shall specify the effective date of
such termination and shall clearly specify any affected Patent, Patent
application, Invention Disclosure, product or service.
6.2 SURVIVAL. Any voluntary termination of licenses and rights of
Palm under Section 6.1 shall not affect Palm's licenses and rights with respect
to any licensed product made or service furnished prior to such termination, and
shall not affect the licenses and rights granted to 3Com hereunder.
6.3 NO OTHER TERMINATION. Each party acknowledges and agrees that its
remedy for breach by the other party of the licenses granted to it hereunder or
of any other provision hereof, shall be, subject to the requirements of Article
7, to bring a claim to recover damages subject to the limits set forth in this
Agreement and to seek any other appropriate equitable relief, other than
termination of the licenses or covenants not to sue granted by it in this
Agreement.
ARTICLE 7
DISPUTE RESOLUTION
7.1 MEDIATION. If a dispute, controversy or claim ("Dispute") arises
between the parties relating to the interpretation or performance of this
Agreement, or the grounds for the termination hereof, appropriate senior
executives (e.g. director or V.P. level) of each party who shall have the
authority to resolve the matter shall meet to attempt in good faith to negotiate
a resolution of the Dispute prior to pursuing other available remedies. The
initial meeting between the appropriate senior executives shall be referred to
herein as the "Dispute Resolution Commencement Date." Discussions and
correspondence relating to trying to resolve such Dispute shall be treated as
confidential information developed for the purpose of settlement and shall be
exempt from discovery or production and shall not be admissible. If the senior
executives are unable to resolve the Dispute within thirty (30) days from the
Dispute Resolution Commencement Date, and either party wishes to pursue its
rights relating to such Dispute, then the Dispute will be mediated by a mutually
acceptable mediator appointed pursuant to the mediation rules of JAMS/Endispute
within thirty (30) days after written notice by one party to the other demanding
non-binding mediation. Neither party may unreasonably withhold consent to the
selection of a mediator or the location of the mediation. Both parties will
share the costs of the mediation equally, except that each party shall bear its
own costs
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and expenses, including attorney's fees, witness fees, travel expenses, and
preparation costs. The parties may also agree to replace mediation with some
other form of non-binding or binding ADR.
7.2 ARBITRATION. Any Dispute which the parties cannot resolve through
mediation within ninety (90) days of the Dispute Resolution Commencement Date,
unless otherwise mutually agreed, shall be submitted to final and binding
arbitration under the then current Commercial Arbitration Rules of the American
Arbitration Association ("AAA"), by three (3) arbitrators in Santa Clara County,
California. Such arbitrators shall be selected by the mutual agreement of the
parties or, failing such agreement, shall be selected according to the aforesaid
AAA rules. The arbitrators will be instructed to prepare and deliver a written,
reasoned opinion stating their decision within thirty (30) days of the
completion of the arbitration. The prevailing party in such arbitration shall be
entitled to expenses, including costs and reasonable attorneys' and other
professional fees, incurred in connection with the arbitration (but excluding
any costs and fees associated with prior negotiation or mediation). The decision
of the arbitrator shall be final and non-appealable and may be enforced in any
court of competent jurisdiction. The use of any ADR procedures will not be
construed under the doctrine of laches, waiver or estoppel to adversely affect
the rights of either party.
7.3 COURT ACTION. Any Dispute regarding the following is not required to
be negotiated, mediated or arbitrated prior to seeking relief from a court of
competent jurisdiction: breach of any obligation of confidentiality;
infringement, misappropriation, or misuse of any intellectual property right;
any other claim where interim relief from the court is sought to prevent serious
and irreparable injury to one of the parties or to others. However, the parties
to the Dispute shall make a good faith effort to negotiate and mediate such
Dispute, according to the above procedures, while such court action is pending.
7.4 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in
writing, the parties will continue to provide service and honor all other
commitments under this Agreement during the course of dispute resolution
pursuant to the provisions of this Article 7 with respect to all matters not
subject to such dispute, controversy or claim.
ARTICLE 8
LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY OR ITS SUBSIDIARIES BE LIABLE TO THE OTHER
PARTY OR ITS SUBSIDIARIES FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL
OR PUNITIVE DAMAGES OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF
LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT,
WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES;
PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT DAMAGES FOR
INFRINGEMENT AVAILABLE TO EITHER PARTY UNDER APPLICABLE LAW IN THE EVENT OF
BREACH BY THE OTHER PARTY OF SECTIONS 3.1, 3.2, 3.3 OR 3.5(a) OR FOR
INFRINGEMENT OF ANY INTELLECTUAL PROPERTY RIGHTS NOT LICENSED OR COVENANTED
HEREIN AND
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SHALL NOT LIMIT EACH PARTY'S OBLIGATIONS EXPRESSLY ASSUMED IN EXHIBIT J OF THE
MASTER SEPARATION AND DISTRIBUTION AGREEMENT; PROVIDED FURTHER THAT THE
EXCLUSION OF PUNITIVE DAMAGES SHALL APPLY IN ANY EVENT.
ARTICLE 9
MISCELLANEOUS PROVISIONS
9.1 DISCLAIMER. EACH PARTY ACKNOWLEDGES AND AGREES THAT ALL PATENTS AND
ANY OTHER INFORMATION OR MATERIALS LICENSED OR PROVIDED HEREUNDER ARE LICENSED
OR PROVIDED ON AN "AS IS" BASIS AND THAT NEITHER PARTY NOR ANY OF ITS
SUBSIDIARIES MAKES ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES WHATSOEVER,
EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT THERETO INCLUDING WITHOUT LIMITATION
ANY IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE,
TITLE, ENFORCEABILITY OR NON-INFRINGEMENT. Without limiting the generality of
the foregoing, neither party nor any of its Subsidiaries makes any warranty or
representation as to the validity and/or scope of any Patent licensed by it to
the other party hereunder or any warranty or representation that any
manufacture, use, importation, offer for sale or sale of any product or service
will be free from infringement of any Patent or other intellectual property
right of any Third Party.
9.2 NO IMPLIED LICENSES. Nothing contained in this Agreement shall be
construed as conferring any rights by implication, estoppel or otherwise, under
any intellectual property right, other than the rights expressly granted in this
Agreement with respect to the Galahad Patents and Assigned Patents. Neither
party is required hereunder to furnish or disclose to the other any technical or
other information except as specifically provided herein.
9.3 INFRINGEMENT SUITS. Neither party shall have any obligation hereunder
to institute any action or suit against Third Parties for infringement of any
Patent or to defend any action or suit brought by a Third Party which challenges
or concerns the validity of any Patent. Unless the parties otherwise agree in
writing, neither party shall have any right to institute any action or suit
against Third Parties for infringement of any Patent owned by the other party.
9.4 NO OTHER OBLIGATIONS. NEITHER PARTY ASSUMES ANY RESPONSIBILITIES OR
OBLIGATIONS WHATSOEVER, OTHER THAN THE RESPONSIBILITIES AND OBLIGATIONS
EXPRESSLY SET FORTH IN THIS AGREEMENT OR A SEPARATE WRITTEN AGREEMENT BETWEEN
THE PARTIES. Without limiting the generality of the foregoing, neither party,
nor any of its Subsidiaries is obligated to (i) file any Patent application, or
to secure any Patent or Patent rights, (ii) to maintain any Patent in force, or
(iii) provide any technical assistance, except for the obligations expressly
assumed in this Agreement.
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<PAGE>
9.5 ENTIRE AGREEMENT. This Agreement, the Master Separation and
Distribution Agreement and the other Ancillary Agreements (as defined in the
Master Separation and Distribution Agreement) and the Exhibits and Schedules
referenced or attached hereto and thereto constitute the entire agreement
between the parties with respect to the subject matter hereof and thereof and
shall supersede all prior written and oral and all contemporaneous oral
agreements and understandings with respect to the subject matter hereof and
thereof. To the extent there is a conflict between this Agreement and the Master
Assignment and Assumption Agreement between the parties, the terms of this
Agreement shall govern.
9.6 GOVERNING LAW. This Agreement shall be construed in accordance with
and all Disputes hereunder shall be governed by the laws of the State of
California, excluding its conflict of law rules and the United Nations
Convention on Contracts for the International Sale of Goods. The Superior Court
of Santa Clara County and/or the United States District Court for the Northern
District of California shall have jurisdiction and venue over all Disputes
between the parties that are permitted to be brought in a court of law pursuant
to Article 7 above.
9.7 DESCRIPTIVE HEADINGS. The headings contained in this Agreement, in
any Exhibit or Schedule hereto and in the table of contents to this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized term used in any Exhibit or
Schedule but not otherwise defined therein, shall have the meaning assigned to
such term in this Agreement. When a reference is made in this Agreement to an
Article or a Section, Exhibit or Schedule, such reference shall be to an Article
or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated.
9.8 NOTICES. Notices, offers, requests or other communications required
or permitted to be given by either party pursuant to the terms of this Agreement
shall be given in writing to the respective parties to the following addresses:
if to 3Com:
3Com Corporation
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
if to Palm:
Palm, Inc.
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
or to such other address as the party to whom notice is given may have
previously furnished to the other in writing as provided herein. Any notice
involving non-performance, termination, or renewal shall be sent by hand
delivery, recognized overnight courier or, within the United States, may also be
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sent via certified mail, return receipt requested. All other notices may also
be sent by fax, confirmed by first class mail. All notices shall be deemed to
have been given and received on the earlier of actual delivery or three (3) days
from the date of postmark.
9.9 NONASSIGNABILITY. Neither party may, directly or indirectly, in
whole or in part, whether by operation of law or otherwise, assign or transfer
this Agreement, without the other party's prior written consent, and any
attempted assignment, transfer or delegation without such prior written consent
shall be voidable at the sole option of such other party. Notwithstanding the
foregoing, each party (or its successive assignees or transferees hereunder)
may, without such consent, assign or transfer this Agreement, to a Person that
succeeds to all or substantially all of its business or assets of such party as
long as such Person agrees to accept all of the terms set forth herein;
provided, however, that the licenses and covenants not to sue set forth in
Article 3 may not be assigned or transferred in any event (except in the case of
a reincorporation of such party in another state); and provided, further, that
the prohibition on assignment or transfer of the licenses and covenants not to
sue set forth in Article 3 shall not limit 3Com's or Palm's obligations in
Sections 3.7, 3.10(c) and 3.11(c) to grant licenses and/or covenants not to sue
to a Transferee. Without limiting the foregoing, this Agreement will be binding
upon and inure to the benefit of the parties and their permitted successors and
assigns.
9.10 SEVERABILITY. If any term or other provision of this Agreement is
determined by a court, administrative agency or arbitrator to be invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to either party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the fullest
extent possible.
9.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or
delay on the part of either party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor shall any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
9.12 AMENDMENT. No change or amendment will be made to this Agreement
except by an instrument in writing signed on behalf of each of the parties to
such agreement.
9.13 COUNTERPARTS. This Agreement, including the Ancillary Agreement and
the Exhibits and Schedules hereto and thereto and the other documents referred
to herein or therein, may be executed in counterparts, each of which shall be
deemed to be an original but all of which shall constitute one and the same
agreement.
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WHEREFORE, the parties have signed this Master Patent Ownership and License
Agreement effective as of the date first set forth above.
3COM CORPORATION PALM, INC.
By:_____________________________ By:_____________________________________
Name:___________________________ Name:___________________________________
Title:__________________________ Title:__________________________________
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EXHIBIT 2.5
CONFIDENTIAL
[WSGR DRAFT 12/01/1999]
MASTER TRADEMARK OWNERSHIP AND LICENSE AGREEMENT
BETWEEN
3COM CORPORATION
AND
PALM, INC.
Effective as of _____, 2000
<PAGE>
MASTER TRADEMARK OWNERSHIP AND LICENSE AGREEMENT
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE 1 DEFINITIONS.............................................. 1
1.1 AUTHORIZED DEALERS...................................... 1
1.2 COLLATERAL MATERIALS.................................... 1
1.3 CORPORATE IDENTITY MATERIALS............................ 1
1.4 DISTRIBUTION DATE....................................... 2
1.5 LICENSED MARKS.......................................... 2
1.6 MAINTENANCE CONTRACTS................................... 2
1.7 MARK.................................................... 2
1.8 MASTER SEPARATION AND DISTRIBUTION AGREEMENT............ 2
1.9 PALM BUSINESS........................................... 2
1.10 PALM BUSINESS MARKS..................................... 2
1.11 PALM BUSINESS MARKS DATABASE............................ 2
1.12 PALM BUSINESS PRODUCTS.................................. 2
1.13 PERSON.................................................. 2
1.14 QUALITY STANDARDS....................................... 3
1.15 SELL.................................................... 3
1.16 SEPARATION DATE......................................... 3
1.17 SUBSIDIARY.............................................. 3
1.18 THIRD PARTY............................................. 3
1.19 TRADEMARK USAGE GUIDELINES.............................. 3
ARTICLE 2 OWNERSHIP................................................ 3
2.1 OWNERSHIP OF PALM BUSINESS MARKS........................ 3
2.2 PRIOR GRANTS............................................ 4
2.3 ASSIGNMENT DISCLAIMER................................... 4
ARTICLE 3 LICENSES ................................................ 4
3.1 LICENSE GRANT........................................... 4
3.2 LICENSE RESTRICTIONS.................................... 4
3.3 LICENSEE UNDERTAKINGS................................... 5
3.4 NON-TRADEMARK USE....................................... 5
3.5 RESERVATION OF RIGHTS................................... 5
3.6 THIRD PARTY LICENSES.................................... 6
ARTICLE 4 PERMITTED SUBLICENSES ................................... 6
4.1 SUBLICENSES............................................. 6
4.2 AUTHORIZED DEALERS' USE OF MARKS........................ 6
4.3 ENFORCEMENT OF AGREEMENTS............................... 6
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TABLE OF CONTENTS
(continued)
ARTICLE 5 TRADEMARK USAGE GUIDELINES .............................. 7
5.1 TRADEMARK USAGE GUIDELINES.............................. 7
5.2 TRADEMARK REVIEWS....................................... 7
ARTICLE 6 TRADEMARK USAGE GUIDELINE ENFORCEMENT ................... 7
6.1 INITIAL CURE PERIOD..................................... 7
6.2 SECOND CURE PERIOD...................................... 7
6.3 FINAL CURE PERIOD....................................... 8
ARTICLE 7 QUALITY STANDARDS........................................ 8
7.1 GENERAL................................................. 8
7.2 QUALITY STANDARDS....................................... 8
7.3 QUALITY CONTROL REVIEWS................................. 8
7.4 PRODUCT DISCONTINUATION................................. 8
ARTICLE 8 QUALITY STANDARD ENFORCEMENT............................. 9
8.1 INITIAL CURE PERIOD..................................... 9
8.2 SECOND CURE PERIOD...................................... 9
8.3 FINAL CURE PERIOD....................................... 9
ARTICLE 9 PROTECTION OF LICENSED MARKS............................. 9
9.1 OWNERSHIP AND RIGHTS.................................... 9
9.2 PROTECTION OF MARKS..................................... 9
9.3 SIMILAR MARKS........................................... 10
9.4 INFRINGEMENT PROCEEDINGS................................ 10
ARTICLE 10 TERMINATION............................................. 11
10.1 TERM 11
10.2 VOLUNTARY TERMINATION................................... 11
10.3 SURVIVAL................................................ 11
10.4 OTHER TERMINATION....................................... 11
ARTICLE 11 DISPUTE RESOLUTION...................................... 11
11.1 MEDIATION............................................... 11
11.2 ARBITRATION............................................. 11
11.3 COURT ACTION............................................ 12
11.4 CONTINUITY OF SERVICE AND PERFORMANCE................... 12
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TABLE OF CONTENTS
(continued)
ARTICLE 12 LIMITATION OF LIABILITY................................. 12
ARTICLE 13 MISCELLANEOUS PROVISIONS................................ 13
13.1 DISCLAIMER.............................................. 13
13.2 NO IMPLIED LICENSES..................................... 13
13.3 INFRINGEMENT SUITS...................................... 13
13.4 NO OTHER OBLIGATIONS.................................... 13
13.5 ENTIRE AGREEMENT........................................ 13
13.6 GOVERNING LAW........................................... 14
13.7 DESCRIPTIVE HEADINGS.................................... 14
13.8 NOTICES................................................. 14
13.9 NONASSIGNABILITY........................................ 15
13.10 SEVERABILITY............................................ 15
13.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE... 15
13.12 AMENDMENT............................................... 15
13.13 COUNTERPARTS............................................ 15
</TABLE>
EXHIBIT A: LICENSED MARKS
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MASTER TRADEMARK OWNERSHIP AND LICENSE AGREEMENT
This Master Trademark Ownership and License Agreement (the "Agreement") is
effective as of ________, 2000 (the "Effective Date"), between 3Com Corporation,
a Delaware corporation ("3Com"), having an office at 5400 Bayfront Plaza, Santa
Clara, California, 95052 and Palm, Inc., a Delaware corporation ("Palm"), having
an office at 5400 Bayfront Plaza, Santa Clara, California, 95052.
WHEREAS, the Board of Directors of 3Com has determined that it is in the
best interest of 3Com and its stockholders to separate 3Com's existing
businesses into two independent businesses;
WHEREAS, as part of the foregoing, 3Com and Palm's predecessor, Palm
Computing, Inc., a California Corporation, have entered into a Master Separation
and Distribution Agreement (as defined below) which provides, among other
things, for the separation of certain Palm assets and Palm liabilities, the
initial public offering of Palm stock, the distribution of such stock and the
execution and delivery of certain other agreements in order to facilitate and
provide for the foregoing;
WHEREAS, the parties desire that 3Com assign and transfer to Palm the Palm
Business Marks (as defined below); and
WHEREAS, the parties further desire that 3Com license the Licensed Marks
(as defined below) to Palm after the separation of the Palm businesses.
NOW, THEREFORE, in consideration of the mutual promises of the parties, and
of good and valuable consideration, it is agreed by and between the parties as
follows:
ARTICLE 1
DEFINITIONS
For the purpose of this Agreement, the following capitalized terms are
defined in this Article 1 and shall have the meaning specified herein:
1.1 AUTHORIZED DEALERS. "Authorized Dealers" means any distributor,
dealer, OEM customer, VAR customer, VAD customer, systems integrator or other
agent that on or after the Separation Date is authorized to market, advertise,
sell, lease, rent, service or otherwise offer Palm Business Products. Palm will
provide 3Com a list of the then current Authorized Dealers within a reasonable
period after 3Com's request.
1.2 COLLATERAL MATERIALS. "Collateral Materials" means all packaging,
tags, labels, advertising, promotions, display fixtures, instructions,
warranties and other materials of any and all types associated with the Palm
Business Products that are marked with at least one of the Licensed Marks.
1.3 CORPORATE IDENTITY MATERIALS. "Corporate Identity Materials" means
materials that are not products or product-related and that Palm may now or
hereafter use to
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communicate its identity, including, by way of example and without limitation,
business cards, letterhead, stationery, paper stock and other supplies, and
signage on real property and buildings.
1.4 DISTRIBUTION DATE. "Distribution Date" has the meaning set forth in
the Master Separation and Distribution Agreement.
1.5 LICENSED MARKS. "Licensed Marks" means the Marks set forth on Exhibit
A hereto.
1.6 MAINTENANCE CONTRACTS. "Maintenance Contracts" means agreements
pursuant to which Palm, its Subsidiaries or its or their Authorized Dealers or
their designees provide repair and maintenance services (whether preventive,
diagnostic, remedial, warranty or non-warranty) in connection with Palm Business
Products, including without limitation agreements entered into by 3Com prior to
the Separation Date and assigned to Palm pursuant to the Master Separation and
Distribution Agreement or the Ancillary Agreements (as such term is defined in
the Master Separation and Distribution Agreement).
1.7 MARK. "Mark" means any trademark, service mark, trade name, domain
name, and the like, or other word, name, symbol or device, or any combination
thereof, used or intended to be used by a Person to identify and distinguish the
products or services of that Person from the products or services of others and
to indicate the source of such goods or services, including without limitation
all registrations and applications therefor throughout the world and all common
law and other rights therein throughout the world.
1.8 MASTER SEPARATION AND DISTRIBUTION AGREEMENT. "Master Separation and
Distribution Agreement" means the Master Separation and Distribution Agreement
between the parties.
1.9 PALM BUSINESS. "Palm Business" means the business and operations of
Palm.
1.10 PALM BUSINESS MARKS. "Palm Business Marks" means the mutually agreed
Marks listed in the Palm Business Marks Database.
1.11 PALM BUSINESS MARKS DATABASE. "Palm Business Marks Database" means
the mutually agreed Palm Business Marks Database as of the Separation Date, as
it may be updated by the parties upon mutual agreement to add additional Marks
as of the Separation Date.
1.12 PALM BUSINESS PRODUCTS means any and all products of the Palm Business
commercially released prior to the Separation Date.
1.13 PERSON. "Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization, and a governmental entity or any
department, agency or political subdivision thereof.
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1.14 QUALITY STANDARDS. "Quality Standards" means standards of quality
applicable to the Palm Business Products, as in use immediately prior to the
Separation Date, unless otherwise communicated in writing by 3Com from time to
time.
1.15 SELL. To "Sell" a product means to sell, transfer, lease or otherwise
dispose of a product. "Sale" and "Sold" have the corollary meanings ascribed
thereto.
1.16 SEPARATION DATE. "Separation Date" means 12:01 a.m., Pacific Time,
February 26, 2000, or such other date as may be fixed by the Board of Directors
of 3Com.
1.17 SUBSIDIARY. "Subsidiary" of any Person means a corporation or other
organization whether incorporated or unincorporated of which at least a majority
of the securities or interests having by the terms thereof ordinary voting power
to elect at least a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such Person or by any one or more
of its Subsidiaries, or by such Person and one or more of its Subsidiaries;
provided, however, that no Person that is not directly or indirectly wholly-
owned by any other Person shall be a Subsidiary of such other Person unless such
other Person controls, or has the right, power or ability to control, that
Person. For purposes of this Agreement, Palm shall be deemed not to be a
subsidiary of 3Com.
1.18 THIRD PARTY. "Third Party" means a Person other than 3Com and its
Subsidiaries and Palm and its Subsidiaries.
1.19 TRADEMARK USAGE GUIDELINES. "Trademark Usage Guidelines" means the
guidelines for proper usage of the Licensed Marks, as in use immediately prior
to the Separation Date, as such guidelines may be revised and updated in writing
by 3Com from time to time.
ARTICLE 2
OWNERSHIP
2.1 OWNERSHIP OF PALM BUSINESS MARKS. The parties agree that Palm hereby
retains ownership of all right, title and interest in and to the Palm Business
Marks. Subject to Sections 2.2 and 2.3 below, to the extent that any Palm
Business Marks are registered in 3Com's name anywhere in the world, or to the
extent that 3Com otherwise has any ownership rights in and to the Palm Business
Marks or any goodwill therein, 3Com hereby grants, conveys and assigns (and
agrees to cause its appropriate Subsidiaries to grant, convey and assign) to
Palm, by execution hereof (or, where appropriate or required, by execution of
separate instruments of assignment), all its (and their) right, title and
interest in and to the Palm Business Marks, including all goodwill of the Palm
Business appurtenant thereto, to be held and enjoyed by Palm, its successors and
assigns. 3Com further grants, conveys and assigns (and agrees to cause its
appropriate Subsidiaries to grant, convey and assign) to Palm all its (and
their) right, title and interest in and to any and all causes of action and
rights of recovery for past infringement of the Palm Business Marks. 3Com will,
without demanding any further consideration therefor, at the request and expense
of Palm (except for the
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value of the time of 3Com employees), do (and to cause its Subsidiaries to do)
all lawful and just acts that may be or become necessary for evidencing,
maintaining, recording and perfecting Palm's rights to such Palm Business Marks
consistent with 3Com's general business practice as of the Separation Date,
including but not limited to execution and acknowledgement of (and causing its
Subsidiaries to execute and acknowledge) assignments and other instruments in a
form reasonably required by Palm or the relevant governmental or other
authorities for each Mark in all jurisdictions in which 3Com owns rights
thereto.
2.2 PRIOR GRANTS. Palm acknowledges and agrees that the foregoing
assignment is subject to any and all licenses or other rights that may have been
granted by 3Com or its Subsidiaries with respect to the Palm Business Marks
prior to the Separation Date. 3Com shall respond to reasonable inquiries from
Palm regarding any such prior grants.
2.3 ASSIGNMENT DISCLAIMER. PALM ACKNOWLEDGES AND AGREES THAT THE FOREGOING
ASSIGNMENTS ARE MADE ON AN "AS-IS," QUITCLAIM BASIS AND THAT NEITHER 3COM NOR
ANY SUBSIDIARY OF 3COM HAS MADE OR WILL MAKE ANY WARRANTY WHATSOEVER, EXPRESS,
IMPLIED OR STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF
TITLE, ENFORCEABILITY OR NON-INFRINGEMENT.
ARTICLE 3
LICENSES
3.1 LICENSE GRANT. 3Com grants (and agrees to cause its appropriate
Subsidiaries to grant) to Palm a personal, irrevocable, nonexclusive, worldwide,
fully-paid and non-transferable (except as set forth in Section 13.9) license to
use the Licensed Marks on the Palm Business Products and in connection with the
Sale and offer for Sale of Palm Business Products (or, in the case of Palm
Business Products in the form of software, in connection with licensing of Palm
Business Products) and to use the Licensed Marks in the advertisement and
promotion of such Palm Business Products.
3.2 LICENSE RESTRICTIONS.
(a) Palm may not make any use whatsoever, in whole or in part, of the
Licensed Marks, or any other Mark owned by 3Com, in connection with Palm's
corporate, doing business as, or fictitious name, or on Corporate Identity
Materials without the prior written consent of 3Com, except as expressly set
forth in this Section 3.2(a) or in Section 3.4 below. Notwithstanding the
foregoing, Palm may use any business cards, letterhead, stationery, paper stock
and other supplies, and the like throughout their useful life in connection with
the conduct of the Palm Business, to the extent that, as of the Separation Date,
they are in use, in inventory or on order.
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(b) Palm may not use any Licensed Mark in direct association with
another Mark such that the two Marks appear to be a single Mark or in any other
composite manner with any Marks of Palm or any Third Party (other than the Palm
Business Marks as permitted herein).
(c) In all respects, Palm's usage of the Licensed Marks pursuant to
the license granted hereunder shall be in a manner consistent with the high
standards, reputation and prestige represented by the Licensed Marks, and any
usage by Palm that is inconsistent with the foregoing shall be deemed to be
outside the scope of the license granted hereunder. As a condition to the
license granted hereunder, Palm shall at all times present, position and promote
the Palm Business Products marked with one or more of the Licensed Marks in a
manner consistent with the high standards and prestige represented by the
Licensed Marks.
3.3 LICENSEE UNDERTAKINGS. As a condition to the licenses granted
hereunder, Palm undertakes to 3Com that:
(a) Palm shall not use the Licensed Marks (or any other Mark of 3Com)
in any manner which is deceptive or misleading, which ridicules or is derogatory
to the Licensed Marks, or which compromises or reflects unfavorably upon the
goodwill, good name, reputation or image of 3Com or the Licensed Marks, or which
might jeopardize or limit 3Com's proprietary interest therein.
(b) Palm shall not use the Licensed Marks in connection with any
products or services other than the Palm Business Products.
(c) Palm shall not (i) misrepresent to any Person the scope of its
authority under this Agreement, (ii) incur or authorize any expenses or
liabilities chargeable to 3Com, or (iii) take any actions that would impose upon
3Com any obligation or liability to a Third Party other than obligations under
this Agreement, or other obligations which 3Com expressly approves in writing
for Palm to incur on its behalf.
(d) All press releases and corporate advertising and promotions that
embody the Licensed Marks and messages conveyed thereby shall be consistent with
the high standards and prestige represented by the Licensed Marks.
3.4 NON-TRADEMARK USE. Each party may make appropriate and truthful
references to the other party and the other party's products and technology.
3.5 RESERVATION OF RIGHTS. Except as otherwise expressly provided in this
Agreement, 3Com shall retain all rights in and to the Licensed Marks, including
without limitation:
(a) All rights of ownership in and to the Licensed Marks;
(b) The right to use (including the right of 3Com's Subsidiaries to
use) the Licensed Marks, either alone or in combination with other Marks, in
connection with the marketing,
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offer or provision of any product or service, including any product or service
which competes with Palm Business products; and
(c) The right to license Third Parties to use the Licensed Marks.
3.6 THIRD PARTY LICENSES. 3Com agrees that it and its Subsidiaries will
not license or transfer the Licensed Marks to Third Parties (other than to and
among Subsidiaries or Joint Ventures (as defined below) of 3Com) for use in
connection with products or services which compete with Palm Business Products
that are listed on a mutually agreed Palm corporate price list as of the
Distribution Date until two (2) years after the Separation Date. Such
restriction shall be binding on any successors and assigns of the Licensed
Marks. As used in this Section 3.6, "Joint Venture" means a corporation or other
organization whether incorporated or unincorporated of which at least fifth
percent (50%) of the securities or interests having by the terms thereof
ordinary voting power to elect at least a majority of the board of directors or
others performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by 3Com.
ARTICLE 4
PERMITTED SUBLICENSES
4.1 SUBLICENSES
(a) SUBLICENSES TO SUBSIDIARIES. Subject to the terms and conditions
of this Agreement, including all applicable Quality Standards and Trademark
Usage Guidelines and other restrictions in this Agreement, Palm may grant
sublicenses to its Subsidiaries to use the Licensed Marks in accordance with the
license grant in Section 3.1 above; provided, that (i) Palm enters into a
written sublicense agreement with each such Subsidiary sublicensee, and (ii)
such agreement does not include the right to grant further sublicenses other
than, in the case of a sublicensed Subsidiary of Palm, to another Subsidiary of
Palm. Palm shall provide copies of such written sublicense agreements to 3Com
upon request. If Palm grants any sublicense rights pursuant to this Section
4.1(a) and any such sublicensed Subsidiary ceases to be a Subsidiary, then the
sublicense granted to such Subsidiary pursuant to this Section 4.1(a) shall
terminate 180 days from the date of such cessation.
4.2 AUTHORIZED DEALERS' USE OF MARKS. Subject to the terms and conditions
of this Agreement, including all applicable Quality Standards and Trademark
Usage Guidelines and other restrictions in this Agreement, Palm (and those
Subsidiaries sublicensed to use the Licensed Marks pursuant to Section 4.1) may
allow Authorized Dealers to, and may allow such Authorized Dealers to allow
other Authorized Dealers to, use the Licensed Marks in the advertisement and
promotion of Palm Business Products Sold by such Authorized Dealers.
4.3 ENFORCEMENT OF AGREEMENTS. Palm shall take all appropriate measures
at Palm's expense promptly and diligently to enforce the terms of any sublicense
agreement or other
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agreement with any Subsidiary or Authorized Dealer, or of any existing agreement
with any Authorized Dealer, and shall restrain any such Subsidiary or Authorized
Dealer from violating such terms, including without limitation (i) monitoring
the Subsidiaries' and Authorized Dealers' compliance with the relevant Trademark
Usage Guidelines and Quality Standards and causing any noncomplying Subsidiary
or Authorized Dealer promptly to remedy any failure, (ii) terminating such
agreement and/or (iii) commencing legal action, in each case, using a standard
of care consistent with 3Com's practices as of the Separation Date. In the event
that 3Com determines that Palm has failed promptly and diligently to enforce the
terms of any such agreement using such standard of care, 3Com reserves the right
to enforce such terms, and Palm shall reimburse 3Com for its fully allocated
direct costs and expenses incurred in enforcing such agreement, plus all out-of-
pocket costs and expenses, plus five percent (5%).
ARTICLE 5
TRADEMARK USAGE GUIDELINES
5.1 TRADEMARK USAGE GUIDELINES. Palm and its Subsidiaries and Authorized
Dealers shall use the Licensed Marks only in a manner that is consistent with
the Trademark Usage Guidelines.
5.2 TRADEMARK REVIEWS. At 3Com's request, Palm agrees to furnish or make
available for inspection to 3Com samples of all Palm Business Products and
Collateral Materials of Palm, its Subsidiaries and Authorized Dealers that are
marked with one or more of the Licensed Marks (to the extent that Palm has the
right to obtain such samples). If Palm is notified or determines that it or any
of its Subsidiaries or Authorized Dealers is not complying with any Trademark
Usage Guidelines, it shall notify 3Com and the provisions of Article 6 and
Section 4.3 shall apply to such noncompliance.
ARTICLE 6
TRADEMARK USAGE GUIDELINE ENFORCEMENT
6.1 INITIAL CURE PERIOD. If 3Com becomes aware that Palm or any Subsidiary
or Authorized Dealer is not complying with any Trademark Usage Guidelines, 3Com
shall notify Palm in writing, setting forth in reasonable detail a written
description of the noncompliance and any requested action for curing such
noncompliance. Palm shall then have sixty (60) days with regard to noncompliance
by Authorized Dealers and thirty (30) days with regard to noncompliance by Palm
or any Subsidiary after receipt of such notice ("Guideline Initial Cure Period")
to correct such noncompliance or submit to 3Com a written plan to correct such
noncompliance which written plan is reasonably acceptable to 3Com.
6.2 SECOND CURE PERIOD. If noncompliance with the Trademark Usage
Guidelines continues beyond the Guideline Initial Cure Period, Palm and 3Com
shall each promptly appoint a representative to negotiate in good faith actions
that may be necessary to correct such
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noncompliance. The parties shall have thirty (30) days following the expiration
of the Guideline Initial Cure Period to agree on corrective actions, and Palm
shall have thirty (30) days from the date of an agreement of corrective actions
to implement such corrective actions and cure or cause the cure of such
noncompliance ("Second Guideline Cure Period").
6.3 FINAL CURE PERIOD. If the noncompliance with the Trademark Usage
Guidelines remains uncured after the expiration of the Second Guideline Cure
Period, then at 3Com's election, Palm, or the noncomplying Subsidiary or
Authorized Dealer, whichever is applicable, promptly shall cease using the
noncomplying Collateral Materials until 3Com determines that Palm, or the
noncomplying Subsidiary or Authorized Dealer, whichever is applicable, has
demonstrated its ability and commitment to comply with the Trademark Usage
Guidelines. Nothing in this Article 6 shall be deemed to limit Palm's
obligations under Section 4.3 above or to preclude 3Com from exercising any
rights or remedies under Section 4.3 above.
ARTICLE 7
QUALITY STANDARDS
7.1 GENERAL. Palm acknowledges that the Palm Business Products permitted
by this Agreement to be marked with one or more of the Licensed Marks must
continue to be of sufficiently high quality as to provide protection of the
Licensed Marks and the goodwill they symbolize, and Palm further acknowledges
that the maintenance of the high quality standards associated with such products
is of the essence of this Agreement.
7.2 QUALITY STANDARDS. Palm and its Authorized Dealers and Subsidiaries
shall use the Licensed Marks only on and in connection with Palm Business
Products that meet or exceed in all respects the Quality Standards.
7.3 QUALITY CONTROL REVIEWS. At 3Com's request, Palm agrees to furnish or
make available to 3Com for inspection sample Palm Business Products marked with
one or more of the Licensed Marks. 3Com may also independently conduct customer
satisfaction surveys to determine if Palm and its Subsidiaries and Authorized
Dealers are meeting the Quality Standards. Palm shall cooperate with 3Com fully
in the distribution of such surveys. In the event of a challenge by 3Com, 3Com
shall, at the request of Palm, provide Palm with copies of customer surveys used
by 3Com to determine if Palm is meeting the Quality Standards. If Palm is
notified or determines that it or any of its Subsidiaries or Authorized Dealers
is not complying with any Quality Standards, it shall notify 3Com and the
provisions of Article 8 and Section 4.3 shall apply to such noncompliance.
7.4 PRODUCT DISCONTINUATION. If, at any time during or after the term of
this Agreement, Palm discontinues the sale of a Palm Business Product that has
been marked with one or more of the Licensed Marks, Palm shall substantially
comply with the discontinuation procedure used by 3Com for such or similar
products immediately prior to Separation Date.
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ARTICLE 8
QUALITY STANDARD ENFORCEMENT
8.1 INITIAL CURE PERIOD. If 3Com becomes aware that Palm or any Subsidiary
or Authorized Dealer sublicensee is not complying with any Quality Standards,
3Com shall notify Palm in writing, setting forth in reasonable detail a written
description of the noncompliance and any requested action for curing such
noncompliance. Palm shall then have thirty (30) days after receipt of such
notice ("Initial Cure Period") to correct such noncompliance or submit to 3Com a
written plan to correct such noncompliance which written plan is reasonably
acceptable to 3Com.
8.2 SECOND CURE PERIOD. If noncompliance with the Quality Standards
continues beyond the Initial Cure Period, Palm and 3Com shall each promptly
appoint a representative to negotiate in good faith actions that may be
necessary to correct such noncompliance. The parties shall have thirty (30) days
following the expiration of the Initial Cure Period to agree on corrective
actions, and Palm shall have thirty (30) days from the date of an agreement of
corrective actions to implement such corrective actions and cure or cause the
cure of such noncompliance ("Second Cure Period").
8.3 FINAL CURE PERIOD. If the noncompliance with the Quality Standards
remains uncured after the expiration of the Second Cure Period, then at 3Com's
election, Palm, or the noncomplying Subsidiary or Authorized Dealer, whichever
is applicable, promptly shall cease offering the noncomplying Palm Business
Products under the Licensed Marks until 3Com determines that Palm, or the
noncomplying Subsidiary or Authorized Dealer, whichever is applicable, has
demonstrated its ability and commitment to comply with the Quality Standards.
Nothing in this Article 8 shall be deemed to limit Palm's obligations under
Section 4.3 above or to preclude 3Com from exercising any rights or remedies
under Section 4.3 above.
ARTICLE 9
PROTECTION OF LICENSED MARKS
9.1 OWNERSHIP AND RIGHTS. To the extent not contrary to applicable law,
Palm agrees not to challenge the ownership or validity of the Licensed Marks.
Palm shall not disparage, dilute or adversely affect the validity of the
Licensed Marks. Palm's use of the Licensed Marks shall inure exclusively to the
benefit of 3Com, and Palm shall not acquire or assert any rights therein. Palm
recognizes the value of the goodwill associated with the Licensed Marks, and
that the Licensed Marks may have acquired secondary meaning in the minds of the
public.
9.2 PROTECTION OF MARKS. Palm shall assist 3Com, at 3Com's request and
expense, in the procurement and maintenance of 3Com's intellectual property
rights in the Licensed Marks. Palm will not grant or attempt to grant a security
interest in the Licensed Marks, or to record any such security interest in the
United States Patent and Trademark Office or elsewhere, against any trademark
application or registration belonging to 3Com. Palm agrees to, and to cause its
Subsidiaries to, execute all documents reasonably requested by 3Com to effect
further registration
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of, maintenance and renewal of the Licensed Marks, recordation of the license
relationship between 3Com and Palm, and recordation of Palm as a registered
user. 3Com makes no warranty or representation that trademark registrations have
been or will be applied for, secured or maintained in the Licensed Marks
throughout, or anywhere within, the world. Palm shall cause to appear on all
Palm Business Products, and all Collateral Materials, such legends, markings and
notices as may be required by applicable law or reasonably requested by 3Com.
9.3 SIMILAR MARKS. Palm agrees not to use or register in any country any
Mark that infringes 3Com's rights in the Licensed Marks, or any element thereof.
If any application for registration is, or has been, filed in any country by
Palm which relates to any Mark that infringes 3Com's rights in the Licensed
Marks, Palm shall immediately abandon any such application or registration or
assign it to 3Com. To the extent not contrary to applicable law, Palm shall not
challenge 3Com's ownership of or the validity of the Licensed Marks or any
application for registration thereof throughout the world. Palm shall not use or
register in any country any copyright, domain name, telephone number or any
other intellectual property right, whether recognized currently or in the
future, or other designation which would affect the ownership or rights of 3Com
in and to the Licensed Marks, or otherwise to take any action which would
adversely affect any of such ownership rights, or assist anyone else in doing
so. Palm shall cause its Subsidiaries and Authorized Dealers to comply with the
provisions of this Section 9.3.
9.4 INFRINGEMENT PROCEEDINGS. In the event that the Palm General Counsel
learns of any infringement or threatened infringement of the Licensed Marks, or
any unfair competition, passing-off or dilution with respect to the Licensed
Marks, Palm shall notify 3Com or its authorized representative giving
particulars thereof, and Palm shall provide necessary information and assistance
to 3Com or its authorized representatives at 3Com's expense in the event that
3Com decides that proceedings should be commenced. Notwithstanding the
foregoing, Palm is not obligated to monitor or police use of the Licensed Marks
by Third Parties other than as specifically set forth in Section 4.3. 3Com shall
have exclusive control of any litigation, opposition, cancellation or related
legal proceedings, relating to the use of the licensed trademarks by third
parties. The decision whether to bring, maintain or settle any such proceedings
shall be at the exclusive option and expense of 3Com, and all recoveries shall
belong exclusively to 3Com. Palm shall not and shall have no right to initiate
any such litigation, opposition, cancellation or related legal proceedings in
its own name, but, at 3Com's request, agrees to be joined as a party in any
action taken by 3Com to enforce its rights in the Licensed Marks. 3Com shall
incur no liability to Palm or any other Person under any legal theory by reason
of 3Com's failure or refusal to prosecute or by 3Com's refusal to permit Palm to
prosecute, any alleged infringement by Third Parties, nor by reason of any
settlement to which 3Com may agree.
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ARTICLE 10
TERMINATION
10.1 TERM. This Agreement shall remain in effect for a period of two (2)
years from the Effective Date unless earlier terminated as provided below.
10.2 VOLUNTARY TERMINATION. By written notice to 3Com, Palm may
voluntarily terminate all or a specified portion of the licenses and rights
granted to it hereunder by 3Com. Such notice shall specify the effective date of
such termination and shall clearly specify any affected Licensed Marks, Palm
Business Products or services.
10.3 SURVIVAL. Any termination of licenses and rights of Palm under
Section 10.2 shall not affect Palm's licenses and rights with respect to any
Palm Business Products made or sold prior to such termination.
10.4 OTHER TERMINATION. 3Com acknowledges and agrees that its rights to
terminate the licenses granted to Palm hereunder are solely as set forth in
Section 4.3 and Articles 6 and 8.
ARTICLE 11
DISPUTE RESOLUTION
11.1 MEDIATION. If a dispute, controversy or claim ("Dispute") arises
between the parties relating to the interpretation or performance of this
Agreement or the Ancillary Agreements, or the grounds for the termination
hereof, appropriate senior executives (e. g. director or V.P. level) of each
party who shall have the authority to resolve the matter shall meet to attempt
in good faith to negotiate a resolution of the Dispute prior to pursuing other
available remedies. The initial meeting between the appropriate senior
executives shall be referred to herein as the "Dispute Resolution Commencement
Date." Discussions and correspondence relating to trying to resolve such Dispute
shall be treated as confidential information developed for the purpose of
settlement and shall be exempt from discovery or production and shall not be
admissible. If the senior executives are unable to resolve the Dispute within
thirty (30) days from the Dispute Resolution Commencement Date, and either party
wishes to pursue its rights relating to such Dispute, then the Dispute will be
mediated by a mutually acceptable mediator appointed pursuant to the mediation
rules of JAMS/Endispute within thirty (30) days after written notice by one
party to the other demanding non-binding mediation. Neither party may
unreasonably withhold consent to the selection of a mediator or the location of
the mediation. Both parties will share the costs of the mediation equally,
except that each party shall bear its own costs and expenses, including
attorney's fees, witness fees, travel expenses, and preparation costs. The
parties may also agree to replace mediation with some other form of non-binding
or binding ADR.
11.2 ARBITRATION. Any Dispute which the parties cannot resolve through
mediation within ninety (90) days of the Dispute Resolution Commencement Date,
unless otherwise mutually
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agreed, shall be submitted to final and binding arbitration under the then
current Commercial Arbitration Rules of the American Arbitration Association
("AAA"), by three (3) arbitrators in Santa Clara County, California. Such
arbitrators shall be selected by the mutual agreement of the parties or, failing
such agreement, shall be selected according to the aforesaid AAA rules. The
arbitrators will be instructed to prepare and deliver a written, reasoned
opinion stating their decision within thirty (30) days of the completion of the
arbitration. The prevailing party in such arbitration shall be entitled to
expenses, including costs and reasonable attorneys' and other professional fees,
incurred in connection with the arbitration (but excluding any costs and fees
associated with prior negotiation or mediation). The decision of the arbitrator
shall be final and non-appealable and may be enforced in any court of competent
jurisdiction. The use of any ADR procedures will not be construed under the
doctrine of laches, waiver or estoppel to adversely affect the rights of either
party.
11.3 COURT ACTION. Any Dispute regarding the following is not required to
be negotiated, mediated or arbitrated prior to seeking relief from a court of
competent jurisdiction: breach of any obligation of confidentiality;
infringement, misappropriation, or misuse of any intellectual property right;
any other claim where interim relief from the court is sought to prevent serious
and irreparable injury to one of the parties or to others. However, the parties
to the Dispute shall make a good faith effort to negotiate and mediate such
Dispute, according to the above procedures, while such court action is pending.
11.4 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in
writing, the parties will continue to provide service and honor all other
commitments under this Agreement and each Ancillary Agreement during the course
of dispute resolution pursuant to the provisions of this Article 11 with respect
to all matters not subject to such dispute, controversy or claim.
ARTICLE 12
LIMITATION OF LIABILITY
IN NO EVENT SHALL EITHER PARTY OR ITS SUBSIDIARIES BE LIABLE TO THE OTHER
PARTY OR ITS SUBSIDIARIES FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL
OR PUNITIVE DAMAGES OR LOST PROFITS OR ANY OTHER DAMAGES, HOWEVER CAUSED AND ON
ANY THEORY OF LIABILITY (INCLUDING NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS
AGREEMENT, WHETHER OR NOT SUCH PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES; PROVIDED, HOWEVER, THAT THE FOREGOING LIMITATIONS SHALL NOT LIMIT EACH
PARTY'S OBLIGATIONS EXPRESSLY ASSUMED IN EXHIBIT J OF THE MASTER SEPARATION AND
DISTRIBUTION AGREEMENT; PROVIDED FURTHER THAT THE EXCLUSION OF PUNITIVE DAMAGES
SHALL APPLY IN ANY EVENT.
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ARTICLE 13
MISCELLANEOUS PROVISIONS
13.1 DISCLAIMER. EACH PARTY ACKNOWLEDGES AND AGREES THAT ALL LICENSED
MARKS AND ANY OTHER INFORMATION OR MATERIALS LICENSED OR PROVIDED HEREUNDER ARE
LICENSED OR PROVIDED ON AN "AS IS" BASIS AND THAT NEITHER PARTY NOR ANY OF ITS
SUBSIDIARIES MAKE ANY REPRESENTATIONS OR EXTENDS ANY WARRANTIES WHATSOEVER,
EXPRESS, IMPLIED OR STATUTORY, WITH RESPECT THERETO INCLUDING WITHOUT LIMITATION
ANY IMPLIED WARRANTIES OF TITLE, ENFORCEABILITY OR NON-INFRINGEMENT. Without
limiting the generality of the foregoing, neither 3Com nor any of its
Subsidiaries makes any warranty or representation as to the validity of any Mark
licensed by it to Palm or any warranty or representation that any use of any
Mark with respect to any product or service will be free from infringement of
any rights of any Third Party.
13.2 NO IMPLIED LICENSES. Nothing contained in this Agreement shall be
construed as conferring any rights by implication, estoppel or otherwise, under
any intellectual property right, other than the rights expressly granted in this
Agreement with respect to the Licensed Marks. Neither party is required
hereunder to furnish or disclose to the other any information (including copies
of registrations of the Marks), except as specifically provided herein.
13.3 INFRINGEMENT SUITS. Except as set forth in Section 4.3, (i) neither
party shall have any obligation hereunder to institute any action or suit
against Third Parties for infringement of any of the Licensed Marks or to defend
any action or suit brought by a Third Party which challenges or concerns the
validity of any of the Licensed Marks and (ii) Palm shall not have any right to
institute any action or suit against Third Parties for infringement of any of
the Licensed Marks.
13.4 NO OTHER OBLIGATIONS. NEITHER PARTY ASSUMES ANY RESPONSIBILITIES OR
OBLIGATIONS WHATSOEVER, OTHER THAN THE RESPONSIBILITIES AND OBLIGATIONS
EXPRESSLY SET FORTH IN THIS AGREEMENT OR A SEPARATE WRITTEN AGREEMENT BETWEEN
THE PARTIES. Without limiting the generality of the foregoing, neither party,
nor any of its Subsidiaries, is obligated to (i) file any application for
registration of any Mark, or to secure any rights in any Marks, (ii) to maintain
any Mark registration, or (iii) provide any assistance, except for the
obligations expressly assumed in this Agreement.
13.5 ENTIRE AGREEMENT. This Agreement, the Master Separation and
Distribution Agreement and the other Ancillary Agreements (as defined in the
Master Separation and Distribution Agreement) and the Exhibits and Schedules
referenced or attached hereto and thereto constitute the entire agreement
between the parties with respect to the subject matter hereof and thereof and
shall supersede all prior written and oral and all contemporaneous oral
agreements and understandings with respect to the subject matter hereof and
thereof. To the extent there is a conflict
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between this Agreement and the General Assignment and Assumption Agreement
between the parties, the terms of this Agreement shall govern.
13.6 GOVERNING LAW. This Agreement shall be construed in accordance with
and all Disputes hereunder shall be governed by the laws of the State of
California, excluding its conflict of law rules and the United Nations
Convention on Contracts for the International Sale of Goods. The Superior Court
of Santa Clara County and/or the United States District Court for the Northern
District of California shall have jurisdiction and venue over all Disputes
between the parties that are permitted to be brought in a court of law pursuant
to Article 11 above.
13.7 DESCRIPTIVE HEADINGS. The headings contained in this Agreement, in
any Exhibit or Schedule hereto and in the table of contents to this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized term used in any Exhibit or
Schedule but not otherwise defined therein, shall have the meaning assigned to
such term in this Agreement. When a reference is made in this Agreement to an
Article or a Section, Exhibit or Schedule, such reference shall be to an Article
or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated.
13.8 NOTICES. Notices, offers, requests or other communications required
or permitted to be given by either party pursuant to the terms of this Agreement
shall be given in writing to the respective parties to the following addresses:
if to 3Com :
3Com Corporation
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
if to Palm:
Palm, Inc.
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
or to such other address as the party to whom notice is given may have
previously furnished to the other in writing as provided herein. Any notice
involving non-performance, termination, or renewal shall be sent by hand
delivery, recognized overnight courier or, within the United States, may also be
sent via certified mail, return receipt requested. All other notices may also be
sent by fax, confirmed by first class mail. All notices shall be deemed to have
been given and received on the earlier of actual delivery or three (3) days from
the date of postmark.
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13.9 NONASSIGNABILITY. Neither party may, directly or indirectly, in whole
or in part, whether by operation of law or otherwise, assign or transfer this
Agreement, without the other party's prior written consent, and any attempted
assignment, transfer or delegation without such prior written consent shall be
voidable at the sole option of such other party. Notwithstanding the foregoing,
each party (or its permitted successive assignees or transferees hereunder) may
assign or transfer this Agreement as a whole without consent to a Person that
succeeds to all or substantially all of the business or assets of such party as
long as such Person agrees to accept all the terms and conditions set forth
herein. Without limiting the foregoing, this Agreement will be binding upon and
inure to the benefit of the parties and their permitted successors and assigns.
13.10 SEVERABILITY. If any term or other provision of this Agreement is
determined by a court, administrative agency or arbitrator to be invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to either party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that the transactions contemplated hereby are fulfilled to the fullest
extent possible.
13.11 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or
delay on the part of either party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor shall any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
Agreement are cumulative to, and not exclusive of, any rights or remedies
otherwise available.
13.12 AMENDMENT. No change or amendment will be made to this Agreement
except by an instrument in writing signed on behalf of each of the parties to
such agreement.
13.13 COUNTERPARTS. This Agreement, including the Ancillary Agreements and
the Exhibits and Schedules hereto and thereto and the other documents referred
to herein or therein, may be executed in counterparts, each of which shall be
deemed to be an original but all of which shall constitute one and the same
agreement.
WHEREFORE, the parties have signed this Trademark Ownership and License
Agreement effective as of the date first set forth above.
3COM CORPORATION PALM, INC.
By: By:
------------------------ ------------------------
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Name: Name:
---------------------- -----------------------
Title: Title:
---------------------- ----------------------
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EXHIBIT A
TO MASTER TRADEMARK OWNERSHIP AND LICENSE AGREEMENT
LICENSED MARKS
3Com
3Com Logo
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EXHIBIT 2.6
----------------------
Version 10
December 1, 1999
----------------------
EMPLOYEE MATTERS AGREEMENT
BETWEEN
3COM CORPORATION
AND
PALM, INC.
EFFECTIVE AS OF
_______________, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
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ARTICLE I DEFINITIONS......................................................... 1
1.1 3Com................................................................. 1
1.2 3Com Employee........................................................ 1
1.3 3Com Group........................................................... 2
1.4 3Com Stock Value..................................................... 2
1.5 3Com Terminated Employee............................................. 2
1.6 401(k) Plan.......................................................... 2
1.7 AD&D Plan............................................................ 2
1.8 Affiliate............................................................ 2
1.9 Agreement............................................................ 2
1.10 Ancillary Agreements................................................. 2
1.11 ASO Contracts........................................................ 2
1.12 Assets............................................................... 2
1.13 Benefits Committee................................................... 2
1.14 Bonus Plan........................................................... 2
1.15 Business Travel Accident Insurance................................... 3
1.16 COBRA................................................................ 3
1.17 Code................................................................. 3
1.18 Deferred Compensation Plan........................................... 3
1.19 Disability Plan...................................................... 3
1.20 Distribution......................................................... 3
1.21 Distribution Date.................................................... 3
1.22 DOL.................................................................. 3
1.23 Educational Assistance Program....................................... 3
1.24 Employee Assistance Program.......................................... 4
1.25 ERISA................................................................ 4
1.26 Executive Bonus Plan................................................. 4
1.27 FMLA................................................................. 4
1.28 Food Programs........................................................ 4
1.29 Foreign Plan......................................................... 4
1.30 Fringe Benefit Plans................................................. 4
1.31 FSA/Dependent Reimbursement Plan..................................... 4
1.32 FSA/Medical Reimbursement Plan....................................... 4
1.33 General Assignment and Assumption Agreement.......................... 4
1.34 Group Insurance Policies............................................. 5
1.35 Group Life Plan...................................................... 5
1.36 HCFA................................................................. 5
1.37 Health and Welfare Plans............................................. 5
1.38 Health Plans......................................................... 5
1.39 HMO.................................................................. 5
</TABLE>
ii
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
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<S> <C>
1.40 HMO Agreements....................................................... 5
1.41 IPO.................................................................. 5
1.42 IPO Closing Date..................................................... 5
1.43 IPO Registration Statement........................................... 5
1.44 IRS.................................................................. 5
1.45 Leave of Absence Plans............................................... 5
1.46 Liabilities.......................................................... 6
1.47 Long-Term Care Plan.................................................. 6
1.48 Long-Term Disability Plan............................................ 6
1.49 Master Transitional Services Agreement............................... 6
1.50 Material Feature..................................................... 6
1.51 Nasdaq............................................................... 6
1.52 Non-U.S. Plan........................................................ 6
1.53 Option............................................................... 7
1.54 Outsource............................................................ 7
1.55 Palm................................................................. 7
1.56 Palm Business........................................................ 7
1.57 Palm Claims.......................................................... 7
1.58 Palm Employee........................................................ 7
1.59 Palm Group........................................................... 7
1.60 Palm Stock Value..................................................... 7
1.61 Palm Terminated Employee............................................. 7
1.62 Palm Transferred Employee............................................ 8
1.63 Participating Company................................................ 8
1.64 Person............................................................... 8
1.65 Plan................................................................. 8
1.66 Post-Distribution Period............................................. 8
1.67 Premium Plan......................................................... 8
1.68 PTO.................................................................. 9
1.69 QDRO................................................................. 9
1.70 QMCSO................................................................ 9
1.71 Rabbi Trust.......................................................... 9
1.72 Ratio................................................................ 9
1.73 Record Date.......................................................... 9
1.74 Restricted Stock..................................................... 9
1.75 Revenue.............................................................. 9
1.76 Sabbatical Plan...................................................... 9
1.77 SEC.................................................................. 9
1.78 Section 125 Plan..................................................... 10
</TABLE>
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TABLE OF CONTENTS
(Continued)
<TABLE>
<CAPTION>
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1.79 Separation........................................................... 10
1.80 Separation Agreement................................................. 10
1.81 Separation Date...................................................... 10
1.82 Severance Plan....................................................... 10
1.83 Short-Term Disability Plan........................................... 10
1.84 SOS Plan............................................................. 10
1.85 Stock Plan........................................................... 10
1.86 Stock Purchase Plan.................................................. 10
1.87 Subsidiary........................................................... 11
1.88 Tax Sharing Agreement................................................ 11
1.89 Unemployment Insurance Program....................................... 11
1.90 WellCom Program...................................................... 11
1.91 Workers' Compensation Plan........................................... 11
ARTICLE II GENERAL PRINCIPLES................................................. 12
2.1 Assumption of Palm Liabilities....................................... 12
2.2 Establishment of Palm Plans.......................................... 12
2.3 Palm Under No Obligation to Maintain Plans........................... 13
2.4 Palm's Participation in 3Com Plans................................... 13
2.5 Terms of Participation by Palm Transferred Employees in Palm Plans... 14
2.6 Benefits Committee and Dispute Resolution............................ 15
2.7 Foreign Plans........................................................ 15
ARTICLE III DEFINED CONTRIBUTION PLAN......................................... 16
3.1 401(k) Plan.......................................................... 16
ARTICLE IV NON-QUALIFIED PLAN................................................. 17
4.1 Deferred Compensation Plan........................................... 17
ARTICLE V HEALTH AND WELFARE PLANS............................................ 18
5.1 Health Plans as of the Distribution Date............................. 18
5.2 Health Plans from the Separation Date through the Distribution Date.. 19
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5.3 Group Life Plan...................................................... 19
5.4 AD&D Plan............................................................ 20
5.5 Severance Plan....................................................... 20
5.6 Sabbatical Plan...................................................... 20
5.7 Disability Plans..................................................... 21
5.8 Business Travel Accident Insurance................................... 21
5.9 Long-Term Care Plan.................................................. 22
5.10 Section 125 Plan..................................................... 22
5.11 COBRA................................................................ 22
5.12 Leave of Absence Plans and FMLA...................................... 23
5.13 Workers' Compensation Plan........................................... 23
5.14 Administrative Services.............................................. 24
ARTICLE VI EQUITY AND OTHER COMPENSATION...................................... 25
6.1 Bonus Plan........................................................... 25
6.2 Executive Bonus Plan................................................. 25
6.3 3Com Options......................................................... 26
6.4 3Com Restricted Stock................................................ 26
6.5 Stock Purchase Plan.................................................. 27
6.6 Administrative Services.............................................. 27
ARTICLE VII FRINGE AND OTHER BENEFITS......................................... 28
7.1 Employee Assistance Program.......................................... 28
7.2 Educational Assistance Program....................................... 28
7.3 Credit Union......................................................... 28
7.4 Cafeteria and Related Subsidies...................................... 28
7.5 Employee Product Discounts and Company Store......................... 29
7.6 WellCom.............................................................. 29
7.7 SOS Plan............................................................. 29
7.8 Other Benefits....................................................... 29
7.9 Administrative Services.............................................. 30
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ARTICLE VIII ADMINISTRATIVE PROVISIONS........................................ 31
8.1 Master Transitional Services Agreement............................... 31
8.2 Payment of Liabilities, Plan Expenses and Related Matters............ 31
8.3 Transitional Staffing Services....................................... 32
8.4 Sharing of Participant Information................................... 32
8.5 Reporting and Disclosure Communications to Participants.............. 32
8.6 Audits Regarding Vendor Contracts.................................... 32
8.7 Employee Identification Numbers...................................... 33
8.8 Beneficiary Designations............................................. 33
8.9 Requests for IRS and DOL Opinions.................................... 33
8.10 Fiduciary Matters.................................................... 33
8.11 Consent of Third Parties............................................. 33
8.12 3Com Intranet........................................................ 33
8.13 Tax Cooperation...................................................... 33
ARTICLE IX EMPLOYMENT-RELATED MATTERS......................................... 34
9.1 Terms of Palm Employment............................................. 34
9.2 HR Data Support Systems.............................................. 34
9.3 Non-Solicitation of Employees........................................ 34
9.4 Employment of Employees with U.S. Work Visas......................... 34
9.5 Confidentiality and Proprietary Information.......................... 35
9.6 PTO.................................................................. 35
9.7 Personnel Records.................................................... 35
9.8 Medical Records...................................................... 35
9.9 Unemployment Insurance Program....................................... 35
9.10 Non-Termination of Employment; No Third-Party Beneficiaries.......... 36
9.11 Employment Litigation................................................ 36
ARTICLE X GENERAL PROVISIONS.................................................. 37
10.1 Effect if Separation, IPO and/or Distribution Does Not Occur......... 37
10.2 Relationship of Parties.............................................. 37
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10.3 Affiliates........................................................... 37
10.4 Incorporation of Separation Agreement Provisions..................... 37
10.5 Governing Law........................................................ 37
10.6 Assignment........................................................... 37
10.7 Severability......................................................... 38
10.8 Interpretation....................................................... 38
10.9 Amendment............................................................ 38
10.10 Termination.......................................................... 38
10.11 Conflict............................................................. 38
10.12 Counterparts......................................................... 38
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SCHEDULES
SCHEDULE 2.7 FOREIGN PLANS.......................................... i
SCHEDULE 5.1(a) PALM HEALTH AND WELFARE PLANS.......................... ii
SCHEDULE 5.1(c)(i) THIRD PARTY ASO........................................ iii
SCHEDULE 5.1(c)(ii) GROUP INSURANCE POLICIES............................... iv
SCHEDULE 5.1(c)(iii) HMO AGREEMENT.......................................... v
SCHEDULE 5.2(a) 3COM HEALTH AND WELFARE PLANS.......................... vi
SCHEDULE 6.3 OPTIONS HELD BY CERTAIN NON-U.S. PALM.................. vii
TRANSFERRED EMPLOYEES
SCHEDULE 6.4 3COM RESTRICTED STOCK HELD BY NON-U.S. PALM............ viii
TRANSFERRED EMPLOYEES
SCHEDULE 7.8 OTHER FRINGE BENEFITS.................................. ix
SCHEDULE 8.3 TRANSITIONAL STAFFING SERVICES......................... x
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EMPLOYEE MATTERS AGREEMENT
This EMPLOYEE MATTERS AGREEMENT is entered into on _________, 2000, between
3Com Corporation, a Delaware corporation, and Palm, Inc., a Delaware
corporation. Capitalized terms used herein (other than the formal names of 3Com
Plans (as defined below) and related trusts of 3Com) and not otherwise defined,
shall have the respective meanings assigned to them in Article I hereof.
WHEREAS, the Board of Directors of 3Com has determined that it is in the
best interests of 3Com and its shareholders to separate 3Com's existing
businesses into two (2) independent businesses, 3Com and the Palm Business;
WHEREAS, in furtherance of the foregoing, 3Com and Palm have agreed to
enter into this Agreement to allocate between them Assets, Liabilities and
responsibilities with respect to certain employee compensation, benefit plans,
programs and arrangements, and certain employment matters; and
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:
ARTICLE I
DEFINITIONS
-----------
Wherever used in this Agreement, the following terms shall have the
meanings indicated below, unless a different meaning is plainly required by the
context. The singular shall include the plural, unless the context indicates
otherwise. Headings of sections are used for convenience of reference only, and
in case of conflict, the text of this Agreement, rather than such headings,
shall control:
1.1 3Com. "3Com" means 3Com Corporation, a Delaware corporation. In all
----
such instances in which 3Com is referenced in this Agreement, it shall also be
deemed to include a reference to each member of the 3Com Group, unless it
specifically provides otherwise; 3Com shall be solely responsible to Palm for
ensuring that each member of the 3Com Group complies with the applicable terms
of this Agreement.
1.2 3Com Employee. "3Com Employee" means an individual who, on the
-------------
Distribution Date, is: (a) either actively employed by, or on leave of absence
from, the 3Com Group; (b) a 3Com Terminated Employee; or (c) an employee or
group of employees designated as 3Com Employees by 3Com and Palm, by mutual
agreement.
<PAGE>
1.3 3Com Group. "3Com Group" means 3Com and each Subsidiary and Affiliate
----------
of 3Com (or any predecessor organization thereof).
1.4 3Com Stock Value. "3Com Stock Value" means the closing per-share price
----------------
of 3Com common stock as listed on the Nasdaq on the last trading day before the
Distribution Date.
1.5 3Com Terminated Employee. "3Com Terminated Employee" means any
------------------------
individual who is a former employee of the 3Com Group and who, on the
Distribution Date, is not a Palm Transferred Employee.
1.6 401(k) Plan. "401(k) Plan," when immediately preceded by "3Com," means
-----------
the 3Com Corporation 401(k) Plan, a defined contribution plan. When immediately
preceded by "Palm," "401(k) Plan" means the defined contribution plan to be
established by Palm pursuant to Section 2.2 and Article III.
1.7 AD&D Plan. "AD&D Plan," when immediately preceded by "3Com," means the
---------
3Com Accidental Death and Dismemberment ("AD&D") Plan. When immediately preceded
by "Palm," "AD&D Plan" means the accidental death and dismemberment plan to be
established by Palm pursuant to Sections 2.2 and 5.4.
1.8 Affiliate. "Affiliate" means, with respect to any specified Person,
---------
means any entity that Controls, is Controlled by, or is under common Control
with such Person. For this purpose, "Control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such entity, whether through ownership of voting securities or other
interests, by control, or otherwise.
1.9 Agreement. "Agreement" means this Employee Matters Agreement,
---------
including all the Schedules hereto, and all amendments made hereto
from time to time.
1.10 Ancillary Agreements. "Ancillary Agreements" means all of the
--------------------
underlying agreements, documents and instruments referred to, contemplated by,
or made a part of the Separation Agreement.
1.11 ASO Contracts. "ASO Contracts" is defined in Subsection 5.1(c)(i) and
-------------
Schedule 5.1(c)(i).
1.12 Assets. "Assets" is defined in Section 4.4 of the General Assignment
------
and Assumption Agreement.
1.13 Benefits Committee. "Benefits Committee" means the benefits committee
------------------
established, implemented and operated pursuant to Section 2.6.
1.14 Bonus Plan. "Bonus Plan," when immediately preceded by "3Com," means
----------
the 3Com 3Bonus Plan; provided, however, with respect to Palm Employees in the
3Com 3Bonus Plan,
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that "Bonus Plan" means the bonus plan as established and implemented with
respect to the Palm Employees. When immediately preceded by "Palm," "Bonus Plan"
means the bonus plan to be established by Palm pursuant to Sections 2.2 and 6.1.
1.15 Business Travel Accident Insurance. "Business Travel Accident
----------------------------------
Insurance," when immediately preceded by "3Com," means the policy or policies
covering 3Com Business Travel Accident Insurance in the U.S. and to the extent
applicable, outside the U.S. When immediately preceded by "Palm," "Business
Travel Accident Insurance" means the policy or policies covering the business
travel accident insurance to be established by Palm pursuant to Sections 2.2
and 5.8.
1.16 COBRA. "COBRA" means the continuation coverage requirements for
-----
"group health plans" under Title X of the Consolidated Omnibus Budget
Reconciliation Act of 1985, as amended from time to time, and as codified in
Code Section 4980B and ERISA Sections 601 through 608.
1.17 Code. "Code" means the Internal Revenue Code of 1986, as amended from
----
time to time.
1.18 Deferred Compensation Plan. "Deferred Compensation Plan," when
--------------------------
immediately preceded by "3Com," means the 3Com Deferred Compensation Plan. When
immediately preceded by "Palm," "Deferred Compensation Plan" means the deferred
compensation plan to be established by Palm pursuant to Section 2.2 and
Article IV.
1.19 Disability Plan. "Disability Plan," when immediately preceded by
---------------
"3Com," means the 3Com Disability Plan which consists of the 3Com Short-Term
Disability Plan and the 3Com Long-Term Disability Plan. When immediately
preceded by "Palm," "Disability Plan" means the Palm Short-Term Disability Plan
and the Palm Long-Term Disability Plan, to be established by Palm pursuant to
Sections 2.2 and 5.7.
1.20 Distribution. "Distribution" means 3Com's pro rata distribution to
------------
the holders of its common stock, $0.001 par value, several months following the
IPO, of all the shares of Palm common stock owned by 3Com.
1.21 Distribution Date. "Distribution Date" means the date that the
-----------------
Distribution is effective.
1.22 DOL. "DOL" means the United States Department of Labor.
---
1.23 Educational Assistance Program. "Educational Assistance Program,"
------------------------------
when immediately preceded by "3Com," means the 3Com Educational Assistance
Program. When immediately preceded by "Palm," "Educational Assistance Program"
means the educational assistance program to be established by Palm pursuant to
Sections 2.2 and 7.2.
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1.24 Employee Assistance Program. "Employee Assistance Program," when
---------------------------
immediately preceded by "3Com," means the 3Com Employee Assistance Program. When
immediately preceded by "Palm," "Employee Assistance Program" means the employee
assistance program to be established by Palm pursuant to Sections 2.2 and 7.1.
1.25 ERISA. "ERISA" means the Employee Retirement Income Security Act of
-----
1974, as amended from time to time.
1.26 Executive Bonus Plan. "Executive Bonus Plan," when immediately
--------------------
preceded by "3Com," means the 3Com Executive Bonus Program. When immediately
preceded by "Palm," "Executive Bonus Plan" means the executive bonus plan to be
established by Palm pursuant to Sections 2.2 and 6.2.
1.27 FMLA. "FMLA" means the Family and Medical Leave Act of 1993, as
----
amended from time to time.
1.28 Food Programs. "Food Programs" is defined in Section 7.4.
-------------
1.29 Foreign Plan. "Foreign Plan," when immediately preceded by "3Com,"
------------
means a Plan maintained by the 3Com Group for the benefit of its employees
outside the U.S. When immediately preceded by "Palm," "Foreign Plan" means a
Plan to be established by Palm for the benefit of its employees outside the U.S.
1.30 Fringe Benefit Plans. "Fringe Benefit Plans," when immediately
--------------------
preceded by "3Com," means the 3Com employee assistance program, educational
assistance program and other fringe benefit plans, programs and arrangements,
sponsored and maintained by 3Com (as set forth in Article VII and Schedule 7.8).
When immediately preceded by "Palm," "Fringe Benefit Plans" means the fringe
benefit plans, programs and arrangements to be established by Palm pursuant to
Section 2.2 and Article VII.
1.31 FSA/Dependent Reimbursement Plan. "FSA/Dependent Reimbursement Plan,"
--------------------------------
when immediately preceded by "3Com," means the 3Com FSA/Dependent Reimbursement
Plan. When immediately preceded by "Palm," "FSA/Dependent Reimbursement Plan"
means the dependent care assistance reimbursement plan to be established by Palm
pursuant to Sections 2.2 and 5.10.
1.32 FSA/Medical Reimbursement Plan. "FSA/Medical Reimbursement Plan," when
------------------------------
immediately preceded by "3Com," means the 3Com FSA/Medical Reimbursement Plan.
When immediately preceded by "Palm," "FSA/Medical Reimbursement Plan" means the
medical expense reimbursement plan to be established by Palm pursuant to
Sections 2.2 and 5.10.
1.33 General Assignment and Assumption Agreement. "General Assignment and
-------------------------------------------
Assumption Agreement" means the Ancillary Agreement which is Exhibit C to the
Separation Agreement.
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1.34 Group Insurance Policies. "Group Insurance Policies" is defined in
------------------------
Subsection 5.1(c)(ii) and Schedule 5.1(c)(ii).
1.35 Group Life Plan. "Group Life Plan," when immediately preceded by
---------------
"3Com," means the 3Com Group Life Plan. When immediately preceded by "Palm,"
"Group Life Plan" means the group life plan to be established by Palm pursuant
to Sections 2.2 and 5.3.
1.36 HCFA. "HCFA" means the United States Health Care Financing
----
Administration.
1.37 Health and Welfare Plans. "Health and Welfare Plans," when immediately
------------------------
preceded by "3Com," means the 3Com Health Plans, the 3Com Section 125 Plan, and
the health and welfare plans listed on Schedule 5.2(a) established and
maintained by 3Com for the benefit of eligible employees of the 3Com Group, and
such other welfare plans or programs as may apply to such employees as of the
Distribution Date. When immediately preceded by "Palm," "Health and Welfare
Plans" means the Palm Health Plans, the Palm Section 125 Plan, and the health
and welfare plans to be established by Palm pursuant to Section 2.2, Article V,
and Schedule 5.1(a).
1.38 Health Plans. "Health Plans," when immediately preceded by "3Com,"
------------
means the medical, HMO, vision, and dental plans and any similar or successor
Plans. When immediately preceded by "Palm," "Health Plans" means the medical,
HMO, vision and dental plans to be established by Palm pursuant to Section 2.2
and Article V.
1.39 HMO. "HMO" means a health maintenance organization that provides
---
benefits under the 3Com Health Plans or the Palm Health Plans.
1.40 HMO Agreements. "HMO Agreements" is defined in Subsection 5.1(c)(iii)
--------------
and Schedule 5.1(c)(iii).
1.41 IPO. "IPO" means the initial public offering of Palm common stock
---
pursuant to a registration statement on Form S-1 pursuant to the Securities Act
of 1933, as amended.
1.42 IPO Closing Date. "IPO Closing Date" means the closing of the IPO,
----------------
which is currently scheduled to occur prior to June 2, 2001.
1.43 IPO Registration Statement. "IPO Registration Statement" means the
--------------------------
registration statement on Form S-1 pursuant to the Securities Act of 1933 as
amended, to be filed with the SEC registering the shares of common stock of Palm
to be issued in the IPO, together with all amendments thereto.
1.44 IRS. "IRS" means the United States Internal Revenue Service.
---
1.45 Leave of Absence Plans. "Leave of Absence Plans," when immediately
----------------------
preceded by "3Com," means the personal, medical/disability, military, and FMLA
leave offered from time to time under the personnel policies and practices of
3Com. When immediately preceded by "Palm,"
5
<PAGE>
"Leave of Absence Plans" means the leave of absence programs to be established
by Palm pursuant to Sections 2.2 and 5.12.
1.46 Liabilities. "Liabilities" means all debts, liabilities, guarantees,
-----------
assurances, commitments, and obligations, whether fixed, contingent or absolute,
asserted or unasserted, matured or unmatured, liquidated or unliquidated,
accrued or not accrued, known or unknown, due or to become due, whenever or
however arising (including, without limitation, whether arising out of any
Contract or tort based on negligence or strict liability) and whether or not the
same would be required by generally accepted accounting principles to be
reflected in financial statements or disclosed in the notes thereto. For this
purpose, "Contract" means any contract, agreement, lease, license, sales order,
purchase order, instrument or other commitment that is binding on any Person or
any part of its property under applicable law.
1.47 Long-Term Care Plan. "Long-Term Care Plan," when immediately preceded
-------------------
by "3Com," means the 3Com Long-Term Care Plan. When immediately preceded by
"Palm," "Long-Term Care Plan" means the long-term care plan, if any, that may be
established by Palm pursuant to Sections 2.2 and 5.9.
1.48 Long-Term Disability Plan. "Long-Term Disability Plan," when
-------------------------
immediately preceded by "3Com," means the 3Com Long-Term Disability Plan. When
immediately preceded by "Palm," Long-Term Disability Plan" means the long-term
disability plan to be established by Palm pursuant to Section 2.2 and Subsection
5.7(b).
1.49 Master Transitional Services Agreement. "Master Transitional Services
--------------------------------------
Agreement" means the Ancillary Agreement which is Exhibit G to the Separation
Agreement.
1.50 Material Feature. "Material Feature" means any feature of a Plan that
----------------
could reasonably be expected to be of material importance, in the aggregate, to
the sponsoring employer or the participants (or their dependents or
beneficiaries) of that Plan, which could include, depending on the type and
purpose of the particular Plan, the class or classes of employees eligible to
participate in such Plan, the nature, type, form, source, and level of benefits
provided under such Plan, the amount or level of contributions, if any, required
to be made by participants (or their dependents or beneficiaries) to such Plan,
and the costs and expenses incurred by the sponsoring employer or Participating
Companies for implementing and/or maintaining such Plan.
1.51 Nasdaq. "Nasdaq" means the Nasdaq National Market.
------
1.52 Non-U.S. Plan. "Non-U.S. Plan" means the local transfer agreements,
-------------
assignments, assumptions, novations and other documents executed by the foreign
subsidiaries of 3Com and Palm as shall be necessary to carry out the plan of
reorganization described in Exhibit K to the Separation Agreement to effect the
purposes of the Separation Agreement with respect to 3Com and Palm's respective
operations outside the U.S.
6
<PAGE>
1.53 Option. "Option," when immediately preceded by "3Com," means an option
------
to purchase 3Com common stock pursuant to a Stock Plan. When immediately
preceded by "Palm," "Option" means an option to purchase Palm common stock
pursuant to a Stock Plan.
1.54 Outsource. "Outsource" is defined in Section 5.13(c).
---------
1.55 Palm. "Palm" means Palm, Inc., a Delaware corporation. In all such
----
instances in which Palm is referred to in this Agreement, it shall also be
deemed to include a reference to each member of the Palm Group, unless it
specifically provides otherwise; Palm shall be solely responsible to 3Com for
ensuring that each member of the Palm Group complies with the applicable terms
of this Agreement.
1.56 Palm Business. "Palm Business" means the hand held computing business
-------------
and related businesses and operations as described in the IPO Registration
Statement.
1.57 Palm Claims. "Palm Claims" is defined in Subsection 5.13(a).
-----------
1.58 Palm Employee. "Palm Employee" means any individual who is: (a) either
-------------
actively employed by, or on leave of absence from, the Palm Group on the
Separation Date; (b) either actively employed by, or on leave of absence from,
the 3Com Group as either part of a work group or organization, or common support
function that, at any time after the Separation Date and before the Distribution
Date, moves to the employ of the Palm Group from the employ of the 3Com Group;
(c) a Palm Terminated Employee; (d) employed by the Palm Group; (e) any other
employee or group of employees designated as Palm Employees (as of the specified
date) by 3Com and Palm by mutual agreement; or (f) an alternate payee under a
QDRO, alternate recipient under a QMCSO, beneficiary, covered dependent, or
qualified beneficiary (as such term is defined under COBRA), in each case, of an
employee or former employee, described in Subsections 1.58(a) through (e) with
respect to that employee's or former employee's benefit under the applicable
Plan(s) (unless specified otherwise in this Agreement, such an alternate payee,
alternate recipient, beneficiary, covered dependent, or qualified beneficiary
shall not otherwise be considered a Palm Employee with respect to any benefits
he or she accrues or accrued under any applicable Plan(s), unless he or she is a
Palm Employee by virtue of Subsections 1.58(a) through (e)).
1.59 Palm Group. "Palm Group" means Palm and each Subsidiary and Affiliate
----------
of Palm immediately after the Separation Date, or that is contemplated to be a
Subsidiary or Affiliate of Palm pursuant to the Non-U.S. Plan and each Person
that becomes a Subsidiary or Affiliate of Palm after the Separation Date.
1.60 Palm Stock Value. "Palm Stock Value" means the opening per-share price
----------------
of Palm common stock as listed on Nasdaq, as applicable, on the first trading
day after the Distribution Date.
1.61 Palm Terminated Employee. "Palm Terminated Employee" means any
------------------------
individual who is: (a) a former employee of the 3Com Group who was terminated
from the Palm Business on or before the Separation Date; or (b) a former
employee of the Palm Group. Notwithstanding the
7
<PAGE>
foregoing, "Palm Terminated Employee" shall not, unless otherwise expressly
provided to the contrary in this Agreement, include: (a) an individual who is a
3Com Employee at the Distribution Date; or (b) an individual who is otherwise a
Palm Terminated Employee, but who is subsequently employed by the 3Com Group
prior to the Distribution Date.
1.62 Palm Transferred Employee. "Palm Transferred Employee" means any
-------------------------
individual who, as of the Distribution Date, is: (a) either actively employed
by, or on a leave of absence from, the Palm Group; (b) a Palm Terminated
Employee; (c) an employee or group of employees designated by 3Com and Palm, by
mutual agreement, as Palm Transferred Employees; or (d) an alternate payee under
a QDRO, alternate recipient under a QMCSO, beneficiary, covered dependent, or
qualified beneficiary (as such term is defined under COBRA), in each case, of an
employee or former employee, described in Subsections 1.62(a) through (c) with
respect to that employee's or former employee's benefit under the applicable
Plan(s) (unless specified otherwise in this Agreement, such an alternate payee,
alternate recipient, beneficiary, covered dependent, or qualified beneficiary
shall not otherwise be considered a Palm Transferred Employee with respect to
any benefits he or she accrues or accrued under any applicable Plan(s), unless
he or she is a Palm Transferred Employee by virtue of Subsections 1.62(a)
through (c)). An employee may be a Palm Transferred Employee pursuant to this
Section regardless of whether such employee is, as of the Distribution Date,
alive, actively employed, on a temporary leave of absence from active
employment, on layoff, terminated from employment, retired or on any other type
of employment or post-employment status relative to a 3Com Plan, and regardless
of whether, as of the Distribution Date, such employee is then receiving any
coverage under or benefits from a 3Com Plan.
1.63 Participating Company. "Participating Company" means: (a) 3Com; (b)
---------------------
any Person (other than an individual) that 3Com has approved for participation
in, has accepted participation in, and which is participating in, a Plan
sponsored by 3Com; and (c) any Person (other than an individual) which, by the
terms of such Plan, participates in such Plan or any employees of which, by the
terms of such Plan, participate in or are covered by such Plan.
1.64 Person. "Person" means an individual, a partnership, a corporation, a
------
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization, and a governmental entity or any
department, agency or political subdivision thereof.
1.65 Plan. "Plan" means any plan, policy, program, payroll practice,
----
arrangement, contract, trust, insurance policy, or any agreement or funding
vehicle providing compensation or benefits to employees, former employees,
directors or consultants of 3Com or Palm.
1.66 Post-Distribution Period. "Post-Distribution Period" means, for each
------------------------
designated Plan, the period beginning as of the Distribution Date and ending on
the date that no member of the Palm Group is using 3Com benefit delivery and
administrative services with respect to that Plan.
1.67 Premium Plan. "Premium Plan," when immediately preceded by "3Com,"
------------
means the 3Com Medical/Dental Pre-Tax Premium Plan, the vehicle by which
employees participating in the 3Com Health and Welfare Plans can contribute
their portion of the premium payments with pre-tax
8
<PAGE>
dollars. When immediately preceded by "Palm," "Premium Plan" means the
medical/dental pre-tax premium plan to be established by Palm pursuant to
Sections 2.2 and 5.10.
1.68 PTO. "PTO," when immediately preceded by "3Com," means the 3Com
---
Personal Time Off Policy. When immediately preceded by "Palm," "PTO" means the
Palm personal time off policy to be established by Palm pursuant to Sections 2.2
and 9.6.
1.69 QDRO. "QDRO" means a domestic relations order which qualifies under
----
Code Section 414(p) and ERISA Section 206(d) and which creates or recognizes an
alternate payee's right to, or assigns to an alternate payee, all or a portion
of the benefits payable to a participant under the 3Com 401(k) Plan.
1.70 QMCSO. "QMCSO" means a medical child support order which qualifies
-----
under ERISA Section 609(a) and which creates or recognizes the existence of an
alternate recipient's right to, or assigns to an alternate recipient the right
to, receive benefits for which a participant or beneficiary is eligible under
any of the Health Plans.
1.71 Rabbi Trust. "Rabbi Trust," when immediately preceded by "3Com,"
-----------
means the rabbi trust established for purposes of holding assets under the 3Com
Deferred Compensation Plan. When immediately preceded by "Palm," "Rabbi Trust"
means the grantor trust to be established by Palm pursuant to Section 4.1(a).
1.72 Ratio. "Ratio" means the ratio determined by dividing the Palm Stock
-----
Value by the 3Com Stock Value.
1.73 Record Date. "Record Date" means the close of business on the date to
-----------
be determined by the Board of Directors of 3Com as the record date for
determining the stockholders of 3Com entitled to receive shares of common stock
of Palm in the Distribution
1.74 Restricted Stock. "Restricted Stock," when immediately preceded by
----------------
"3Com," means shares of 3Com common stock that are subject to transfer
restrictions or to employment and/or performance vesting conditions, pursuant to
a 3Com Stock Plan. When immediately preceded by "Palm," "Restricted Stock" means
shares of Palm common stock that are subject to transfer restrictions or to
employment and/or performance vesting conditions, pursuant to a Palm Stock Plan.
1.75 Revenue. "Revenue" means net revenue as determined in accordance with
-------
generally accepted accounting principles.
1.76 Sabbatical Plan. "Sabbatical Plan," when immediately preceded by
---------------
"3Com," means the 3Com Sabbatical Plan. When immediately preceded by "Palm,"
"Sabbatical Plan" means the sabbatical plan, if any, to be established by Palm
pursuant to Sections 2.2 and 5.6.
1.77 SEC. "SEC" means the United States Securities and Exchange
---
Commission.
9
<PAGE>
1.78 Section 125 Plan. "Section 125 Plan," when immediately preceded by
----------------
"3Com," means the 3Com Premium Plan, the 3Com FSA/Dependent Reimbursement Plan,
and the 3Com FSA/Medical Reimbursement Plan. When immediately preceded by
"Palm," "Section 125 Plan" means the Palm Premium Plan, the Palm FSA/Dependent
Reimbursement Plan, and the Palm FSA/Medical Reimbursement Plan to be
established by Palm pursuant to Sections 2.2 and 5.10.
1.79 Separation. "Separation" means the contribution and transfer from 3Com
----------
to Palm, and Palm's receipt and assumption of, directly or indirectly,
substantially all of the Assets and Liabilities currently associated with the
Palm Business and the stock, investments or similar interests currently held by
3Com in subsidiaries and other entities that conduct such business.
1.80 Separation Agreement. "Separation Agreement" means the Master
--------------------
Separation and Distribution Agreement, dated as of [December ___, 1999], of
which this is Exhibit E thereto.
1.81 Separation Date. "Separation Date" means the effective date and time
---------------
of each transfer of property, assumption of liability, license, undertaking, or
agreement in connection with the Separation which shall, with respect to non-
Foreign Plans and U.S. employees, be 12:01 a.m., Pacific Time, [February 25/26,
2000], and/or such other date(s) as may be fixed by the Board of Directors of
3Com.
1.82 Severance Plan. "Severance Plan," when immediately preceded by "3Com,"
--------------
means the 3Com Severance Plan. When immediately preceded by "Palm," "Severance
Plan" means the severance program, if any, to be established by Palm pursuant to
Sections 2.2 and 5.5.
1.83 Short-Term Disability Plan. "Short-Term Disability Plan," when
--------------------------
immediately preceded by "3Com," means the 3Com Short-Term Disability Plan. When
immediately preceded by "Palm," Short-Term Disability Plan" means the short-term
disability plan to be established by Palm pursuant to Section 2.2 and Subsection
5.7(a).
1.84 SOS Plan. "SOS Plan," when immediately preceded by "3Com," means the
--------
3Com Share Our Success ("SOS") Plan. When immediately preceded by "Palm," "SOS"
means the matching gift program for charitable contributions, if any, to be
established by Palm pursuant to Sections 2.2 and 7.7.
1.85 Stock Plan. "Stock Plan," when immediately preceded by "3Com," means
----------
any plan, program, or arrangement, other than the Stock Purchase Plan, pursuant
to which employees and other service providers hold Options, 3Com Restricted
Stock, or other 3Com equity incentives. When immediately preceded by "Palm,"
"Stock Plan" means substantially similar plans, programs, or arrangements, to be
established by Palm pursuant to Section 2.2 and Article VI.
1.86 Stock Purchase Plan. "Stock Purchase Plan," when immediately preceded
-------------------
by "3Com," means the 3Com Employee Stock Purchase Plan. When immediately
preceded by "Palm," "Stock Purchase Plan" means the employee stock purchase plan
to be established by Palm pursuant to Sections 2.2 and 6.5.
10
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1.87 Subsidiary. "Subsidiary" of any person means a corporation or other
----------
organization, whether incorporated or unincorporated, of which at least a
majority of the securities or interest having by the terms thereof ordinary
voting power to elect at least a majority of the board of directors or others
performing similar functions with respect to such corporation or other
organization, is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries; provided, however that no Person that is not directly or
indirectly wholly-owned by any other Person shall be a Subsidiary of such other
Person unless such other Person controls, or has the right, power or ability to
control that Person. Unless the context otherwise requires, reference to 3Com
and its Subsidiaries shall not include the subsidiaries of 3Com that will be
transferred to Palm after giving effect to the Separation, including the actions
taken pursuant to the Non-U.S. Plans.
1.88 Tax Sharing Agreement. "Tax Sharing Agreement" means the Ancillary
---------------------
Agreement, which is Exhibit F to the Separation Agreement.
1.89 Unemployment Insurance Program. "Unemployment Insurance Program,"
------------------------------
when immediately preceded by "3Com," means the group unemployment insurance
policies purchased by 3Com from time to time. When immediately preceded by
"Palm," "Unemployment Insurance Program" means any group unemployment insurance
program to be established by Palm pursuant to Section 9.10.
1.90 WellCom Program. "WellCom Program" is defined in Section 7.6.
---------------
1.91 Workers' Compensation Plan. "Workers' Compensation Plan" when
--------------------------
immediately preceded by "3Com" means the 3Com Workers' Compensation Plan,
comprised of the various arrangements established by a member of the 3Com Group
to comply with the workers' compensation requirements of the states in which the
3Com Group conducts business. When immediately preceded by "Palm," "Workers'
Compensation Plan" means the workers' compensation program to be established by
Palm pursuant to Section 5.13.
11
<PAGE>
ARTICLE II
GENERAL PRINCIPLES
------------------
2.1 Assumption of Palm Liabilities. Except as specified otherwise in this
------------------------------
Agreement or as mutually agreed upon by Palm and 3Com from time to time,
effective as of Separation Date, Palm hereby assumes and agrees to pay, perform,
fulfill and discharge, in accordance with their respective terms, all of the
following: (a) all Liabilities of, or relating to, Palm Employees or Palm
Transferred Employees, in each case relating to, arising out of, or resulting
from future, present or former employment with the Palm Business (including
Liabilities relating to, arising out of, or resulting from 3Com Plans and Palm
Plans); (b) all Liabilities relating to, arising out of, or resulting from any
other actual or alleged employment relationship with the Palm Group; and (c) all
other Liabilities relating to, arising out of, or resulting from obligations,
liabilities and responsibilities expressly assumed or retained by the Palm
Group, or a Palm Plan pursuant to this Agreement. Except as specified otherwise
in this Agreement or as otherwise mutually agreed upon by 3Com and Palm from
time to time, 3Com shall transfer to Palm amounts equal to trust assets,
insurance reserves, and other related assets as consistent with the applicable
Plan transition that relates to, arises out of, or results from Palm's pro rata
interest in each 3Com Plan.
2.2 Establishment of Palm Plans.
---------------------------
(a) Health and Welfare Plans. Except as specified otherwise in this
------------------------
Agreement, effective as of the Distribution Date (or such other date(s) as 3Com
and Palm may mutually agree), Palm shall adopt the Palm Health and Welfare
Plans. Except as otherwise specified in this Agreement, to the extent
administratively and financially practicable, each of the foregoing Palm Plans
as in effect as of the Distribution Date (or such other date(s) as 3Com and Palm
may mutually agree), shall be comparable in the aggregate in all Material
Features to the corresponding 3Com Plan as in effect as of such agreed upon
date.
(b) 401(k) and Fringe Benefit Plans. Except as specified otherwise in
-------------------------------
this Agreement, effective as of the Distribution Date (or such other date(s) as
3Com and Palm may mutually agree), Palm shall adopt the Palm 401(k) Plan and the
Palm Fringe Benefit Plans. Except as otherwise specified in this Agreement, to
the extent administratively and financially practicable, each of the foregoing
Palm Plans as in effect as of the Distribution Date (or such other date(s) as
3Com and Palm may mutually agree), shall be comparable in the aggregate in all
Material Features to the corresponding 3Com Plan as in effect as of such agreed
upon date.
(c) Equity and Other Compensation. Except as specified otherwise in
-----------------------------
this Agreement, effective on or before the IPO (or such other date(s) as 3Com
and Palm may mutually agree), Palm shall adopt the Palm Stock Plans. Except as
specified otherwise in this Agreement, effective as of Distribution Date (or
such other date(s) as 3Com and Palm may mutually agree), Palm shall adopt the
Palm Executive Bonus Plan and the Palm Bonus Plan. Effective on or before
12
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the IPO (or such other date as 3Com and Palm may mutually agree), Palm shall
adopt the Palm Stock Purchase Plan. Each of the foregoing Palm Plans as in
effect as of the IPO (or such other date(s) as 3Com and Palm may mutually
agree), shall be comparable in the aggregate in all Material Features to the
corresponding 3Com Plan as in effect on the IPO.
(d) Other Plans. Except as otherwise specified in this Agreement,
-----------
effective as of the Separation Date (or such other date(s) as 3Com and Palm may
mutually agree), Palm shall adopt certain Palm Plans that are specifically tied
to its payroll practices, including, without limitation, a Short-Term Disability
Plan, a PTO Plan and a Deferred Compensation Plan. Palm shall also adopt a
Section 125 Plan, effective as of January 1, 2000.
2.3 Palm Under No Obligation to Maintain Plans. Except as specified
------------------------------------------
otherwise in this Agreement, nothing in this Agreement shall preclude Palm, at
any time after the Distribution Date, from amending, merging, modifying,
terminating, eliminating, reducing, or otherwise altering in any respect any
Palm Plan, any benefit under any Palm Plan or any trust, insurance policy or
funding vehicle related to any Palm Plans, or any employment or other service
arrangement with Palm Employees or vendors (to the extent permitted by law).
2.4 Palm's Participation in 3Com Plans.
----------------------------------
(a) Participation in 3Com Plans. Except as specified otherwise in
---------------------------
this Agreement or as 3Com and Palm may mutually agree, Palm shall, until the
Distribution Date, continue to be a Participating Company in the 3Com Plans to
the extent that Palm has not established a corresponding Plan. Effective as of
any date on or after the Separation Date and before the Distribution Date (or
such other date(s) as 3Com or Palm may mutually agree), any member of the Palm
Group not described in the preceding sentence may, at its request and with the
consent of 3Com and Palm, become a Participating Company in any or all of the
3Com Plans, to the extent that Palm has not yet established a corresponding
Plan.
(b) 3Com's General Obligations as Plan Sponsor. To the extent that
------------------------------------------
Palm is a Participating Company in any 3Com Plan, 3Com shall continue to
administer, or cause to be administered, in accordance with its terms and
applicable law, such 3Com Plan, and shall have the sole and absolute discretion
and authority to interpret the 3Com Plan, as set forth therein. 3Com shall not
amend any Material Feature of any 3Com Plan in which Palm is a Participating
Company, except to the extent: (i) such amendment would not materially affect
any coverage or benefits of Palm Employees or Palm Transferred Employees under
such Plan; (ii) Palm shall consent to such amendment and such consent shall not
be unreasonably withheld; or (iii) such amendment is necessary or appropriate to
comply with applicable law.
(c) Palm's General Obligations as Participating Company. Palm shall
---------------------------------------------------
perform, with respect to its participation in the 3Com Plans, the duties of a
Participating Company as set forth in each such Plan or any procedures adopted
pursuant thereto, including (without limitation): (i) assistance in the
administration of claims, to the extent requested by the claims administrator of
the applicable 3Com Plan; (ii) full cooperation with 3Com Plan auditors, benefit
personnel and
13
<PAGE>
benefit vendors; (iii) preservation of the confidentiality of all financial
arrangements 3Com has or may have with any vendors, claims administrators,
trustees, service providers or any other entity or individual with whom 3Com has
entered into an agreement relating to the 3Com Plans; and (iv) preservation of
the confidentiality of participant information (including, without limitation,
health information in relation to FMLA leaves) to the extent not specified
otherwise in this Agreement.
(d) Termination of Participating Company Status. Except as otherwise
-------------------------------------------
may be mutually agreed upon by 3Com and Palm, effective as of the Distribution
Date or such other date as Palm establishes a corresponding Plan (as specified
in Section 2.2 or otherwise in this Agreement), Palm shall automatically cease
to be a Participating Company in the corresponding 3Com Plan.
2.5 Terms of Participation by Palm Transferred Employees in Palm Plans.
------------------------------------------------------------------
(a) Non-Duplication of Benefits. Except as specified otherwise in
---------------------------
this Agreement, as of the Distribution Date, or other later date that applies to
the particular Palm Plan established thereafter, the Palm Plans shall be, with
respect to Palm Transferred Employees, in all respects the successors in
interest to, and shall not provide benefits that duplicate benefits provided by,
the corresponding 3Com Plans. 3Com and Palm shall agree on methods and
procedures, including amending the respective Plan documents, to prevent Palm
Employees from receiving duplicate benefits from the 3Com Plans and the Palm
Plans.
(b) Service Credit. Except as specified otherwise in this Agreement,
--------------
with respect to Palm Transferred Employees, each Palm Plan shall provide that
all service, all compensation and all other benefit-affecting determinations
that, as of the Distribution Date, were recognized under the corresponding 3Com
Plan shall, as of the Distribution Date, receive full recognition and credit and
be taken into account under such Palm Plan to the same extent as if such items
occurred under such Palm Plan, except to the extent that duplication of benefits
would result. Notwithstanding the foregoing, 3Com and Palm shall recognize
service with either 3Com or Palm that was recognized as of the Distribution
Date, except to the extent provided in Subsection 2.5(a) above. The service
crediting provisions shall be subject to any respectively applicable "service
bridging," "break in service," "employment date," or "eligibility date" rules
under the Palm Plans and the 3Com Plans.
(c) Assumption of Liabilities. Except as specified otherwise in this
-------------------------
Agreement (including, without limitation, the exception applicable to self-
insured Health Plans), the provisions of this Agreement for the transfer of
Assets relating to 3Com Plans to Palm and/or the appropriate Palm Plans are
based upon the understanding of the parties that Palm and/or the appropriate
Palm Plan will assume all Liabilities of the corresponding 3Com Plan to or
relating to Palm Transferred Employees, as provided for herein. If any such
Liabilities are not effectively assumed by Palm and/or the appropriate Palm
Plan, then the amount of transferred Assets shall be recomputed accordingly,
taking into account the retention of such Liabilities by such 3Com Plan, and
Assets shall be transferred from Palm and/or the appropriate Palm Plan to 3Com
and/or the appropriate 3Com Plan so as to place Palm and/or the appropriate Palm
Plan in the position it would have been in had the initial Asset transfer been
made in accordance with such recomputed amount of assets.
14
<PAGE>
2.6 Benefits Committee and Dispute Resolution. From the date of this
-----------------------------------------
Agreement through the later of the Distribution Date or the end of the Post-
Distribution Period, as applicable, the management of the Plans shall be
conducted under the supervision of the Benefits Committee. The Benefits
Committee shall consist of an equal number of representatives from 3Com and Palm
as appointed by the 3Com Senior Vice President, Human Resources, and the
functional equivalent of Palm, and shall provide strategic oversight and
direction of the cohesive administration of the Plans. Issues that cannot be
resolved by the Benefits Committee shall be decided, at the request of either
party, by the Palm Senior Vice President, Human Resources (or the functional
equivalent) (or his or her authorized delegate) and the 3Com Senior Vice
President, Human Resources (or his or her authorized delegate). After the
exhaustion of the process, as specified herein, any outstanding issue shall be
resolved in accordance with Section 5.9 of the Separation Agreement, entitled
"Dispute Resolution."
2.7 Foreign Plans. Palm and 3Com each intend that matters, issues, or
-------------
Liabilities relating to, arising out of, or resulting from Foreign Plans and
non-U.S.-related employment matters be handled in a manner that is consistent
with comparable U.S. matters, issues, or Liabilities as reflected in this
Agreement (to the extent permitted by applicable law or as otherwise specified
in the applicable Section or Schedule thereto or Schedule 2.7).
15
<PAGE>
ARTICLE III
DEFINED CONTRIBUTION PLAN
-------------------------
3.1 401(k) Plan.
-----------
(a) 401(k) Plan Trust. Effective as of the Distribution Date (or such
-----------------
other date as 3Com and Palm may mutually agree), Palm shall establish, or cause
to be established, a separate trust, which is intended to be tax-qualified under
Code Section 401(a), to be exempt from taxation under Code Section 501(a)(1),
and to form the Palm 401(k) Plan.
(b) 401(k) Plan: Assumption of Liabilities and Transfer of Assets.
-------------------------------------------------------------
Effective as of the Distribution Date (or such other date as 3Com and Palm may
mutually agree): (i) the Palm 401(k) Plan shall assume and be solely responsible
for all Liabilities relating to, arising out of, or resulting from Palm
Transferred Employees under the 3Com 401(k) Plan; and (ii) 3Com shall cause the
accounts of the Palm Transferred Employees under the 3Com 401(k) Plan that are
held by its related trust to be transferred to the Palm 401(k) Plan and its
related trust, and Palm shall cause such transferred accounts to be accepted by
such Plan and its related trust. Effective as of the Distribution Date (or such
other date as 3Com and Palm may mutually agree), Palm shall use its commercially
reasonable best efforts to enter into agreements satisfactory to Palm to
accomplish such assumption and transfer, the maintenance of the necessary
participant records, the appointment of State Street Corporation as the initial
trustee under the Palm 401(k) Plan, and the engagement of State Street Global
Advisors as the initial recordkeeper under the Palm 401(k) Plan. Palm and 3Com
each agree to use their commercially reasonable best efforts to accomplish this
401(k) Plan and related trust spin-off.
(c) 401(k) Plan: Stock Considerations. As a result of the spin-off of
---------------------------------
the 3Com 401(k) Plan and to the extent that immediately prior to such time, the
3Com 401(k) Plan continues to consist of 3Com employer securities, then the
resulting 3Com 401(k) Plan and Palm 401(k) Plan shall both consist in part of
3Com and Palm employer securities. Palm and 3Com shall assume sole
responsibility for ensuring that their respective company stock funds, and
underlying employer securities held in each such fund, are maintained in
compliance with all requirements of the SEC.
(d) No Distribution to Palm Transferred Employees. The 3Com 401(k)
---------------------------------------------
Plan and the Palm 401(k) Plan shall provide that no distribution of account
balances shall be made to any Palm Transferred Employee on account of the Palm
Group ceasing to be an Affiliate of the 3Com Group as of the Distribution Date.
16
<PAGE>
ARTICLE IV
NON-QUALIFIED PLAN
------------------
4.1 Deferred Compensation Plan.
--------------------------
(a) Establishment of Palm Rabbi Trust. Effective on or before the
---------------------------------
Separation Date (or such other date as 3Com and Palm may mutually agree), Palm
shall establish the Palm Deferred Compensation Plan and the Palm Rabbi Trust.
(b) Allocation and Assumption of Liabilities. As of the date that
----------------------------------------
Palm establishes the Palm Deferred Compensation Plan, 3Com shall determine the
amount of Liabilities under the 3Com Deferred Compensation Plan, attributable to
Palm Employees. As soon as administratively practicable thereafter, 3Com shall
pay to Palm or to the trustee of the Palm Rabbi Trust, as Palm specifies, an
amount of 3Com's Assets equal to such Liabilities. Coincident with the receipt
of such transfer of Assets, Palm shall assume all responsibilities and
obligations relating to, arising out of, or resulting from such Liabilities.
(c) Participation in Deferred Compensation Plans. Effective as of the
--------------------------------------------
Separation Date (or such other date as 3Com and Palm may mutually agree),
eligible Palm Employees may commence participation in the Palm Deferred
Compensation Plan. Palm Employees who are currently participating in the 3Com
Deferred Compensation Plan shall continue their participation in that Plan
(according to its terms) to the Separation Date (or such other date as 3Com and
Palm may mutually agree).
17
<PAGE>
ARTICLE V
HEALTH AND WELFARE PLANS
------------------------
5.1 Health Plans as of the Distribution Date.
----------------------------------------
(a) Palm Health Plans. As of the Distribution Date (or such other
-----------------
date(s) as 3Com and Palm may mutually agree), Palm shall have established the
Palm Health Plans listed on Schedule 5.1(a) and, correspondingly, Palm shall
cease to be a Participating Company in the 3Com Health Plans. Palm shall be
solely responsible for the administration of the Palm Health Plans, including
the payment of all employer-related costs in establishing and maintaining the
Palm Health Plans, and for the collection and remittance of employee premiums,
subject to Section 8.2.
(b) Pending Treatments. Notwithstanding Subsection 5.1(a) above, all
------------------
treatments which have been pre-certified for or are being provided to a Palm
Transferred Employee as of the Distribution Date shall be provided without
interruption under the appropriate 3Com Health Plan (to the extent such
continued treatment is not provided under a Palm Health Plan) until such
treatment is concluded, discontinued, or, if earlier, through December 31, 2000,
pursuant to applicable Health Plan rules and limitations, but Palm shall
continue to be responsible for all Liabilities relating to, arising out of, or
resulting from such on-going treatments as of the Distribution Date.
(c) Vendor Arrangements. 3Com shall use its commercially reasonable
-------------------
best efforts for and on behalf of Palm to procure, effective as of the
Distribution Date (or such other date(s) as 3Com and Palm may mutually agree):
(i) third party ASO Contracts which are comparable in the aggregate in all
Material Features to the ASO Contracts entered into by 3Com, as set forth in
Schedule 5.1(c)(i) (the "ASO Contracts); (ii) Group Insurance Policies, which
are comparable in the aggregate in all Material Features to the Group Insurance
Policies entered into by 3Com, as set forth in Schedule 5.1(c)(ii) (the "Group
Insurance Policies"); and (iii) an HMO Agreement which is comparable in the
aggregate in all Material Features to the HMO Agreement entered into by 3Com, as
set forth in Schedule 5.1(c)(iii) (the "HMO Agreement"). In each case, Palm
shall, as of the Distribution Date (or such other date as 3Com and Palm may
mutually agree), establish, adopt and/or implement such contracts, agreements or
arrangements. Palm may, at such future date after the Distribution Date, elect
to discontinue such contracts, agreements or arrangements in accordance with
Section 2.3.
(d) Continuance of Elections, Co-Payments and Maximum Benefits.
----------------------------------------------------------
(i) As of the Distribution Date and for the remainder of the
plan year in which the Distribution Date occurs (or such other period as 3Com
and Palm may mutually agree), Palm shall make its commercially reasonable best
efforts to cause the Palm Health Plans to recognize and maintain all coverage
and contribution elections made by Palm Employees and Palm Transferred Employees
under the 3Com Health Plans and apply such elections under the Palm
18
<PAGE>
Health Plans for the remainder of the period or periods for which such elections
are by their terms applicable. The transfer or other movement of employment
between 3Com to Palm at any time upon or before the Distribution Date shall
neither constitute nor be treated as a "status change" or termination of
employment under the 3Com Health Plans or the Palm Health Plans.
(ii) On and after the Distribution Date, Palm shall cause the
Palm Health Plans to recognize and give credit for (A) all amounts applied to
deductibles, out-of-pocket maximums, co-payments and other applicable benefit
coverage limits with respect to which such expenses have been incurred by Palm
Transferred Employees under the 3Com Health Plans for the remainder of the
calendar year in which the Distribution Date occurs, and (B) all benefits paid
to Palm Transferred Employees under the 3Com Health Plans for purposes of
determining when such persons have reached their lifetime maximum benefits under
the Palm Health Plans.
(e) HCFA. As of the Separation Date (or such other date as 3Com and
----
Palm may mutually agree), Palm shall assume all Liabilities relating to, arising
out of, or resulting from claims, if any, under the HCFA data match reports that
relate to Palm Transferred Employees
5.2 Health Plans from the Separation Date through the Distribution Date.
-------------------------------------------------------------------
Except as otherwise agreed by 3Com and Palm, for the period beginning with the
Separation Date and ending on the Distribution Date (or such other period as
3Com and Palm may mutually agree), Palm shall be a Participating Company in the
3Com Health Plans listed on Schedule 5.2(a). 3Com shall administer claims
incurred under the 3Com Health Plans by Palm Employees before the Distribution
Date but only to the extent that Palm has not, before the Distribution Date,
established and assumed administrative responsibility for a corresponding Health
Plan. Any determination made or settlements entered into by 3Com with respect to
such claims shall be final and binding. 3Com shall retain financial and
administrative ("run-out") Liability and all related obligations and
responsibilities for all claims incurred by Palm Transferred Employees before
the Distribution Date (or such other date(s) as 3Com and Palm may mutually
agree), including any claims that were administered by 3Com as of, on, or after
the Distribution Date (or such other date(s) as 3Com and Palm may mutually
agree). Except as set forth in the preceding sentence, Palm shall reimburse 3Com
for any and all direct and indirect costs and expenses associated with its
participation in the 3Com Health Plans, subject to Section 8.2.
5.3 Group Life Plan.
---------------
(a) Palm's Participation in 3Com Group Life Plan. Palm shall, until
--------------------------------------------
the Distribution Date (or such other date as 3Com and Palm may mutually agree),
continue to be a Participating Company in the 3Com Group Life Plan. Palm shall
cease to be a Participating Company in the 3Com Group Life Plan coincident with
Palm's establishment of the Palm Group Life Plan (or, if none, Palm's written
notice to 3Com of its withdrawal as a Participating Company in the 3Com Group
Life Plan). Palm shall reimburse 3Com for any and all direct and indirect costs
and expenses associated with its participation in the 3Com Group Life Plan,
subject to Section 8.2.
19
<PAGE>
(b) Palm's Establishment of Palm Group Life Plan. 3Com shall make its
--------------------------------------------
commercially reasonable best efforts to procure an arrangement on behalf of Palm
for a Group Life Plan which shall be comparable in the aggregate in all Material
Features to the 3Com Group Life Plan as are financially, administratively and
legally practicable. If 3Com procures such an arrangement, Palm will not
unreasonably withhold its consent to adopt such an arrangement to constitute the
Palm Group Life Plan. Palm will reimburse 3Com for its direct and indirect costs
and expenses associated with its procurement, preparation, and implementation of
the Palm Group Life Plan, subject to Section 8.2.
5.4 AD&D Plan.
---------
(a) Palm's Participation in 3Com AD&D Plan. Palm shall, until the
--------------------------------------
Distribution Date (or such other date as 3Com and Palm may mutually agree),
continue to be a Participating Company in the 3Com AD&D Plan. Palm shall cease
to be a Participating Company in the 3Com AD&D Plan coincident with Palm's
establishment of the Palm AD&D Plan (or, if none, Palm's written notice to 3Com
of its withdrawal as a Participating Company in the 3Com AD&D Plan). Palm shall
reimburse 3Com for any and all direct and indirect costs and expenses associated
with its participation in the 3Com AD&D Plan, subject to Section 8.2.
(b) Palm's Establishment of Palm AD&D Plan. 3Com shall make its
--------------------------------------
commercially reasonable best efforts to procure an arrangement on behalf of Palm
for an AD&D Plan which shall be comparable in the aggregate in all Material
Features to the 3Com AD&D Plan as are financially, administratively and legally
practicable to Palm. If 3Com procures such an arrangement, Palm shall not
unreasonably withhold its consent to adopt such an arrangement to constitute the
Palm AD&D Plan. Palm will reimburse 3Com for its direct and indirect costs and
expenses associated with its procurement, preparation and implementation of the
Palm AD&D Plan, subject to Section 8.2.
5.5 Severance Plan. Palm shall, until the Distribution Date (or such other
--------------
date as 3Com and Palm may mutually agree), continue to be a Participating
Company in the 3Com Severance Plan. Palm shall cease to be a Participating
Company in the 3Com Severance Plan coincident with Palm's establishment of the
Palm Severance Plan (or if none, Palm's written notice to 3Com of its withdrawal
as a Participating Company in the 3Com Severance Plan). If Palm so elects, 3Com
will assist Palm in establishing the Palm Severance Plan. Palm will reimburse
3Com for any and all direct and indirect costs and expenses related to its
participation in the 3Com Severance Plan and 3Com's preparation and
implementation of the Palm Severance Plan, subject to Section 8.2.
5.6 Sabbatical Plan.
---------------
(a) Palm's Participation in 3Com Sabbatical Plan. Palm shall, until
--------------------------------------------
the Distribution Date (or such other date as 3Com and Palm may mutually agree),
continue to be a Participating Company in the 3Com Sabbatical Plan. Palm shall
remit to 3Com or the trust fund for the 3Com Sabbatical Plan, as specified by
3Com, sufficient funds to assume its funding Liability under the 3Com Sabbatical
Plan relating to, arising out of, or resulting from Palm's participation in
20
<PAGE>
the 3Com Sabbatical Plan. Palm will also reimburse 3Com for any and all direct
and indirect costs and expenses associated with its participation in the 3Com
Sabbatical Plan, subject to Section 8.2. Palm shall cease to be a Participating
Company in the 3Com Sabbatical Plan coincident with Palm's establishment of the
Palm Sabbatical Plan.
(b) Allocation and Assumption of Liabilities. 3Com shall determine
----------------------------------------
the amount of Assets under the 3Com Sabbatical Plan and related trust as of the
Distribution Date (or such other date that Palm establishes the Palm Sabbatical
Plan) attributable to Palm. As soon as administratively practicable thereafter,
3Com shall pay to Palm or to the trustee of the Palm Sabbatical Plan, as Palm
specifies, an amount equal to Palm's Assets under the 3Com Sabbatical Plan, if
any.
(c) Palm Sabbatical Plan. Effective as of the Distribution Date (or
--------------------
such other date as 3Com and Palm may mutually agree), Palm shall establish the
Palm Sabbatical Plan which is comparable in the aggregate in all Material
Features to the 3Com Sabbatical Plan. If Palm so elects, 3Com will assist Palm
in preparing and implementing the Palm Sabbatical Plan and Palm will reimburse
3Com for its costs and expenses associated with the preparation and
implementation of the Palm Sabbatical Plan, subject to Section 8.2.
5.7 Disability Plans.
----------------
(a) Short-Term Disability Plan. Effective on or before the Separation
--------------------------
Date (or such other date as 3Com and Palm may mutually agree), Palm shall
implement or cause to be implemented, payroll procedures for purposes of
sponsoring and administering the Palm Short-Term Disability Plan outside of
California. Palm has adopted a state voluntary Disability Plan for Palm
Employees and Palm Transferred Employees who are employed in California. 3Com
will administer Palm's Short-Term Disability Plan through the Distribution Date
(or such other date as 3Com and Palm may mutually agree). Palm shall reimburse
3Com for its costs and expenses associated with such administration, subject to
Section 8.2.
(b) Long-Term Disability Plan. Palm shall, until the Distribution
-------------------------
Date (or such other date as Palm and 3Com may mutually agree), continue to be a
Participating Company in the 3Com Long-Term Disability Plan. 3Com shall use its
commercially reasonable best efforts for and on behalf of Palm to procure,
effective as of the Distribution Date (or such other date as 3Com and Palm may
mutually agree), a Palm Long-Term Disability Plan. Palm will reimburse 3Com for
any and all direct and indirect costs and expenses associated with its
participation in the 3Com Long-Term Disability Plan and 3Com's assistance in
procuring, preparing, and implementing the Palm Long-Term Disability Plan,
subject to Section 8.2.
5.8 Business Travel Accident Insurance. Through the Distribution Date (or
----------------------------------
such other date as 3Com and Palm may mutually agree), Palm shall remain a
Participating Company in the 3Com Business Travel Accident Insurance policy.
3Com shall be responsible for administering or causing to be administered the
3Com Business Travel Accident Insurance policy with respect to Palm Employees.
Palm shall reimburse 3Com for any and all direct and indirect expenses and costs
21
<PAGE>
associated with its participation in the 3Com Business Travel Accident Insurance
policy, subject to Section 8.2. 3Com shall use its commercially reasonable best
efforts for and on behalf of Palm to procure a Business Travel Accident
Insurance policy which shall be comparable in the aggregate in all Material
Features to the 3Com Business Travel Accident Insurance policy, effective as of
the Distribution Date (or such other date as 3Com and Palm may mutually agree).
If 3Com procures such an agreement, Palm shall not unreasonably withhold its
consent to adopt such an agreement to constitute the Palm Business Travel
Accident Insurance policy. Effective as of the Distribution Date, Palm shall be
solely responsible for maintaining its own Business Travel Accident Insurance
policy.
5.9 Long-Term Care Plan. Through the Distribution Date (or such other
-------------------
date as 3Com and Palm may mutually agree), Palm shall remain a Participating
Company in the 3Com Long-Term Care Plan. 3Com shall be responsible for
administering or causing to be administered the 3Com Long-Term Care Plan. Palm
shall reimburse 3Com for any and all direct and indirect costs and expenses
associated with its participation in the 3Com Long-Term Care Plan, subject to
Section 8.2. The Palm Employees and Palm Transferred Employees participating in
the 3Com Long-Term Care Plan shall have the rights to take their existing
benefits with them under such 3Com Long-Term Care Plan (a "portable benefit") at
the time their rights to participation would otherwise terminate.
5.10 Section 125 Plan. Through December 31, 1999 (or such other date as
----------------
3Com and Palm may mutually agree), Palm and designated members of the Palm Group
shall remain Participating Companies in the 3Com Section 125 Plan. The existing
elections for Palm Employees participating in the 3Com Section 125 Plan and for
newly-eligible Palm Employees who elect to participate in the 3Com Section 125
Plan shall remain in effect through December 31, 1999 (or such other date as
3Com and Palm may mutually agree). Effective on January 1, 2000 (or such other
date immediately following the date that Palm's participation in the 3Com
Section 125 Plan terminates), Palm shall establish, or caused to be established,
the Palm Section 125 Plan and Palm shall be solely responsible for the Palm
Section 125 Plan. 3Com will administer, or cause to be administered, the 3Com
Section 125 Plan for Palm Employees and the Palm Section 125 Plan through such
date as 3Com and Palm may mutually agree. Palm shall reimburse 3Com for any and
all direct and indirect expenses and costs attributable to Palm Employees,
subject to Section 8.2.
5.11 COBRA. 3Com shall be responsible through the Distribution Date (or
-----
such other date as 3Com and Palm may mutually agree), for compliance with the
health care continuation coverage requirements of COBRA and the 3Com Health and
Welfare Plans with respect to Palm Employees and qualified beneficiaries (as
such term is defined under COBRA). Palm shall be responsible for providing 3Com
with all necessary employee change notices and related information for covered
dependents, spouses, qualified beneficiaries (as such term is defined under
COBRA), and alternate recipients pursuant to QMCSO, in accordance with
applicable 3Com COBRA policies and procedures. As soon as administratively
practicable after the Distribution Date (or such other date as 3Com and Palm may
mutually agree), 3Com shall provide Palm (through hard copy, electronic format,
or such other mechanism as is appropriate under the circumstances), with a list
of all qualified beneficiaries (as such term is defined under COBRA) that relate
to the Palm Group and
22
<PAGE>
the relevant information pertaining to their coverage elections and remaining
COBRA time periods. Effective as of the Distribution Date (or such other date as
3Com and Palm may mutually agree), Palm shall be solely responsible for
compliance with the health care continuation coverage requirements of COBRA and
the Palm Health and Welfare Plans for Palm Transferred Employees and their
qualified beneficiaries (as such term is defined under COBRA); provided,
however, Palm may elect to retain 3Com's services in such manner and for such
period as 3Com and Palm may mutually agree to assist it with COBRA
administration and Palm will reimburse 3Com for its costs and expenses
associated with such administration, subject to Section 8.2.
5.12 Leave of Absence Plans and FMLA.
-------------------------------
(a) Allocation of Responsibilities After Separation Date. Effective
----------------------------------------------------
as of the Separation Date (or such other date as 3Com and Palm may mutually
agree): (i) Palm shall adopt Leave of Absence Plans which shall be comparable in
the aggregate in all Material Features to the 3Com Leave of Absence Plans as in
effect on the Separation Date (or such other date as 3Com and Palm may mutually
agree); (ii) Palm shall honor all terms and conditions of leaves of absence
which have been granted to any Palm Employee under a 3Com Leave of Absence Plan
or FMLA before the Separation Date by 3Com, including such leaves that are to
commence after the Separation Date (or such other date as 3Com and Palm may
mutually agree); and (iii) Palm shall recognize all periods of service of Palm
Employees and Palm Transferred Employees with the 3Com Group, as applicable, to
the extent such service is recognized by the 3Com Group for the purpose of
eligibility for leave entitlement under the 3Com Leave of Absence Plans and
FMLA; provided, however, that no duplication of benefits shall, to the extent
permitted by law, be required by the foregoing.
(b) Administration. Through the Distribution Date (or such other
--------------
such period as 3Com and Palm may mutually agree), 3Com will administer, or cause
to be administered, the Palm Leave of Absence Plans in such manner as 3Com and
Palm may mutually agree. Palm will reimburse 3Com for its costs and expenses
associated with such administration, subject to Section 8.2.
(c) Disclosure. Before the Distribution Date (or such other date as
----------
3Com and Palm may mutually agree), 3Com shall provide to Palm copies of all
records pertaining to the 3Com Leave of Absence Plans and FMLA with respect to
all Palm Employees and Palm Transferred Employees to the extent such records
have not been previously provided.
5.13 Workers' Compensation Plan.
--------------------------
(a) Assumption of 3Com and Palm Workers' Compensation Plan
------------------------------------------------------
Liabilities by Palm. Effective as of the Separation Date, Palm shall assume and
- -------------------
be solely responsible for all Liabilities relating to, arising out of, or
resulting from their claims by Palm Employees and Palm Transferred Employees
employment with the Palm Business ("Palm Claims") whether incurred before or
after the Separation Date.
23
<PAGE>
(b) Participation in the 3Com Workers' Compensation Plan. Palm shall,
----------------------------------------------------
until the Distribution Date (or such earlier date as Palm and 3Com may mutually
agree), continue to be a Participating Company in the 3Com Workers' Compensation
Plan. 3Com shall continue to administer, or cause to be administered, the 3Com
Workers' Compensation Plan in accordance with its terms and applicable law. Palm
shall fully cooperate with 3Com and its insurance company in the administration
and reporting of Palm Claims under the 3Com Workers' Compensation Plan. Any
determination made, or settlement entered into, by or on behalf of 3Com or its
insurance company with respect to Palm claims under the 3Com Workers'
Compensation Plan shall be final and binding. Palm shall reimburse 3Com and its
insurance company for any and all direct and indirect costs related to the Palm
claims or Palm's participation in the 3Com Workers' Compensation Plan,
including, but not limited to loss costs, claims administration fees, legal
expenses, premium audits, and retrospective premium adjustments, subject to
Section 8.2. 3Com shall transfer to and reimburse Palm any assets related to the
Palm claims or Palm's participation in the 3Com Workers' Compensation Plan,
including, but not limited to, loss reserves, premium audits, and retrospective
premium adjustments.
(c) Outsourcing of Palm Workers' Compensation Plan Claims. Palm shall
-----------------------------------------------------
have the right to transfer the administration of Palm Claims incurred under the
3Com Workers' Compensation Plan to a third party administrator, vendor, or
insurance company ("Outsource"). Palm shall promptly notify 3Com of its intent
to transfer such claims, including the material terms and conditions of the
transfer before the effective date thereof. 3Com, upon the request of Palm,
shall use its commercially reasonable best efforts to procure such Outsourcing
on behalf of Palm, assist Palm in the transition to Outsourcing, and provide
Palm with any information that is in the possession of 3Com and is reasonably
available and necessary to obtain such Outsourcing.
(d) Establishment of the Palm Workers' Compensation Plan. As of the
----------------------------------------------------
Distribution Date, Palm shall be responsible for complying with the workers'
compensation requirements of the states in which the Palm Group conducts
business and for obtaining and maintaining insurance programs for its risk of
loss. Such insurance arrangements shall be separate and apart from the 3Com
Workers' Compensation Plan. Notwithstanding the foregoing, 3Com, upon the
request of Palm, shall use its commercially reasonable best efforts to procure
workers' compensation insurance policies on behalf of Palm, assist Palm in the
transition to its own separate insurance program, and provide Palm with any
information that is in the possession of 3Com and is reasonably available and
necessary to either obtain insurance coverages for Palm or to assist Palm in
preventing unintended self-insurance, in whatever form.
5.14 Administrative Services. To the extent not provided otherwise in
-----------------------
this Article, 3Com shall provide certain administrative services to Palm in
conjunction with both the 3Com and Palm Health and Welfare Plans in such manner
and for such period as 3Com and Palm may mutually agree. Palm shall reimburse
3Com for any and all direct and indirect costs and expenses related thereto,
subject to Section 8.2.
24
<PAGE>
ARTICLE VI
EQUITY AND OTHER COMPENSATION
-----------------------------
6.1 Bonus Plan. Employees of the Palm Business (including, for this
----------
purpose, any employees of 3Com who are designated as employees of the Palm
Business for purposes of the Separation) shall cease their participation in the
3Com Bonus Plan in the quarter ending prior to the Distribution Date (or such
other date as 3Com and Palm may mutually agree). Any bonus pool, or portion
thereof, that has been finally determined or accrued for under the 3Com Bonus
Plan for the benefit of, or that is allocable to, employees of the Palm Business
(including for this purpose, any employees of 3Com who are designated as
employees of the Palm Business for purposes of the Separation) shall be paid to
such Employees pursuant to the terms and conditions of the 3Com Bonus Plan,
except that such payment shall be made on the Distribution Date (or such other
date as 3Com and Palm may mutually agree). Effective as of the Distribution Date
(or such other date as 3Com and Palm may mutually agree), Palm shall establish
the Palm Bonus Plan for Palm Employees and Palm Transferred Employees for Palm
fiscal period(s) beginning on and after the Distribution Date (or such other
date as 3Com and Palm may mutually agree), to be administered by the
Compensation Committee of the Palm Board of Directors.
6.2 Executive Bonus Plan. Employees of the Palm Business (including, for
--------------------
this purpose, any employees of 3Com who are designated as employees of the Palm
Business for purposes of the Separation) shall cease their participation in the
3Com Executive Bonus Plan in the quarter ending prior to the Distribution Date
(or such other date as 3Com and Palm may mutually agree). Any bonus pool, or
portion thereof, that has been finally determined or accrued for under the 3Com
Executive Bonus Plan for the benefit of, or that is allocable to, employees of
the Palm Business (including for this purpose, any employees of 3Com who are
designated as employees of the Palm Business for purposes of the Separation)
shall be paid to such Employees pursuant to the terms and conditions of the 3Com
Bonus Plan, except that such payment shall be made on the Distribution Date (or
such other date as 3Com and Palm may mutually agree). The 3Com Board of
Directors may, in its absolute discretion following the IPO, adjust the
performance and other factors applicable to any employee of the Palm Business
(including, for this purpose, any employees of 3Com who are designated as
employees of the Palm Business for purposes of the Separation) under the 3Com
Executive Bonus Plan to reflect any changes in such employee's position, duties
and responsibilities following the IPO in such equitable fashion as it shall
determine. Effective as of the Distribution Date (or such other date as 3Com and
Palm may mutually agree), Palm shall establish the Palm Executive Bonus Plan for
Palm Employees and Palm Transferred Employees for Palm fiscal period(s)
beginning on and after the Distribution Date (or such other date as 3Com and
Palm may mutually agree), to be administered by the Compensation Committee of
the Palm Board of Directors.
25
<PAGE>
6.3 3Com Options.
------------
(a) Option Assumption by Palm. At the Distribution Date (or such
-------------------------
other date as 3Com and Palm may mutually agree), each outstanding 3Com Option
held by Palm Transferred Employees, whether vested or unvested, shall be, in
connection with the Distribution, assumed by Palm. Each 3Com Option so assumed
by Palm shall continue to have, and be subject to, the same terms and conditions
set forth in the 3Com Stock Plans and as provided in the respective option
agreements governing such 3Com Option as of the Distribution Date (or such other
date as 3Com and Palm may mutually agree), except that (i) such 3Com Option
shall be exercisable for that number of whole shares of Palm common stock equal
to the quotient of the number of shares of 3Com common stock that were issuable
upon exercise of such 3Com Option as of the Distribution Date divided by the
Ratio, rounded down to the nearest whole number of shares of Palm common stock,
and (ii) the per share exercise price for the shares of Palm common stock
issuable upon exercise of such assumed 3Com Option shall be equal to the product
determined by multiplying the exercise price per share of 3Com common stock at
which such 3Com Option was exercisable as of the Distribution Date by the Ratio,
rounded up to the nearest whole cent.
(b) Assumption Criteria. It is the intention of 3Com and Palm that
-------------------
the assumption of 3Com Options by Palm pursuant to Subsection 6.3(a) meet the
following criteria: (i) the aggregate intrinsic value of the assumed 3Com
Options immediately after the assumption is not greater than such value
immediately before the assumption; (ii) with respect to each such assumed 3Com
Option, the ratio of the exercise price per share to the Palm Stock Value of the
assumed 3Com Options immediately after the assumption is not less than the ratio
of the exercise price per share to the 3Com Stock Value immediately before the
assumption; and (iii) the vesting and option term of the assumed 3Com Options
shall not be changed.
(c) Certain Non-U.S. Optionees. Except as may otherwise be agreed
--------------------------
upon by 3Com and Palm and/or as set forth in Schedule 6.3, this Section 6.3
shall govern the treatment of 3Com Options held by non-U.S. Palm Transferred
Employees.
6.4 3Com Restricted Stock.
---------------------
(a) Forfeiture. Except as otherwise specified herein and subject to
----------
the terms of the applicable 3Com Stock Plans, on the Distribution Date, 3Com
Restricted Stock (including any Palm common stock issued with respect to such
3Com Restricted Stock in connection with the Distribution) held by Palm
Transferred Employees shall be forfeited in accordance with the terms of the
applicable 3Com Stock Plans.
(b) Substitution. Each Palm Employee who holds 3Com Restricted Stock
------------
shall receive Palm Restricted Stock at the Distribution Date (or such other date
as 3Com and Palm may mutually agree), as more fully set forth in this Subsection
6.4(b). The value of a Palm Employee's
26
<PAGE>
resulting Palm Restricted Stock award shall be substantially equivalent to the
value of his or her forfeited 3Com Restricted Stock award (such value to be
reasonably determined by Palm immediately before the Record Date, the
Distribution Date (or such other date as 3Com and Palm may mutually agree)). The
resulting Palm Restricted Stock shall vest under circumstances substantially
identical to the vesting conditions applicable to the corresponding 3Com
Restricted Stock.
(c) Certain Non U.S. Restricted Stock Holders. Except as may
-----------------------------------------
otherwise be agreed upon by 3Com and Palm and/or as set forth in Schedule 6.4,
this Section 6.4 shall govern the treatment of 3Com Restricted Stock held by
non-U.S. Palm Transferred Employees.
6.5 Stock Purchase Plan. Through the Distribution Date, employees of the
-------------------
Palm Business (including for this purpose any employee of 3Com who is designated
as an employee of the Palm Business for purposes of the Separation) shall
continue to be eligible for participation in the 3Com Stock Purchase Plan.
Effective on or before the IPO (or such other date as 3Com and Palm may mutually
agree), Palm shall sponsor a Stock Purchase Plan for the benefit of Palm
Employees and Palm Transferred Employees which shall be comparable in the
aggregate in all Material Features to the corresponding 3Com Stock Purchase
Plan, except that the Palm Stock Purchase Plan shall limit the payroll
deductions that may be made by a participant thereunder, when cumulated with his
or her payroll deductions under the 3Com Stock Purchase Plan, to an aggregate of
ten percent (10%) of his or her compensation (as such term is defined in the
3Com and Palm Stock Purchase Plans).
6.6 Administrative Services. To the extent not provided otherwise in this
-----------------------
Article, 3Com shall provide certain administrative services to Palm in
conjunction with both the 3Com and Palm Bonus Plans, Executive Bonus Plan and
Stock Plans in such manner and for such period as 3Com and Palm may mutually
agree. Palm shall reimburse 3Com for any and all direct and indirect costs and
expenses related thereto, subject to Section 8.2.
27
<PAGE>
ARTICLE VII
FRINGE AND OTHER BENEFITS
-------------------------
7.1 Employee Assistance Program. 3Com shall use its commercially
---------------------------
reasonable best efforts for and on behalf of Palm to procure, effective as of
the Distribution Date (or such other date as 3Com and Palm may mutually agree),
a contract with Concern, which is comparable in the aggregate in all Material
Features to 3Com's contract with Concern that provides for a Palm Employee
Assistance Program. Palm shall not unreasonably withhold its consent to enter
into such contracts and/or arrangements as procured by 3Com. Palm shall cease to
be a Participating Company in the 3Com Employee Assistance Program coincident
with Palm's establishment of the Palm Employee Assistance Program. Palm shall
reimburse 3Com for any and all direct and indirect costs and expense associated
with its participation in the 3Com Employee Assistance Program and 3Com's
procurement of a contract or arrangement on behalf of Palm, subject to Section
8.2.
7.2 Educational Assistance Program. Effective as of the Distribution Date
------------------------------
(or such other date as Palm and 3Com may mutually agree), Palm shall provide a
Palm Educational Assistance Program to Palm Employees which is comparable in the
aggregate in all Material Features to the 3Com Educational Assistance Program.
Palm shall cease to be a Participating Company in the 3Com Educational
Assistance Program coincident with Palm's establishment of the Palm Educational
Assistance Program. At such time, any and all outstanding approved
reimbursements under the 3Com Educational Assistance Program for Palm Employees
shall be made by Palm. Furthermore, Palm shall reimburse 3Com for any and all
direct and indirect costs and expenses associated with its participation in the
3Com Educational Assistance Program and 3Com's preparation of an Educational
Assistance Program on behalf of Palm, subject to Section 8.2.
7.3 Credit Union. 3Com shall use its commercially reasonable best efforts
------------
to make the AEA Technology Credit Union available to Palm Employees on
substantially similar terms and conditions as are offered to current employees
of the 3Com Group, through such date as Palm and 3Com may mutually agree). 3Com
shall use its commercially reasonable best efforts to make certain other credit
unions are available to former Employees of Palm on substantially similar terms
and conditions as offered to former employees of the 3Com Group, through such
date as Palm and 3Com may mutually agree). Palm shall reimburse 3Com for any and
all direct and indirect costs and expenses related thereto, subject to Section
8.2.
7.4 Cafeteria and Related Subsidies. 3Com shall continue to make its
-------------------------------
cafeterias, vending machines, and other food or beverage provision facilities at
the 3Com Santa Clara campus (collectively, the "Food Programs"), available to
Palm Employees on substantially similar terms and conditions as are offered to
employees of the 3Com Group, until the termination of the occupancy agreements
between 3Com and Palm regarding Palm's occupancy of the 3Com Santa Clara campus
28
<PAGE>
(or such other date as 3Com and Palm may mutually agree). 3Com and Palm shall
use their commercially reasonable best efforts to mutually agree on the
appropriate methods and/or processes to ensure continued tax-favored status of
3Com's Food Programs under the Code. To the extent not otherwise addressed in
the occupancy agreements, Palm shall reimburse 3Com for any and all direct and
indirect costs and expenses associated with allowing Palm access to 3Com's Food
Programs, subject to Section 8.2.
7.5 Employee Product Discounts and Company Store. 3Com shall provide
--------------------------------------------
access to its Company Store until the termination of the occupancy agreements
between 3Com and Palm at the 3Com Santa Clara campus (or such other date as 3Com
and Palm may mutually agree). 3Com shall provide qualified employee discounts
available to Palm Employees on substantially similar terms and conditions as
such discounts are made available to employees of the 3Com Group through the
Distribution Date (or such other date as 3Com and Palm may mutually agree). To
the extent not otherwise addressed in the occupancy agreements, 3Com and Palm
shall each reimburse the other for any and all direct and indirect cost and
expenses relating to the provision of qualified discounts and access to the
Company Store, subject to Section 8.2.
7.6 WellCom. 3Com shall continue to provide access to its gym and other
-------
athletic facilities (collectively, the "WellCom Program") available to Palm
Employees on substantially similar terms and conditions as are offered to
employees of the 3Com Group until the termination of the occupancy agreements
between 3Com and Palm regarding Palm's occupancy of the 3Com Santa Clara campus
(or such other date as 3Com and Palm may mutually agree). To the extent not
otherwise addressed in the occupancy agreements, Palm shall reimburse 3Com for
any and all direct and indirect costs and expenses associated with allowing Palm
access to 3Com's WellCom Program, subject to Section 8.2.
7.7 SOS Plan. Effective as of the Distribution Date (or such other date
--------
as Palm and 3Com may mutually agree), Palm shall provide an SOS Plan to Palm
Employees. Palm shall cease to be a Participating Company in the 3Com SOS Plan
coincident with Palm's establishment of the Palm SOS Plan (or, if none, Palm's
written notice to 3Com of its withdrawal as a Participating Company in the 3Com
SOS Plan). At such time, any and all outstanding approved matching charity
contributions under the 3Com SOS Plan for Palm Employees shall be made by Palm.
Furthermore, Palm shall reimburse 3Com for any and all direct and indirect costs
and expenses associated with its participation in the 3Com SOS Plan and 3Com's
preparation of an SOS Plan on behalf of Palm, subject to Section 8.2.
7.8 Other Benefits. To the extent that 3Com maintains, sponsors or
--------------
provides other fringe benefits specified in Schedule 7.8 to its eligible
employees, then 3Com shall, to the extent permitted by law, continue to make
such benefits available to Palm Employees on substantially similar terms and
conditions as are offered to the employees of the 3Com Group through the
Distribution Date (or such other date upon which Palm and 3Com mutually agree).
Palm shall reimburse 3Com for any and all direct and indirect costs and expenses
associated with, arising out of, or resulting from the provision of such other
fringe benefits to its employees, subject to Section 8.2. Palm and 3Com
29
<PAGE>
agree to make commercially reasonable best efforts to mutually agree on whether,
when, and on what terms any member of the Palm Group shall maintain, sponsor, or
offer fringe benefits.
7.9 Administrative Services. To the extent not provided otherwise in this
-----------------------
Article, 3Com shall provide certain administrative services to Palm in
conjunction with both the 3Com and the Palm Fringe Benefit Plans in such manner
and for such period as 3Com and Palm may mutually agree. Palm shall reimburse
3Com for any and all direct and indirect costs and expenses related thereto,
subject to Section 8.2.
30
<PAGE>
ARTICLE VIII
ADMINISTRATIVE PROVISIONS
-------------------------
8.1 Master Transitional Services Agreement. On or prior to the Separation
--------------------------------------
Date (or such other date as Palm and 3Com may mutually agree), 3Com and Palm may
enter into a Master Transitional Services Agreement covering the provisions of
interim services, including financial, accounting, legal, benefits-related and
other services by 3Com to Palm or, in certain circumstances, vice versa, if
appropriate or necessary.
8.2 Payment of Liabilities, Plan Expenses and Related Matters.
---------------------------------------------------------
(a) Expenses and Costs Chargeable to a Trust. Effective as of the
----------------------------------------
Separation Date, Palm shall pay its share of any contributions made to any trust
maintained in connection with a 3Com Plan while Palm is a Participating Company
in that 3Com Plan.
(b) Contributions to Trusts. With respect to 3Com Plans to which
-----------------------
Palm Employees and Palm Transferred Employees make contributions, 3Com shall use
reasonable procedures to determine Palm Assets and Liabilities associated with
each such Plan, taking into account such contributions, settlements, refunds and
similar payments.
(c) Administrative Expenses Not Chargeable to a Trust. Effective as
-------------------------------------------------
of the Separation Date, to the extent not charged pursuant to a Master
Transitional Services Agreement (as contemplated by Section 8.1) or another
Ancillary Agreement, and to the extent not otherwise agreed to in writing by
3Com and Palm, and to the extent not chargeable to a trust established in
connection with a 3Com Plan (as provided in paragraph (a)), Palm shall be
responsible, through either direct payment or reimbursement to 3Com in
accordance with Section 5.3 of the Separation Agreement and/or the Master
Transitional Services Agreement, for its allocable share of actual third party
and/or vendor costs and expenses incurred by 3Com and additional costs and
expenses, subject to the methodology reasonably agreed upon by 3Com and Palm, in
the administration of (i) the 3Com Plans while Palm participates in such 3Com
Plans, and (ii) the Palm Plans, to the extent 3Com procures, prepares,
implements and/or administers such Palm Plans. To the extent not otherwise
determinable through direct allocation of costs and expenses, Palm's allocable
share of such costs and expenses will be based on Palm Revenue as a percentage
of total 3Com Revenue.
(d) Allocation of Costs and Expenses. Except as otherwise provided
--------------------------------
in this Agreement, the Master Transitional Services Agreement, or in any
underlying transitional services schedule between 3Com and Palm (as contemplated
in Section 8.1) relating to the Separation, the IPO, or the Distribution, all
costs and expenses of the parties hereto in connection with the Separation, the
IPO (including underwriting discounts and commissions) and the Distribution and
costs and expenses of the parties hereto in connection with the Separation shall
be allocated between
31
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Palm and 3Com. Palm and 3Com shall each be responsible for their own internal
fees, costs and expenses incurred in connection with the Separation, the IPO and
the Distribution.
8.3 Transitional Staffing Services. 3Com will provide certain
------------------------------
transitional staffing services and other services as 3Com and Palm may mutually
agree, as set forth on Schedule 8.3 (provided, however, for purposes of the
Workers' Compensation Plan (as set forth in Section 5.13) the Transitional
Staffing Services Agreement for finance shall control) to Palm in such manner
and for such period as 3Com and Palm may mutually agree. Palm shall reimburse
3Com for any and all direct and indirect costs and expenses related thereto,
subject to Section 8.2.
8.4 Sharing of Participant Information. In addition to the
----------------------------------
responsibilities and obligations of 3Com and Palm specified in Exhibit I to the
Separation Agreement, 3Com and Palm shall share, or cause to be shared, all
participant information that is necessary or appropriate for the efficient and
accurate administration of each of the 3Com Plans and the Palm Plans during the
respective periods applicable to such Plans as Palm and 3Com may mutually
agree). 3Com and Palm and their respective authorized agents shall, subject to
applicable laws of confidentiality and data protection, be given reasonable and
timely access to, and may make copies of, all information relating to the
subjects of this Agreement in the custody of the other party or its agents, to
the extent necessary or appropriate for such administration.
8.5 Reporting and Disclosure Communications to Participants. While Palm
-------------------------------------------------------
is a Participating Company in the 3Com Plans, Palm shall take, or cause to be
taken, all actions necessary or appropriate to facilitate the distribution of
all 3Com Plan-related communications and materials to employees, participants
and beneficiaries, including (without limitation) summary plan descriptions and
related summaries of material modification(s), summary annual reports,
investment information, prospectuses, notices and enrollment material for the
3Com Plans and Palm Plans. Palm shall reimburse 3Com for the costs and expenses
relating to the copies of all such documents provided to Palm, except to the
extent such costs are charged pursuant to Section 8.2 (or are otherwise
addressed in this Agreement) or pursuant to an Ancillary Agreement. Palm shall
assist 3Com in complying with all reporting and disclosure requirements of
ERISA, including the preparation of Form Series 5500 annual reports for the 3Com
Plans, where applicable.
8.6 Audits Regarding Vendor Contracts. From the period beginning as of
---------------------------------
the Separation Date and ending on such date as 3Com and Palm may mutually agree,
3Com and Palm and their duly authorized representatives shall have the right to
conduct joint audits with respect to any vendor contracts that relate to both
the 3Com Health and Welfare Plans and the Palm Health and Welfare Plans. The
scope of such audits shall encompass the review of all correspondence, account
records, claim forms, canceled drafts (unless retained by the bank), provider
bills, medical records submitted with claims, billing corrections, vendor's
internal corrections of previous errors and any other documents or instruments
relating to the services performed by the vendor under the applicable vendor
contracts. 3Com and Palm shall agree on the performance standards, audit
methodology, auditing policy and quality measures, reporting requirements, and
the manner in which costs and expenses incurred in connection with such audits
will be shared.
32
<PAGE>
8.7 Employee Identification Numbers. Until the Distribution Date (or such
-------------------------------
other period as 3Com and Palm may mutually agree), 3Com and Palm shall not
change any employee identification numbers assigned by 3Com. 3Com and Palm
mutually agree to establish a policy pursuant to which employee identification
numbers assigned to either employees of 3Com or Palm shall not be duplicated
between 3Com and Palm.
8.8 Beneficiary Designation. Subject to Section 8.11, all beneficiary
-----------------------
designations made by Palm Employees and Palm Transferred Employees for the 3Com
Plans shall be transferred to and be in full force and effect under the
corresponding Palm Plans, in accordance with the terms of each such applicable
Palm Plan, until such beneficiary designations are replaced or revoked by the
Palm Employees and Palm Transferred Employee who made the beneficiary
designation.
8.9 Requests for IRS and DOL Opinions. 3Com and Palm shall make such
---------------------------------
applications to regulatory agencies, including the IRS and DOL, as may be
necessary or appropriate. Palm and 3Com shall cooperate fully with one another
on any issue relating to the transactions contemplated by this Agreement for
which 3Com and/or Palm elects to seek a determination letter or private letter
ruling from the IRS or an advisory opinion from the DOL.
8.10 Fiduciary Matters. 3Com and Palm each acknowledge that actions
-----------------
contemplated to be taken pursuant to this Agreement may be subject to fiduciary
duties or standards of conduct under ERISA or other applicable law, and that no
party shall be deemed to be in violation of this Agreement if such party fails
to comply with any provisions hereof based upon such party's good faith
determination that to do so would violate such a fiduciary duty or standard.
8.11 Consent of Third Parties. If any provision of this Agreement is
------------------------
dependent on the consent of any third party (such as a vendor) and such consent
is withheld, 3Com and Palm shall use their commercially reasonable best efforts
to implement the applicable provisions of this Agreement. If any provision of
this Agreement cannot be implemented due to the failure of such third party to
consent, 3Com and Palm shall negotiate in good faith to implement the provision
in a mutually satisfactory manner.
8.12 3Com Intranet. Through the Distribution Date (or such other date as
-------------
Palm and 3Com may mutually agree), 3Com shall make its 3Community intranet site
available to Palm Employees on substantially the same terms as such intranet
site is made available to 3Com Employees. Palm shall reimburse 3Com for any and
all costs and expenses related to making its intranet site available to Palm
Employees, subject to the Master Transitional Services Agreement. 3Com and Palm
shall use their commercially reasonable best efforts to mutually agree on the
appropriate methods by which Palm shall establish its own intranet site.
8.13 Tax Cooperation. In connection with the interpretation and
---------------
administration of this Agreement, 3Com and Palm shall take into account the
agreements and policies established pursuant to the Separation Agreement and the
parties' intent to qualify the Distribution as a tax-free reorganization under
Code Sections 355 and 368(a)(1)(D).
33
<PAGE>
ARTICLE IX
EMPLOYMENT-RELATED MATTERS
--------------------------
9.1 Terms of Palm Employment. All basic terms and conditions of
------------------------
employment for Palm Employees and Palm Transferred Employees including, without
limitation, their pay and benefits in the aggregate, shall, to the extent
legally and practicably possible, remain substantially the same through the
Distribution Date as the terms and conditions that were in place when the Palm
Employee or Palm Transferred Employee was employed by the 3Com Group, as
applicable. Notwithstanding the foregoing, Palm Employees and Palm Transferred
Employees shall be required to execute a new agreement regarding confidential
information and proprietary developments in a form approved by Palm by the
Separation Date. In addition, nothing in the Separation Agreement, this
Agreement, or any Ancillary Agreement should be construed to change the at-will
status of the employment of any of the employees of the 3Com Group or the Palm
Group.
9.2 HR Data Support Systems. 3Com shall provide human resources data
-----------------------
support for Palm Employees and Palm Transferred Employees through December 31,
2000 (or such other period as 3Com and Palm may mutually agree). Palm agrees to
fully reimburse 3Com for any and all direct and indirect costs and expenses
associated with its use of the 3Com human resources data support systems,
subject to Section 8.2. In the event that 3Com and Palm agree to extend the time
period beyond December 31, 2000, then the costs and expenses will be computed in
accordance with Section 8.2; provided, however, an additional ten percent (10%)
charge will be incurred by Palm. 3Com and Palm each reserves the right to
discontinue Palm's access to any 3Com human resources data support systems with
sixty (60) days notice (or such other period as 3Com and Palm may mutually
agree).
9.3 Non-Solicitation of Employees. Subject to Section 5.12 of the
-----------------------------
Separation Agreement, 3Com and Palm each agree not to solicit or recruit,
without the other party's express written consent, the other party's employees
for a period of two (2) years following the Distribution Date. To the extent
this prohibition is waived, any recruitment efforts by either 3Com or Palm
during the period of two (2) years after the Distribution Date shall be
coordinated with each party's Senior Vice President of Human Resources or his or
her designate and appropriate management. Notwithstanding the foregoing, this
prohibition on solicitation does not apply to actions taken by a party either:
(a) solely as a result of an employee's affirmative response to a general
recruitment effort carried out through a public solicitation or general
solicitation, or (b) as a result of an employee's initiative.
9.4 Employment of Employees with U.S. Work Visas. Palm Employees with
--------------------------------------------
U.S. work visas authorizing them to work for Palm will continue to hold work
authorization for the Palm Group after the Separation Date. Palm will request
amendments to the nonimmigrant visa status of Palm Employees and Palm
Transferred Employees with U.S. work visas authorizing them to work for 3Com,
excluding the Palm Group, to request authorization to work for Palm.
34
<PAGE>
9.5 Confidentiality and Proprietary Information. No provision of the
-------------------------------------------
Separation Agreement or any Ancillary Agreement shall be deemed to release any
individual for any violation of the 3Com non-competition guideline or any
agreement or policy pertaining to confidential or proprietary information of any
member of the 3Com Group, or otherwise relieve any individual of his or her
obligations under such non-competition guideline, agreement, or policy.
9.6 PTO. Effective as of the Separation Date (or such other date as 3Com
---
and Palm may mutually agree), Palm shall establish the Palm PTO Plan which shall
be comparable in the aggregate in all Material Features to the 3Com PTO Plan.
Effective as soon as administratively practicable after the Separation Date (or
such other date as 3Com and Palm may mutually agree), 3Com shall transfer to
Palm all data and information relating to the 3Com PTO Plan. Effective as soon
as administratively practicable following the Separation Date (or such other
date as 3Com and Palm may mutually agree), Palm shall assume all Liabilities
attributable to Palm Employees under the 3Com PTO Plan. In the event that a 3Com
Employee or Palm Employee transfers his or her employment to the other party
before the Distribution Date, such transfer of employment shall not result in a
payout or constitute a termination event for purposes of the PTO Plan, and no
duplication of benefits shall occur as a result of any such transfer of
employment between 3Com and Palm. Furthermore, the Liability attributable to any
Palm Employee or 3Com Employee who transfers employment between 3Com and Palm
prior to the Distribution Date shall be assumed by the employer subsequent to
the transfer.
9.7 Personnel Records. Subject to applicable laws on confidentiality and
-----------------
data protection, 3Com shall deliver to Palm prior to the Distribution Date (or
such other date as 3Com and Palm may mutually agree), personnel records of Palm
Employees and Palm Transferred Employees to the extent such records relate to
Palm Employees' and Palm Transferred Employees' active employment by, leave of
absence from, or termination of employment with Palm. Palm shall fully reimburse
3Com for any and all direct and indirect costs and expenses associated with such
delivery, subject to Section 8.2.
9.8 Medical Records. Subject to applicable laws on confidentiality and
---------------
data protection, 3Com shall deliver to Palm prior to the Distribution Date (or
such other date as 3Com and Palm may mutually agree), medical records of Palm
Employees and Palm Transferred Employees to the extent such records (a) relate
to Palm Employees' and Palm Transferred Employees' active employment by, leave
of absence from, or termination of employment with Palm, and (b) are necessary
to administer and maintain employee benefit plans, including Health Plans and
Workers' Compensation Plan and for determining eligibility for paid and unpaid
Leaves of Absence for medical reasons. Palm shall fully reimburse 3Com for any
and all direct and indirect costs and expenses associated with such delivery,
subject to Section 8.2.
9.9 Unemployment Insurance Program.
------------------------------
(a) Claims Administration Through Distribution Date. Unless otherwise
-----------------------------------------------
directed by Palm, 3Com shall use its commercially reasonable best efforts to
cause Palm to receive service from 3Com's third party unemployment insurance
administrator through the Distribution Date (or
35
<PAGE>
such other date as 3Com and Palm may mutually agree). Palm shall reimburse 3Com
for its allocable share of fees paid and related costs and expenses by 3Com to
its third party unemployment insurance administrator for services rendered
during such period, pursuant to the Master Transitional Services Agreement. Palm
shall cooperate with the unemployment insurance administrator by providing any
and all necessary or appropriate information reasonably available to Palm.
(b) Claim Administration Post-Distribution Date. Before the
-------------------------------------------
Distribution Date, 3Com shall use its commercially reasonable best efforts for
and on behalf of Palm to procure an agreement with its third party unemployment
insurance administrator comparable in the aggregate in all Material Features to
the 3Com third party unemployment insurance agreement, including, without
limitation, administration of all unemployment compensation claims of Palm
Transferred Employees and Palm Employees, regardless of whether such claims were
filed before, on, or after the Distribution Date. Palm shall not unreasonably
withhold its consent to adopt such an agreement with such administrator. Palm
shall reimburse 3Com for any and all direct and indirect costs and expenses
associated with such procurement, subject to the Master Transitional Services
Agreement.
9.10 Non-Termination of Employment; No Third-Party Beneficiaries. No
-----------------------------------------------------------
provision of this Agreement, the Separation Agreement, or any Ancillary
Agreement shall be construed to create any right or accelerate entitlement to
any compensation or benefit whatsoever on the part of any Palm Employee, Palm
Transferred Employee or other former, present or future employee of 3Com or Palm
under any 3Com Plan or Palm Plan or otherwise. Without limiting the generality
of the foregoing: (a) neither the Distribution or Separation, nor the
termination of the Participating Company status of Palm or any member of the
Palm Group shall cause any employee to be deemed to have incurred a termination
of employment; and (b) no transfer of employment between 3Com and Palm before
the Distribution Date shall be deemed a termination of employment for any
purpose hereunder.
9.11 Employment Litigation.
---------------------
(a) Claims to be Transferred to Palm and/or Jointly Defended by 3Com
----------------------------------------------------------------
and Palm. On or before the Separation Date, 3Com and Palm will enter into a
- --------
written agreement that specifies the legal responsibility and accompanying
Liability for identified claims of Palm.
(b) Unscheduled Claims. Palm shall have the sole responsibility for
------------------
all employment-related claims regarding Palm Employees and Palm Transferred
Employees that exist, or come into existence, on or after the Separation Date
relating to, arising out of, or resulting from their employment with the Palm
Business or the Palm Group.
36
<PAGE>
ARTICLE X
GENERAL PROVISIONS
------------------
10.1 Effect if Separation, IPO and/or Distribution Does Not Occur. Subject
------------------------------------------------------------
to Section 10.10, if the Separation, IPO and/or Distribution does not occur,
then all actions and events that are, under this Agreement, to be taken or occur
effective as of the Separation Date, IPO, and/or Distribution Date, or otherwise
in connection with the Separation, IPO and/or Distribution, shall not be taken
or occur except to the extent specifically agreed by Palm and 3Com.
10.2 Relationship of Parties. Nothing in this Agreement shall be deemed
------------------------
or construed by the parties or any third party as creating the relationship of
principal and agent, partnership or joint venture between the parties, the
understanding and agreement being that no provision contained herein, and no act
of the parties, shall be deemed to create any relationship between the parties
other than the relationship set forth herein.
10.3 Affiliates. Each of 3Com and Palm shall cause to be performed and
-----------
hereby guarantee the performance of any and all actions of the 3Com Group or the
Palm Group, respectively.
10.4 Incorporation of Separation Agreement Provisions. The following
-------------------------------------------------
provisions of the Separation Agreement are hereby incorporated herein by
reference, and unless otherwise expressly specified herein, such provisions
shall apply as if fully set forth herein (references in this Section to an
"Article" or "Section" shall mean Articles or Sections of the Separation
Agreement, and, except as expressly set forth below, references within the
material incorporated herein by reference shall be references to the Separation
Agreement): Section 5.4 (relating to Agreement for Exchange of Information);
Section 5.9 (relating to Dispute Resolution); Section 5.11 (relating to No
Representation or Warranty); and Article V (relating to Covenants and Other
Matters).
10.5 Governing Law. To the extent not preempted by applicable federal
-------------
law, including, without limitation, ERISA, the Code and applicable securities
laws, this Agreement shall be governed by, construed and interpreted in
accordance with the laws of the State of California, irrespective of the choice
of law principles of the State of California, as to all matters, including
matters of validity, construction, effect, performance and remedies.
10.6 Assignment. This Agreement shall inure to the benefit of and be
-----------
binding upon the parties hereto and their respective legal representatives and
successors, and nothing in this Agreement, express or implied, is intended to
confer upon any other Person any rights or remedies of any nature whatsoever
under or by reason of this Agreement. This Agreement may be enforced separately
by each member of the 3Com Group and each member of the Palm Group. Neither
party may assign this Agreement or any rights or obligations hereunder, without
the prior written consent of the other party, and any such assignment shall be
void; provided, however, either party may assign this Agreement to a successor
entity in conjunction with such party's reincorporation.
37
<PAGE>
10.7 Severability. If any term or other provision of this Agreement is
------------
determined to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to either party. Upon such determination that any term
or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible and in an
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the fullest possible extent.
10.8 Interpretation. The headings contained in this Agreement or any
--------------
Schedule hereto and in the table of contents to this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Any capitalized term used in any Schedule but not otherwise
defined therein shall have the meaning assigned to such term in this Agreement.
When a reference is made in this Agreement to an Article, Section or Schedule,
such reference shall be to an Article of, Section of, or Schedule to this
Agreement unless otherwise indicated.
10.9 Amendment. The Board of Directors of Palm and 3Com may mutually
---------
agree to amend the provisions of this Agreement at any time or times, for any
reason, either prospectively or retroactively, to such extent and in such manner
as the Boards mutually deem advisable. Each Board may delegate its amendment
power, in whole or in part, to one or more Persons or committees as it deems
advisable. The Senior Vice President, Human Resources of 3Com and the functional
equivalent of Palm have full power and authority to mutually adopt an amendment
to this Agreement (subject to each of their authority to amend Plans). No change
or amendment will be made to this Agreement, except by an instrument in writing
signed by authorized individuals.
10.10 Termination. This Agreement may be terminated and the Distribution
-----------
abandoned at any time prior to the IPO Closing Date by and in the sole
discretion of 3Com without the approval of Palm. This Agreement may be
terminated at any time after the IPO Closing Date and before the Distribution
Date by mutual consent of 3Com and Palm. In the event of termination pursuant to
this Section, no party shall have any liability of any kind to the other party.
10.11 Conflict. In the event of any conflict between the provisions of
--------
this Agreement and the Separation Agreement, any Ancillary Agreement, or Plan,
the provisions of this Agreement shall control.
10.12 Counterparts. This Agreement, including the Schedules hereto and
------------
the other documents referred to herein, may be executed in counterparts, each of
which shall be deemed to be an original, but all of which together shall
constitute one and the same agreement.
38
<PAGE>
IN WITNESS WHEREOF, each of the parties have caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized on the day and
year first above written.
3COM CORPORATION
By:_________________________________________
Name:_______________________________________
Title: Chairman and Chief Executive Officer
PALM, INC.
By:_________________________________________
Name:_______________________________________
Title:
39
<PAGE>
SCHEDULE 2.7
FOREIGN PLANS
-------------
[BAKER & McKENZIE TO PROVIDE]
-i-
<PAGE>
SCHEDULE 5.1(a)
PALM HEALTH AND WELFARE PLANS
-----------------------------
Palm Health Plans:
- Aetna US Healthcare Exclusive Provider Organization (EPO)
- Aetna US Healthcare Preferred Provider Organization (PPO)
- Aetna US Healthcare Out-of-Area Plan
- Kaiser HMO
- MetLife Dental Plan
- Vision Service Plan
Palm Welfare Plans
Group Life Plan
AD&D Plan
Severance Plan
Sabbatical Plan
Disability Plans
Business Travel Accident Insurance
Section 125 Plan
Leave of Absence Programs and FMLA
3Com Workers' Compensation Plan
-ii-
<PAGE>
SCHEDULE 5.1(c)(i)
THIRD PARTY ASO
---------------
[BAKER & McKENZIE TO REVIEW]
Aetna US Healthcare Medical Plans
MetLife Dental Plans
Matrix Short-Term Disability Plan Administrator
-iii-
<PAGE>
SCHEDULE 5.1(c)(ii)
GROUP INSURANCE POLICIES
------------------------
[BAKER & McKENZIE TO REVIEW]
Prudential Life Insurance
Prudential LTD Insurance
The Hartford Accidental Death and Dismemberment (AD&D) Insurance
The Hartford Business Travel Accident (BTA) Insurance
-iv-
<PAGE>
SCHEDULE 5.1(c)(iii)
HMO AGREEMENT
-------------
Kaiser HMO
-v-
<PAGE>
SCHEDULE 5.2(a)
3COM HEALTH AND WELFARE PLANS
-----------------------------
3Com Health Plans:
- - Aetna US Healthcare Exclusive Provider Organization (EPO)
- - Aetna US Healthcare Preferred Provider Organization (PPO)
- - Aetna US Healthcare Out-of-Area Plan
- - Harvard Pilgrim Health Care HMO
- - HMO Illinois
- - Kaiser HMO
- - MetLife Dental Plan
- - Vision Service Plan
3Com Welfare Plans
Group Life Plan
AD&D Plan
Severance Plan
Sabbatical Plan
Disability Plans
Business Travel Accident Insurance
Long-Term Care Plan
Section 125 Plan
Leave of Absence Programs and FMLA
Workers' Compensation Plan
-vi-
<PAGE>
SCHEDULE 6.3
OPTIONS HELD BY CERTAIN NON-U.S. PALM
TRANSFERRED EMPLOYEES
---------------------
United Kingdom
- --------------
Notwithstanding anything in Subsection 6.3(a) to the contrary, and unless
otherwise mutually agreed by 3Com and Palm, United Kingdom ("UK") approved 3Com
Options held by Palm Employees shall not be eligible for assumption by Palm;
such 3Com Options shall remain exercisable in accordance with the terms of the
applicable 3Com Stock Plan, and the exercise price and the number of shares of
3Com common stock relating to such 3Com Options shall not be adjusted by 3Com in
connection with the Distribution. UK Palm Transferred Employees who (i) are
actively employed by or on a leave of absence from, the Palm Group as of the
Distribution Date, and (ii) hold such 3Com Options shall receive additional Palm
Stock Options as of the Distribution Date for a number of shares of Palm common
stock and with exercise prices that are reasonably determined by Palm to provide
a value which, when added to the value of such 3Com Options immediately after
the Distribution Date, provides, in the aggregate, a value that is substantially
equivalent to the value of such 3Com Options immediately prior to the
Distribution Date.
-vii-
<PAGE>
SCHEDULE 6.4
3COM RESTRICTED STOCK HELD BY
NON-U.S. PALM TRANSFERRED EMPLOYEES
-----------------------------------
NONE
-viii-
<PAGE>
SCHEDULE 7.8
OTHER FRINGE BENEFITS
---------------------
Financial Engines Retirement Web Advisor
Hyatt Legal
MetLife Group Auto and Home Insurance
Human Resources Education and Development Program
International SOS Assistance (travel protection)
Outplacement Services
Training
-ix-
<PAGE>
SCHEDULE 8.3
TRANSITIONAL STAFFING SERVICES
------------------------------
AA/EEO
Advertising Agencies
Alternative Workforce (e.g. temporary hires)
Background Checking Administration
Benefits Program Consulting
Events/Trade Shows
Expatriate Administration
I-9
Outplacement Services
Relocation Services Administration
Web Databases
Other programs as 3Com and Palm may mutually agree
-x-
<PAGE>
EXHIBIT 2.7
Tax Sharing Agreement
This Tax Sharing Agreement, dated ___, 2000, is by and between 3Com
Corporation ("3Com"), a Delaware corporation, and Palm, Inc. ("Palm"), a
Delaware corporation.
Recitals
A. U.S. Robotics Corporation ("USR"), a Delaware corporation, acquired all
of the stock of Palm on September 1, 1995. Consequently, Palm was a member of
the affiliated group of corporations of which USR was the common parent (the
"USR Group"), beginning on September 2, 1995, and ending on June 12, 1997, when
3Com acquired all of the stock of USR.
B. During the period that Palm was a member of the USR Group, it joined
other members of the group in filing consolidated federal income tax returns.
For its taxable years ended October 1, 1995, and September 26, 1996, Palm
incurred net operating losses that reduced the consolidated tax liability of the
USR Group. Palm received no compensation from USR or other members of the Group
for the use of Palm's net operating losses to offset taxable income of other
members of the Group. For its taxable year ended June 12, 1997, when 3Com
acquired USR, Palm had taxable income that increased the consolidated tax
liability of the USR Group. Palm did not pay USR to compensate USR for Palm's
share of the group's consolidated federal income tax liability.
C. When 3Com acquired USR, both USR and Palm became members of the
affiliated group of corporations of which 3Com was the common parent (the "3Com
Group"). Beginning with its taxable year ended May 31, 1998, Palm has joined
the other members of the 3Com Group in filing consolidated federal income tax
returns. During its 1998 taxable year, Palm earned taxable income that was
offset by net operating losses incurred by other members of the group. Palm did
not pay 3Com to compensate for the use of losses of other group members to
offset Palm's income.
D. Under the tax laws of some states and foreign jurisdictions, Palm has
joined other members of the USR Group or the 3Com Group in filing consolidated,
combined, or unitary returns. Palm has made no payments to other members in
respect of its share of the tax liability reported on those returns or to
compensate other members for the use of their losses, credits or similar tax
attributes to reduce Palm's share of the aggregate tax liability. Similarly,
Palm has received no payments from other members to compensate Palm for the use
of its losses, credits, or similar tax attributes to reduce the aggregate tax
liability.
E. Palm plans to issue new shares of its common stock through a
combination of private placements to strategic investors and a public offering.
Thereafter, pursuant to a Master Separation and Distribution Agreement dated
___, 2000 between 3Com and Palm, 3Com will distribute all of its stock in Palm
to its shareholders (the "Distribution"). The Distribution will cause Palm to
leave the 3Com Group.
F. In anticipation of Palm's departure from the 3Com Group, 3Com and Palm
would like to allocate responsibilities for certain tax matters. In particular,
the parties would like to provide for the
<PAGE>
payment by Palm of its share of tax liabilities determined on a consolidated,
combined, or unitary basis and to compensate affiliates for the use of their
losses, credits, or other tax attributes to reduce Palm's share of the aggregate
tax liability. Similarly, the parties would like to provide for the compensation
of Palm for the use of its losses, credits, or similar tax attributes to reduce
the aggregate tax liability. The parties would also like to provide for
compensation or reimbursement as appropriate to reflect redeterminations of the
tax liability of Palm for periods during which it joined in the filing of
consolidated, combined, or unitary returns with 3Com or other affiliates.
Finally, the parties would like to provide and fix the responsibilities for
certain administrative matters, such as (1) the preparation and filing of tax
returns for periods beginning before the date of the Distribution (the
"Distribution Date"), (2) the payment of taxes shown to be due and payable on
those returns (as well as any estimated or advance payments required before the
filing of those returns), (3) the retention, maintenance and provision of access
to all records necessary to prepare and file appropriate tax returns, and (4)
the conduct of audits, examinations, and proceedings that could result in a
redetermination of tax liabilities of 3Com, Palm or other subsidiaries of 3Com
for periods beginning before the Distribution Date.
Agreement
To accomplish the purposes described above, 3Com and Palm agree as follows:
1. Definitions. For purposes of this Agreement, the term "Tax" shall mean
all federal, state, local, foreign or other taxes, assessments or other
governmental charges, including income, estimated income, business occupation,
franchise, property, sales, use, excise, employment, unemployment, payroll,
social security, ad valorem, transfer, gains, profits, capital stock, license,
gross receipts, stamp, real estate, severance and withholding taxes, customs
duties and harbor maintenance fees. Taxes associated with improper
classification of employees as independent contractors shall be treated as
payroll taxes and thus included within the definition of Taxes. Other
capitalized terms not defined in this Agreement shall have the meaning given
those terms by the Master Separation and Distribution Agreement entered into as
of [date] between 3Com and Palm.
2. Computation of Tax Liability. The computation of Tax liability on any
consolidated, combined or unitary return that includes Palm and at least one
other corporation and covers a period beginning before the Distribution (a "Pre-
Distribution Group Return") shall, to the extent permitted by law, be made in
accordance with the methods used in comparable returns filed before the date of
this Agreement.
3. Allocation of Tax Liability
(a) Regular Federal Income Tax. If the consolidated federal income tax
liability of the USR Group or 3Com Group for any taxable year for which the
group filed or files a Pre-Distribution Group Return is determined on a regular
tax basis, the amount of federal income taxes allocable to Palm shall be
determined using the method described in section 1.1502-32(b)(3)(iv)(D) of the
Treasury regulations. Thus, Palm shall be required to pay for any reduction in
its separate company liability because of the absorption of losses, credits or
other tax attributes of other members.
-2-
<PAGE>
Conversely, Palm shall be entitled to compensation to the extent that the
absorption of its losses, credits, or other tax attributes reduces the group's
consolidated federal income tax liability.
(b) Federal Alternative Minimum Tax.
(i) General Rule. If the USR Group or 3Com Group pays
alternative minimum tax (AMT) for any year for which it filed or files a
Pre-Distribution Group Return, Palm's share of the group's consolidated
federal income taxes shall equal its share of the group's consolidated AMT,
determined under Section 3(b)(ii), with the adjustments provided in Section
3(b)(iii) to reflect the absorption of losses, credits or other tax
attributes.
(ii) Palm's Share of Consolidated AMT. Palm's share of the
group's consolidated AMT for any year shall equal the excess, if any, of
(A) the total consolidated AMT, over (B) the consolidated AMT for the year
computed by excluding Palm's items of income, gain, deduction and loss, and
Palm's credits.
(iii) Adjustments for Absorption of Tax Attributes. Palm's share
of the group's consolidated AMT shall be adjusted to reflect the absorption
of losses, credits or other tax attributes, based on principles similar to
those underlying the method of allocating regular federal income taxes
described in section 1.1502-32(b)(3)(iv)(D) of the Treasury regulations.
If, for any taxable year, the regular tax attributes allocable to members
other than Palm that can be carried forward to the succeeding taxable year
are less than those carryforwards would have been if Palm had not been a
member of the group, then Palm's share of the group's consolidated federal
income tax liability shall be increased to reflect the incremental
absorption of the tax attributes of other members. Conversely, if Palm's
regular tax attributes are used to offset taxable income of other members,
or tax liability attributable to such income, then Palm's share of the
group's consolidated federal income tax liability shall be decreased to
reflect such use of Palm's tax attributes. The amount of the adjustment for
absorbed credits shall equal the amount of those credits. The amount of the
adjustment for absorbed losses shall equal the product of the absorbed
losses and the highest marginal regular federal income tax rate in effect
for the year in which the losses are absorbed. If the adjustment described
in this Section 3(b)(iii) exceeds the amount determined in Section
3(b)(ii), the excess shall be credited against Palm's liability for other
taxable years or, in the case of taxable years covered by returns filed
after the public offering, Palm shall be entitled to receive the amount of
such excess pursuant to Section 4(b).
(c) Other Taxes. Palm's share of Taxes other than federal income taxes
that are determined on a consolidated, combined, or unitary basis shall be
determined by applying the principles underlying the allocation method described
in section 1.1502-32(b)(3)(iv)(D) of the Treasury regulations. Thus, Palm's
share of the Taxes will generally equal the Tax liability that Palm would have
had if it had filed a separate return for the relevant period. Palm shall be
required to pay 3Com to the extent that Palm's separate company liability is
reduced by the absorption of losses, credits or other tax attributes of other
members. Conversely, 3Com shall compensate Palm to the extent that the
absorption of Palm's losses, credits, or other tax attributes reduces the
combined tax liability.
-3-
<PAGE>
4. Payment of Allocated Tax.
(a) Returns Filed Before Public Offering. Within [10] days after
completion of the planned public offering of common shares of Palm, Palm
shall pay to 3Com the net, cumulative amount of its share of the taxes
assessed pursuant to Pre-Distribution Group Returns filed prior to the
public offering.
(b) Returns Filed After Public Offering. Palm shall pay to 3Com
Palm's share of any Tax liability assessed pursuant to a Pre-Distribution
Group Return filed after the public offering referred to in Section 4(a)
within 30 days after the filing of that return. Within that same period,
3Com shall make to Palm any payments required as a result of benefits
realized by 3Com or other members of the 3Com Group from the use Palm's tax
attributes.
5. Refunds. 3Com shall be entitled to receive any overpayment of Taxes
shown on any Pre-Distribution Group Return, as originally filed.
6. Allocation of Minimum Tax Credits. When Palm leaves the 3Com Group,
the group shall allocate to Palm a portion of its consolidated minimum tax
credit equal to the ratio that (a) the cumulative amounts of consolidated AMT
allocated to Palm pursuant to Section 3(b)(ii) bears to (b) the total amounts of
consolidated AMT paid by the USR Group or 3Com Group for taxable years for which
the group filed a Pre-Distribution Group Return. If the Treasury Department
issues regulations that require an allocation of a different amount of
consolidated minimum tax credit to Palm, Palm shall be required to pay (or
entitled to receive) the amount by which its share of the consolidated minimum
tax credit allocated pursuant to the regulations exceeds (or is less than) the
amount that would have been allocated to Palm pursuant to this Section 6.
7. Carryback of Post-Distribution Tax Attributes of Palm. If, for any
taxable period beginning on or after the Distribution Date, Palm recognizes a
loss, credit, or similar tax attribute that, under applicable law, can or must
be carried back to a taxable period during which Palm joined in filing a Pre-
Distribution Group Return, 3Com shall, at Palm's expense, file appropriate
refund claims within a reasonable period after being requested by Palm. 3Com
shall promptly remit to Palm any refunds received with respect to any tax
attribute so carried back.
8. Conduct of Tax Contests.
(a) Separate Palm Claims. Palm shall have sole and complete authority to
contest any claim by a taxing authority arising from an examination of a return
that includes only Palm (a "Separate Palm Claim").
(b) Group Claims. 3Com shall be entitled to control the contest of any
claim by a taxing authority arising from an examination of a Pre-Distribution
Group Return (a "Group Claim"). 3Com shall notify Palm of the commencement of
any such examination and shall keep Palm apprised of the status of the
examination. Palm shall be entitled to advise 3Com regarding the handling of
claims that could affect Palm's allocable share of the consolidated, combined or
unitary Tax liability, and
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3Com shall not unreasonably reject Palm's advice. If a claim affects only Palm's
share of the consolidated, combined or unitary Tax liability, and not that of
any other member of the 3Com Group, Palm shall be entitled to prepare any
written materials submitted to the taxing authority in defense against the
claim. Neither Palm nor its representatives shall be entitled to attend meetings
with representatives of the taxing authority without 3Com's consent. 3Com shall
have sole authority to make decisions regarding the settlement of Group Claims.
Palm shall bear any expenses it incurs in participating in the contest of a
Group Claim.
(c) Cooperation. 3Com and Palm shall each provide the assistance
reasonably requested by the other in conducting any tax contest, including
execution of any powers of attorney or other appropriate documentation,
attendance of administrative or judicial proceedings as requested, performance
of necessary computations, and, subject to the confidentiality provisions of
Section 14, provision of access to or furnishing books, records, tax returns,
and supporting work papers.
9. Redetermined Tax Liabilities.
(a) Separate Palm Claims. If a redetermination of Taxes results from a
Separate Palm Claim, Palm shall pay any resulting increases in Tax liability and
shall be entitled to receive any refunds related to a decrease in Tax liability
attributable to the claim.
(b) Group Claims. Any Tax deficiency arising from a Group Claim shall be
paid to the relevant taxing authority by 3Com, and 3Com shall be entitled to
receive any tax refund arising from the contest of the Group Claim. Within 30
days after the final determination of the Group Claim, 3Com shall allocate the
Tax liabilities for the affected periods, as redetermined, among the members of
the 3Com Group that joined in filing the relevant Pre-Distribution Group
Returns. In allocating the redetermined Tax liabilities, 3Com shall apply the
allocation method prescribed by Section 3. If the amount of redetermined Tax
liability allocated to Palm for any period exceeds the amounts previously paid
by Palm to 3Com in respect of Palm's allocated Tax liability for that period,
Palm shall pay such excess to 3Com within 10 days of receiving notice from 3Com
of the amount due. If the amounts previously paid by Palm to 3Com in respect of
Palm's allocated Tax liability for any period exceed the amount of redetermined
Tax liability allocated to Palm for that period, 3Com shall pay such excess to
Palm within 40 days after the final determination of the Group Claim that led to
the redetermination of Tax liability.
(c) Interest. If applicable law provides for interest on any Tax
deficiency or refund to which Section 9(b) applies, then any payments made
between Palm and 3Com pursuant to that Section as a result of the deficiency or
refund shall also bear interest, computed at the same rate or rates and for the
same period as the deficiency or refund bears interest.
10. Retention of and Access to Records; Cooperation and Assistance.
(a) Retention of and Access to Records. Each party shall retain all tax
returns for periods beginning before the Distribution Date, together with all
related reports, work papers, schedules or other documents or computer files,
and, subject to the confidentiality provisions of Section 14, shall
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make these documents or files available to the other upon request. Neither party
shall dispose of any of these documents or files without the other's permission.
(b) Cooperation and Assistance. Subject to the confidentiality provisions
of Section 14, 3Com and Palm shall provide each other with such cooperation,
assistance, and information as either of them may reasonably request of the
other with respect to the filing with any taxing authority of any tax return,
amended return, claim for refund, or other document. With respect to any Pre-
Distribution Group Return, such assistance shall include the timely submission
by Palm to 3Com of pro forma tax returns for Palm, including a pro forma return
for the tax period of Palm that will end on the Distribution Date.
11. Preparation of Tax Returns; Estimated Payments.
(a) Filing of Returns. 3Com shall prepare and timely file all Pre-
Distribution Group Returns. Within [75] days after the close of each taxable
period (including, if applicable, the period that ends on the Distribution
Date), Palm shall, subject to the confidentiality provisions of Section 14: (1)
furnish to 3Com draft tax returns for Palm and all supporting information and
documentation useful in preparing the relevant Pre-Distribution Group Return;
(2) allow 3Com access at any reasonable time after the Distribution Date to all
tax returns of Palm and supporting papers for those returns; and (3) furnish to
3Com such additional tax information and documents as 3Com may reasonably
request. Palm shall cooperate in connection with the preparation of any Pre-
Distribution Group Returns. 3Com shall be responsible for any payments to the
applicable taxing authorities required in connection with those returns.
(b) Amended Returns. 3Com shall not amend any Pre-Distribution Group
Return in a respect that would affect Palm's allocable share of the Tax
liability for the period covered by the return without providing Palm an
opportunity to review and comment on the proposed amended return. 3Com shall
not unreasonably reject any comments provided by Palm on the proposed amended
return.
(c) Estimated Payments. 3Com shall make all estimated payments to any
taxing authorities required in connection with Pre-Distribution Group Returns,
and all payments required in connection with requests for extensions of time to
file those returns. After making such a payment, 3Com shall promptly notify
Palm of any portion of the payment that 3Com believes in good faith to be
attributable to Palm's share of the aggregate Tax liability, as determined under
Section 3. Within 10 days after its receipt of such notice, Palm shall pay such
amount to 3Com or advise 3Com of the basis for its disagreement.
12. Indemnification.
(a) Indemnity Obligations of 3Com. 3Com shall indemnify Palm and hold
Palm harmless from and against:
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(i) any liability, cost, or expense arising out of fraudulent
or negligently prepared information, workpapers, documents, or other items
used in the preparation of, or presented in, any return, amended return, or
claim for refund prepared by 3Com; and
(ii) any Tax liability, and related cost or expense, incurred or
paid by Palm in excess of that portion of the Tax liability allocated to
Palm by this Agreement.
(b) Indemnity Obligations of Palm. Palm shall indemnify 3Com and hold
3Com harmless from and against any liability for:
(i) sales Taxes attributable to sales of products purchased by
3Com from Palm on or before the Distribution Date;
(ii) customs duties or harbor maintenance fees on products
exported or imported by 3Com on behalf of Palm;
(iii) Taxes imposed on 3Com or any other member of the 3Com Group
other than Palm that would not have been imposed but for the Distribution
or transactions undertaken in preparation for the Distribution, provided,
however, that federal income taxes resulting from the application to the
Distribution of section 355(e) of the Internal Revenue Code shall be
covered by this imdemnity only if the application of that section results
from an acquisition of Palm stock; and
(iv) any interest or penalties related to Taxes described in
this Section 12(b).
13. Gross-Up for Taxes on Required Payments. If the receipt or accrual of
any payment required by this Agreement is subject to any Tax, the payor shall
pay an additional amount so that the total amount received by the payee, net of
any applicable Taxes, equals the amount of the required payment.
14. Confidentiality of Documents and Information. Any documents or
information provided pursuant to this Agreement in connection with a tax contest
or filing with a tax authority shall be provided or disclosed by the recipient
only to those of its employees responsible for the tax contest or filing or to
attorneys or accountants advising the recipient on these matters. Any wider
dissemination of these documents or this information shall be allowed only if
required by law or authorized by the party providing the documents or
information.
15. Dispute Resolution.
(a) If a dispute, controversy or claim ("Dispute") arises between the
parties relating to the interpretation or performance of this Agreement, or the
grounds for the termination hereof, appropriate senior executives (e.g. director
or V.P. level) of each party who shall have the authority to resolve the matter
shall meet to attempt in good faith to negotiate a resolution of the Dispute
prior to pursuing other available remedies. The initial meeting between the
appropriate senior executives
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shall be referred to herein as the "Dispute Resolution Commencement Date."
Discussions and correspondence relating to trying to resolve such Dispute shall
be treated as confidential information developed for the purpose of settlement
and shall be exempt from discovery or production and shall not be admissible. If
the senior executives are unable to resolve the Dispute within thirty (30) days
from the Dispute Resolution Commencement Date, and either party wishes to pursue
its rights relating to such Dispute, then the Dispute will be mediated by a
mutually acceptable mediator appointed pursuant to the mediation rules of
JAMS/Endispute within thirty (30) days after written notice by one party to the
other demanding non-binding mediation. Neither party may unreasonably withhold
consent to the selection of a mediator or the location of the mediation. Both
parties will share the costs of the mediation equally, except that each party
shall bear its own costs and expenses, including attorney's fees, witness fees,
travel expenses, and preparation costs. The parties may also agree to replace
mediation with some other form of non-binding or binding ADR.
(b) Any Dispute which the parties cannot resolve through mediation within
ninety (90) days of the Dispute Resolution Commencement Date, unless otherwise
mutually agreed, shall be submitted to final and binding arbitration under the
then current Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), by three (3) arbitrators in Santa Clara County, California.
Such arbitrators shall be selected by the mutual agreement of the parties or,
failing such agreement, shall be selected according to the aforesaid AAA rules.
The arbitrators will be instructed to prepare and deliver a written, reasoned
opinion stating their decision within thirty (30) days of the completion of the
arbitration. The prevailing party in such arbitration shall be entitled to
expenses, including costs and attorneys' and other professional fees, incurred
in connection with the arbitration (but excluding any costs and fees associated
with prior negotiation or mediation). The decision of the arbitrator shall be
final and non-appealable and may be enforced in any court of competent
jurisdiction. The use of any ADR procedures will not be construed under the
doctrine of laches, waiver or estoppel to adversely affect the rights of either
party.
(c) Any Dispute regarding the following is not required to be negotiated,
mediated or arbitrated prior to seeking relief from a court of competent
jurisdiction: breach of any obligation of confidentiality; any claim where
interim relief from the court is sought to prevent serious and irreparable
injury to one of the parties or to others. However, the parties to the Dispute
shall make a good faith effort to negotiate and mediate such Dispute, according
to the above procedures, while such court action is pending.
(d) Unless otherwise agreed in writing, the parties will continue to honor
all commitments under this Agreement during the course of dispute resolution
pursuant to the provisions of this Section 15 with respect to all matters not
subject to such dispute, controversy, or claim.
16. Entire Agreement. This Agreement constitutes the entire agreement
between the parties with respect to the subject matter hereof and shall
supersede all prior written and oral and all contemporaneous oral agreements and
understandings with respect to the subject matter hereof.
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17. Governing Law. This Agreement shall be construed in accordance with
and all Disputes hereunder shall be governed by the laws of the State of
California, excluding its conflict of law rules and the United Nations
Convention on Contracts for the International Sales of Goods. The Superior
Court of Santa Clar County and/or the United States District Court for the
Northern Distribut of California shall have jurisdiction and venue over all
Disputes between the parties that are permitted to be brought in a court of loaw
pursuant to Section 15.
18. Notices. Notices, Demands, offers, requests or other communications
required or permitted to be given by either party pursuant to the terms of this
Agreement shall be given in writing to the respective parties to the following
addresses:
if to 3Com:
3Com Corporation
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
if to Palm:
Palm Computing, Inc.
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: ____________
Or to such other address as the party to whom notice is given may have
previously furnished to the other in writing as provided herein. Any notice
involving non-performance, termination, or renewal shall be sent by hand
delivery, recognized overnight courier or, within the United States, may also be
sent via certified mail, return receipt requested. All other notices may also
be sent by fax, confirmed by first class mail. All notices shall be deemed to
have been given and received on the earlier of actual delivery or three (3) days
from the date of postmark.
19. Counterparts. This Agreement may be executed in counterparts, each of
which shall be deemed to be an original but all of which shall constitute one
and the same agreement.
20. Binding Effect; Assignment. This Agreement shall inure to the benefit
of and be binding upon the parties hereto and their respective legal
representatives and successors, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. This Agreement may
be enforced separately by each member of the 3Com Group (defined, for this
purpose, as provided in section 7.14 of the Master Separation and Distribution
Agreement) and each member of the Palm Group. Neither party may assign this
Agreement or any rights or obligations hereunder, without the prior
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written consent of the other party, and any such assignment shall be void;
provided, however, either party may assign this Agreement to a successor entity
in conjunction with such party's reincorporation.
21. Severability. If any term or any other provision of this Agreement
is determined by a court, administrative agency or arbitrator to be invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to either party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the fullest
extent possible.
22. Failure or Indulgence Not Waiver; Remedies Cumulative. No failure or
delay on the part of any party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any agreement herein, nor shall any single or partial exercise of
any such right preclude other or further exercise thereof or of any other right.
All rights and remedies existing under this Agreement are cumulative to, and not
exclusive of, any rights or remedies otherwise available.
23. Amendment. No change or amendment will be made to this Agreement
except by an instrument in writing signed on behalf of each of the parties to
such agreement.
24. Authority. Each of the parties hereto represents to the other that
(a) it has the corporate or other requisite power and authority to execute,
deliver, and perform this Agreement, (b) the execution, delivery and performance
of this Agreement by it have been duly authorized by all necessary corporate or
other actions, (c) it has duly and validly executed and delivered this
Agreement, and (d) this Agreement is a legal, valid and binding obligation,
enforceable against it in accordance with its terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equity principles.
25. Interpretation. The headings contained in this Agreement are for
reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. When a reference is made in this Agreement to
a Section, such reference shall be to a Section of this Agreement unless
otherwise indicated.
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed as of the date first set forth above.
3COM CORPORATION PALM, INC.
By:_____________________________ By:__________________________________
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Name:___________________________ Name:_______________________________
Title:__________________________ Title:______________________________
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EXHIBIT 2.8
MASTER TRANSITIONAL SERVICES AGREEMENT
BETWEEN
3COM CORPORATION
AND
PALM, INC.
Effective as of _____, 2000
<PAGE>
MASTER TRANSITIONAL SERVICES AGREEMENT
This Master Transitional Services Agreement (the "Agreement") is effective as of
________, 2000 (the "Effective Date"), between 3Com Corporation, a Delaware
corporation ("3Com"), having an office at 5400 Bayfront Plaza, Santa Clara,
California, 95052 and Palm, Inc., a Delaware corporation ("Palm"), having an
office at 5400 Bayfront Plaza, Santa Clara, California, 95052.
ARTICLE 1
DEFINITIONS
For the purpose of this Agreement, the following capitalized terms shall
have the following meanings:
1.1 ADDITIONAL SERVICES. "Additional Services" shall have the meaning set
forth in Section 3.5.
1.2 ANCILLARY AGREEMENTS. "Ancillary Agreements" shall have the meaning
set forth in the Master Separation and Distribution Agreement.
1.3 DISTRIBUTION DATE. "Distribution Date" shall have the meaning set
forth in the Master Separation and Distribution Agreement.
1.4 IMPRACTICABLE. "Impracticable" shall have the meaning set forth in
Section 3.3.
1.5 LOCALIZED VERSION. "Localized Version" means localized versions of the
Software.
1.6 MASTER CONFIDENTIAL DISCLOSURE AGREEMENT. "Master Confidential
Disclosure Agreement" shall mean that certain Master Confidential Disclosure
Agreement between 3Com and Palm.
1.7 MASTER SEPARATION AND DISTRIBUTION AGREEMENT. "Master Separation and
Distribution Agreement" shall mean that certain Master Separation and
Distribution Agreement between 3Com and Palm.
1.8 SEPARATION DATE. Unless otherwise provided in this Agreement, or in
any agreement to be executed in connection with this Agreement, the effective
time and date of each transfer of property, assumption of liability, license,
undertaking, or agreement in connection with the Separation shall be 12:01 a.m.,
Pacific Time, February 26, 2000 or such other date as may be fixed by the Board
of Directors of 3Com (the "Separation Date").
1.9 SERVICE(S). "Service(s)" shall have the meaning set forth in Section
3.1.
<PAGE>
1.10 SOFTWARE. "Software" means 3Com's software program(s), in object code
only, listed and described in the relevant Transition Service Schedule.
1.11 SOURCE CODE. "Source Code" means any human readable code, including
interpreted code, of 3Com, listed and described in the relevant Transition
Service Schedule.
1.12 SOURCE CODE DOCUMENTATION. "Source Code Documentation" means the
manuals and other documentation that are reasonably necessary to use the Source
Code licensed herein, including those items listed and described in the relevant
Transition Service Schedule hereto.
1.13 SUBSIDIARY. "Subsidiary" of any Person means a corporation or other
organization whether incorporated or unincorporated of which at least a majority
of the securities or interests having by the terms thereof ordinary voting power
to elect at least a majority of the board of directors or others performing
similar functions with respect to such corporation or other organization is
directly or indirectly owned or controlled by such Person or by any one or more
of its Subsidiaries, or by such Person and one or more of its Subsidiaries;
provided, however, that no Person that is not directly or indirectly wholly-
owned by any other Person shall be a Subsidiary of such other Person unless such
other Person controls, or has the right, power or ability to control, that
Person. For purposes of this Agreement, Palm shall be deemed not to be a
subsidiary of 3Com.
ARTICLE 2
TRANSITION SERVICE SCHEDULES
This Agreement will govern individual transitional services as requested by
Palm and provided by 3Com, the details of which are set forth in the Transition
Service Schedules attached to this Agreement. Each Service shall be covered by
this Agreement upon execution of a transition service schedule in the form
attached hereto (each transition service schedule, a "Transition Service
Schedule").
For each Service, the parties shall set forth, among other things, the time
period during which the Service will be provided if different from the term of
this Agreement determined pursuant to Article 4 hereof, a summary of the Service
to be provided; a description of the Service; and the estimated charge, if any,
for the Service and any other terms applicable thereto on the Transition Service
Schedule. Obligations regarding each Transition Service Schedule shall be
effective upon execution of this Agreement. This Agreement and all the
Transition Service Schedules shall be defined as the "Agreement" and
incorporated herein wherever reference to it is made.
ARTICLE 3
SERVICES
3.1 SERVICES GENERALLY. Except as otherwise provided herein, for the term
determined pursuant to Article 4 hereof, 3Com shall provide or cause to be
provided to Palm the service(s) described in the Transition Service Schedule(s)
attached hereto. The service(s) described
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on a single Transition Service Schedule shall be referred to herein as a
"Service." Collectively, the services described on all the Transition Service
Schedules (including Additional Services) shall be referred to herein as
"Services."
3.2 SERVICE BOUNDARIES. Except as provided in a Transition Service
Schedule for a specific Service: (i) 3Com shall be required to provide the
Services only to the extent and only at the locations such Services are being
provided by 3Com for Palm immediately prior to the Effective Date; and (ii) the
Services will be available only for purposes of conducting the business of Palm
substantially in the manner it was conducted prior to the Effective Date.
3.3 IMPRACTICABILITY. 3Com shall not be required to provide any Service to
the extent the performance of such Service becomes "Impracticable" as a result
of a cause or causes outside the reasonable control of 3Com including unfeasible
technological requirements, or to the extent the performance of such Services
would require 3Com to violate any applicable laws, rules or regulations or would
result in the breach of any software license or other applicable contract.
3.4 ADDITIONAL RESOURCES. Except as provided in a Transition Service
Schedule for a specific Service, in providing the Services, 3Com shall not be
obligated to: (i) hire any additional employees; (ii) maintain the employment of
any specific employee; (iii) purchase, lease or license any additional equipment
or software; or (iv) pay any costs related to the transfer or conversion of
Palm's data to Palm or any alternate supplier of Services.
3.5 ADDITIONAL SERVICES. From time to time after the Effective Date, the
parties may identify additional services that one party will provide to the
other party in accordance with the terms of this Agreement (the "Additional
Services"). Accordingly, the parties shall execute additional Transition
Service Schedules for such Additional Services pursuant to Article 2. Except as
set forth in Section 3.6, the parties may agree in writing on Additional
Services during the term of this Agreement.
3.6 OBLIGATIONS AS TO ADDITIONAL SERVICES. Except as set forth in the next
sentence, 3Com shall be obligated to perform, at a charge determined using the
principles for determining fees under Section 5.1, any Additional Service that:
(a) was provided by 3Com immediately prior to the Separation Date and that Palm
reasonably believes was inadvertently or unintentionally omitted from the list
of Services, or (b) is essential to effectuate an orderly transition under the
Master Separation and Distribution Agreement unless such performance would
significantly disrupt 3Com's operations or materially increase the scope of its
responsibility under this Agreement. If 3Com reasonably believes the performance
of Additional Services required under subparagraphs (a) or (b) would
significantly disrupt its operations or materially increase the scope of its
responsibility under this Agreement, 3Com and Palm shall negotiate in good faith
to establish terms under which 3Com can provide such Additional Services, but
3Com shall not be obligated to provide such Additional Services if, following
good faith negotiation, it is unable to reach agreement on such terms.
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ARTICLE 4
TERM
The term of this Agreement shall commence on the Effective Date and shall
remain in effect until one (1) year after the Effective Date (the "Expiration
Date"), unless earlier terminated under Article 7. This Agreement may be
extended by the parties in writing, either in whole or with respect to one or
more of the Services; provided, however, that such extension shall only apply to
the Services for which the Agreement was extended. The parties shall be deemed
to have extended this Agreement with respect to a specific Service if the
Transition Service Schedule for such Service specifies a completion date beyond
the aforementioned Expiration Date. The parties may agree on an earlier
expiration date respecting a specific Service by specifying such date on the
Transition Service Schedule for that Service. Services shall be provided up to
and including the date set forth in the applicable Transition Service Schedule,
subject to earlier termination as provided herein.
ARTICLE 5
COMPENSATION
5.1 CHARGES FOR SERVICES. Palm shall pay 3Com the charges, if any, set
forth on the Transition Service Schedules for each of the Services listed
therein as adjusted, from time to time, in accordance with the processes and
procedures established under Section 5.4 and Section 5.5 hereof. Such fees shall
include the direct costs, as determined using the process described in such
Transition Service Schedule, and indirect costs of providing the Services plus
five percent (5%), unless specifically indicated otherwise on a Transition
Service Schedule. However, if the term of this Agreement is extended beyond the
Expiration Date as provided in Article 4, Palm will reimburse 3Com such costs
plus ten percent (10%) for the Services unless the Transition Service Schedule
for such Service indicates it is to extend beyond the Expiration Date. The
parties also intend for charges to be easy to administer and justify and,
therefore, they hereby acknowledge it may be counterproductive to try to recover
every cost, charge or expense, particularly those that are insignificant or de
minimus. The parties shall use good faith efforts to discuss any situation in
which the actual charge for a Service is reasonably expected to exceed the
estimated charge, if any, set forth on a Transition Service Schedule for a
particular Service; provided, however, that the incurrence of charges in excess
of any such estimate on such Transition Service Schedule shall not justify
stopping the provision of, or payment for, Services under this Agreement.
5.2 PAYMENT TERMS. 3Com shall bill Palm monthly for all charges pursuant
to this Agreement. Such bills shall be accompanied by reasonable documentation
or other reasonable explanation supporting such charges. Palm shall pay 3Com for
all Services provided hereunder within forty-five (45) days after receipt of an
invoice therefor. Late payments shall bear interest at the lesser of 12% or the
maximum rate allowed by law.
5.3 PERFORMANCE UNDER ANCILLARY AGREEMENTS. Notwithstanding anything to
the contrary contained herein, Palm shall not be charged under this Agreement
for any
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obligations that are specifically required to be performed under the Master
Separation and Distribution Agreement or any other Ancillary Agreement and any
such other obligations shall be performed and charged for (if applicable) in
accordance with the terms of the Master Separation and Distribution Agreement or
such other Ancillary Agreement.
5.4 ERROR CORRECTION; TRUE-UPS; ACCOUNTING. The parties shall reasonably
agree on a process and procedure for conducting internal audits and making
adjustments to charges as a result of the movement of employees and functions
between parties, the discovery of errors or omissions in charges, as well as a
true-up of amounts owed. In no event shall such processes and procedures extend
beyond two (2) years after completion of a Service.
5.5 PRICING ADJUSTMENTS. In the event of a tax audit adjustment relating
to the pricing of any or all Services provided pursuant to this Agreement in
which it is determined by a taxing authority that any of the charges,
individually or in combination, did not result in an arm's-length payment, as
determined under internationally accepted arm's-length standards, then the
parties, including any 3Com subcontractor providing Services hereunder, may
agree to make corresponding adjustments to the charges in question for such
period to the extent necessary to achieve arm's-length pricing. Any adjustment
made pursuant to this Section 5.5 at any time during the term of this Agreement
or after termination of this Agreement and shall be reflected in the parties'
legal books and records, and the resulting underpayment or overpayment shall
create, respectively, an obligation to be paid in the manner specified in
Section 5.2, or shall create a credit against amounts owed under this Agreement.
ARTICLE 6
GENERAL OBLIGATIONS; STANDARD OF CARE
6.1 PERFORMANCE METRICS: 3COM. Subject to Sections 3.4 and any other terms
and conditions of this Agreement, 3Com shall maintain sufficient resources to
perform its obligations hereunder. Specific performance metrics for 3Com for a
specific Service may be set forth in the corresponding Transition Service
Schedule. Where none is set forth, 3Com shall use reasonable efforts to provide
Services in accordance with the policies, procedures and practices in effect
before the Effective Date and shall exercise the same care and skill as it
exercises in performing similar services for itself.
6.2 DISCLAIMER OF WARRANTIES. 3COM MAKES NO WARRANTIES, EXPRESS, IMPLIED
OR STATUTORY, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF
MERCHANTABILITY OR FITNESS FOR A PARTICULAR PURPOSE, WITH RESPECT TO THE
SERVICES, SOFTWARE OR OTHER DELIVERABLES PROVIDED BY IT HEREUNDER.
6.3 PERFORMANCE METRICS: PALM. Specific performance metrics for Palm for a
specific Service may be set forth in the corresponding Transition Service
Schedule. Where none is set forth, Palm shall use reasonable efforts, in
connection with receiving Services, to follow the policies, procedures and
practices in effect before the Effective Date including providing
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information and documentation sufficient for 3Com to perform the Services as
they were performed before the Effective Date and making available, as
reasonably requested by 3Com, sufficient resources and timely decisions,
approvals and acceptances in order that 3Com may accomplish its obligations
hereunder in a timely manner.
6.4 TRANSITIONAL NATURE OF SERVICES; CHANGES. The parties acknowledge the
transitional nature of the Services and that 3Com may make changes from time to
time in the manner of performing the Services if 3Com is making similar changes
in performing similar services for itself and if 3Com furnishes to Palm sixty
(60) days written notice regarding such changes.
6.5 RESPONSIBILITY FOR ERRORS; DELAYS. 3Com's sole responsibility to Palm:
(a) for errors or omissions in Services, shall be to furnish correct
information, payment and/or adjustment in the Services, at no additional cost or
expense to Palm; provided, Palm must promptly advise 3Com of any such error or
omission of which it becomes aware after having used reasonable efforts to
detect any such errors or omissions in accordance with the standard of care set
forth in Section 6.1; and
(b) for failure to deliver any Service because of Impracticability,
shall be to use reasonable efforts, subject to Section 3.3, to make the Services
available and/or to resume performing the Services as promptly as reasonably
practicable.
6.6 GOOD FAITH COOPERATION; CONSENTS. The parties will use good faith
efforts to cooperate with each other in all matters relating to the provision
and receipt of Services. Such cooperation shall include exchanging information,
performing true-ups and adjustments, and obtaining all third party consents,
licenses, sublicenses or approvals necessary to permit each party to perform its
obligations hereunder (including by way of example, not by way of limitation,
rights to use third party software needed for the performance of Services). The
costs of obtaining such third party consents, licenses, sublicenses or approvals
shall be borne by Palm. The parties will maintain in accordance with its
standard document retention procedures, documentation supporting the information
relevant to cost calculations contained in the Transition Service Schedules and
cooperate with each other in making such information available as needed in the
event of a tax audit, whether in the United States or any other country.
6.7 ALTERNATIVES. If 3Com reasonably believes it is unable to provide any
Service because of a failure to obtain necessary consents, licenses, sublicenses
or approvals pursuant to Section 6.6 or because of Impracticability, the parties
shall cooperate to determine the best alternative approach. Until such
alternative approach is found or the problem otherwise resolved to the
satisfaction of the parties, 3Com shall use reasonable efforts, subject to
Section 3.3 and Section 3.4, to continue providing the Service. To the extent
an agreed upon alternative approach requires payment above and beyond that which
is included in 3Com's charge for the Service in question, the parties shall
share equally in making any such payment unless they otherwise agree in writing.
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ARTICLE 7
TERMINATION
7.1 TERMINATION. Palm may terminate this Agreement, either with respect to
all or with respect to any one or more of the Services provided to Palm
hereunder, for any reason or for no reason, at any time upon sixty (60) days
prior written notice to 3Com. In addition, subject to the provisions of Article
16 below, either party may terminate this Agreement with respect to a specific
Service if the other party materially breaches a material provision with regard
to that particular Service and does not cure such breach (or does not take
reasonable steps required under the circumstances to cure such breach going
forward) within sixty (60) days after being given notice of the breach;
provided, however, that the non-terminating party may request that the parties
engage in a dispute resolution negotiation as specified in Article 16 below
prior to termination for breach.
7.2 SURVIVAL. Those Sections of this Agreement that, by their nature, are
intended to survive termination will survive in accordance with their terms.
Notwithstanding the foregoing, in the event of any termination with respect to
one or more, but less than all Services, this Agreement shall continue in full
force and effect with respect to any Services not terminated hereby.
7.3 USER IDS, PASSWORDS. The parties shall use good faith efforts at the
termination or expiration of this Agreement or any specific Service hereto to
ensure that all applicable user IDs and passwords are canceled.
ARTICLE 8
RELATIONSHIP BETWEEN THE PARTIES
The relationship between the parties established under this Agreement is
that of independent contractors and neither party is an employee, agent,
partner, or joint venturer of or with the other. 3Com will be solely
responsible for any employment-related taxes, insurance premiums or other
employment benefits respecting its personnels' performance of Services under
this Agreement. Palm agrees to grant 3Com personnel access to sites, systems
and information (subject to the provisions of confidentiality in Article 13
below) as necessary for 3Com to perform its obligations hereunder. 3Com
personnel agree to obey any and all security regulations and other published
policies of Palm.
ARTICLE 9
SUBCONTRACTORS
3Com may engage a "Subcontractor" to perform all or any portion of 3Com's
duties under this Agreement, provided that any such Subcontractor agrees in
writing to be bound by confidentiality obligations at least as protective as the
terms of Article 13 regarding confidentiality below, and provided further that
3Com remains responsible for the performance of such
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Subcontractor. As used in this Agreement, "Subcontractor" will mean any
individual, partnership, corporation, firm, association, unincorporated
organization, joint venture, trust or other entity engaged to perform hereunder.
ARTICLE 10
INTELLECTUAL PROPERTY
10.1 ALLOCATION OF RIGHTS BY ANCILLARY AGREEMENTS. This Agreement and the
performance of this Agreement will not affect the ownership of any copyrights or
other intellectual property rights allocated in the Ancillary Agreements.
10.2 EXISTING OWNERSHIP RIGHTS UNAFFECTED. Neither party will gain, by
virtue of this Agreement, any rights of ownership of copyrights, patents, trade
secrets, trademarks or any other intellectual property rights owned by the
other.
10.3 OWNERSHIP OF DEVELOPED WORKS. Except as set forth in Section 10.2,
3Com will own all copyrights, patents, trade secrets, trademarks and other
intellectual property rights subsisting in the Software Deliverables (as defined
in Section 11.1 below) and other works developed by 3Com for purposes of this
Agreement.
10.4 LICENSE TO PREEXISTING WORKS. Palm grants 3Com a non-exclusive,
worldwide, royalty-free license to use, copy, and make derivative works of,
distribute, display, perform and transmit Palm's pre-existing copyrighted works
or other intellectual property rights solely to the extent necessary to perform
its obligations under this Agreement.
ARTICLE 11
SOFTWARE LICENSE
11.1 SOFTWARE DELIVERABLE/LICENSE. Unless otherwise agreed by the parties
under the Ancillary Agreements or any separate license or technology agreement,
if 3Com supplies Palm with a deliverable that in whole or in part consists of
software, firmware, or other computer code (referred to as a "Software
Deliverable") as indicated in a Transition Service Schedule, such Software
Deliverables will be supplied in object code form only and will be subject to
the terms of this Article 11. In the event that such Software Deliverables are
licensed to 3Com by third parties, Palm agrees to be bound by any different or
additional conditions that are required by such third parties and are
communicated in writing by 3Com to Palm.
11.2 DELIVERY AND ACCEPTANCE.
(a) DELIVERY. 3Com agrees to deliver to Palm one (1): (i) master
copy of the Software in object code form only (as specified on the relevant
Transition Service Schedule of the Agreement) on the media described on the
relevant Transition Service Schedule and (ii) Documentation for the Software on
the media described in the relevant Transition Service Schedule
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((i) and (ii) collectively a "Complete Copy") as listed in the relevant
Transition Service Schedule no later than ten (10) days after the Effective Date
(or any other start date as specifically indicated in the relevant Transition
Service Schedule). If Source Code is licensed under this Agreement, 3Com agrees
to deliver one (1) copy of such Source Code no later than ten (10) days after
the Effective Date (or any other start date as specifically indicated in the
relevant Transition Service Schedule). Additional Software or Source Code may be
added to this Agreement from time to time by execution by the parties of a
Transition Service Schedule.
(b) ACCEPTANCE OF SOFTWARE (NON-SOURCE CODE). Palm will have thirty
(30) days from the date of receipt of a Complete Copy of the Software to
evaluate the Software for conformity with the manuals and other documentation
that 3Com makes available with the Software to end users or which are reasonably
necessary to use the Software licensed herein, including those items listed and
described in the relevant Transition Service Schedule hereto (the
"Documentation") and specifications, and either accept, return for rework
(provided the Software has not previously been reworked), or reject the
Software. Palm shall accept the Software if it substantially conforms with
Documentation and specifications. Palm will be entitled to test and evaluate the
Software and 3Com hereby grants to Palm the right to use and reproduce the
Software only to the extent necessary for Palm to perform its evaluation. Such
license will include the right of Palm to use third party subcontractors bound
by the relevant restrictions herein solely as necessary to achieve the
foregoing. If Palm returns the Software for rework, 3Com will use reasonable
commercial efforts to correct the identified defects and resubmit the Software
for re-evaluation under the same acceptance procedure. In the event Palm rejects
the Software a second time, this Agreement will terminate with respect to that
Software. Payment due from Palm to 3Com under a Transition Service Schedule that
includes Software to be licensed shall be reduced by the pro rata portion of
compensation attributable to the Software unless the Software has been accepted
by Palm in writing or Palm fails to reject the Software within such 30 day
period.
(c) ACCEPTANCE OF SOURCE CODE. The Source Code is provided for Palm's
reference only and subject to the limitations below in Section 11.3. The Source
Code may not be accepted or rejected according to the provisions above in
Section 11.2(b). If Palm rejects the Source Code, Palm must destroy all copies
of such rejected Source Code and promptly furnish evidence of such rejection and
destruction to 3Com.
11.3 RIGHTS GRANTED AND RESTRICTIONS.
(a) LICENSE TO SOFTWARE. Subject to the terms and conditions of this
Agreement, 3Com hereby grants to Palm, under 3Com's intellectual property rights
in and to the Software, a non-exclusive, nontransferable worldwide license to
(a) use and display the Software for its own internal information processing
services and computing needs, and to make sufficient copies as necessary for
such use, and (b) use the Documentation in connection with the permitted use of
the Software and make sufficient copies as necessary for such use.
(b) LICENSE TO SOURCE CODE. Subject to the terms and conditions of
this Agreement, 3Com hereby grants to Palm, under 3Com's intellectual property
rights in and to the Software, a non-exclusive, nontransferable worldwide
license to (a) use and reproduce (for archival
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and back-up purposes only), and prepare derivative works of the Source Code, for
the sole purpose of supporting the object code version of the Software (if such
object code exists), or, if no object code exists, for the sole purpose of its
own internal information processing services and computing needs and (b) to use
Source Code Documentation in connection with the permitted use of the Source
Code and make copies for archival and back-up purposes only.
(c) RESTRICTIONS. Palm shall not itself, or through any Subsidiary,
affiliate, agent or third party: (a) sell, lease, license or sublicense the
Software, the Source Code, the Documentation or the Source Code Documentation;
(b) decompile, disassemble, or reverse engineer the Software or Source Code, in
whole or in part, except to the extent such restriction is prohibited by
applicable law; (c) allow access to the Software or Source Code by any user
other than Palm; (d) write or develop any derivative software or any other
software program based upon the Software or Source Code; (e) use the Software or
Source Code to provide processing services to third parties, or (f) otherwise
use the Software or Source Code on a "service bureau" basis; or provide,
disclose, divulge or make available to, or permit use of the Software or Source
Code by any third party without 3Com's prior written consent.
(d) CONFIDENTIALITY. The Source Code and Source Code Documentation
are hereby deemed "Confidential Information" and subject to the terms and
procedures of the Master Confidential Disclosure Agreement. The period of
disclosure shall be one (1) year from the Effective Date of this Agreement, and
the period of confidentiality shall be perpetual.
(e) TRADEMARKS. Neither party is granted any ownership in or license
to the trademarks, marks or trade names (collectively, "Marks") of the other
party with respect to this Software.
(f) OWNERSHIP. 3Com hereby reserves all rights to the Software,
Source Code and Documentation, and any copyrights, patents, or trademarks,
embodied therein or used in connection therewith, except for the rights
expressly granted herein.
(g) COPYRIGHT NOTICES. Palm agrees that it will not remove any
copyright notices, proprietary markings, trademarks or trade names from the
Software, Source Code, Documentation, or Source Code Documentation.
(h) TECHNICAL ASSISTANCE AND TRAINING. 3Com agrees to provide
technical assistance and training to Palm personnel only if such assistance is
set forth in the relevant Transition Service Schedule.
11.4 AS-IS WARRANTY.
(a) AS-IS WARRANTY. THE SOFTWARE AND SOURCE CODE PROVIDED HEREUNDER
IS LICENSED ON AN "AS-IS" BASIS ONLY, WITHOUT ANY EXPRESS WARRANTIES OF ANY
KIND.
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(b) IMPLIED WARRANTY DISCLAIMER. 3COM MAKES NO WARRANTIES WHATSOEVER,
EITHER EXPRESS OR IMPLIED, REGARDING THE SOFTWARE OR SOURCE CODE (INCLUDING
DOCUMENTATION AND SOURCE CODE DOCUMENTATION), ITS MERCHANTABILITY OR ITS FITNESS
FOR ANY PARTICULAR PURPOSE.
11.5 MISCELLANEOUS.
(a) NO OBLIGATIONS. NEITHER PARTY ASSUMES ANY RESPONSIBILITY OR
OBLIGATIONS WHATEVER, OTHER THAN THE RESPONSIBILITIES AND OBLIGATIONS EXPRESSLY
SET FORTH IN THIS AGREEMENT OR A SEPARATE WRITTEN AGREEMENT BETWEEN THE PARTIES
(b) NON-RESTRICTIVE RELATIONSHIP. Nothing in this Agreement will be
construed to preclude Palm from independently developing, acquiring or marketing
computer software packages which may perform the same or similar functions as
the Software provided by 3Com.
ARTICLE 12
INFRINGEMENT DEFENSE
Notwithstanding anything to the contrary in Article 13 below or the Master
Confidential Disclosure Agreement, to the extent 3Com delivers or licenses any
intellectual property to Palm after the Separation Date in performance of this
Agreement, 3Com agrees to defend Palm and its directors, officers, employees and
agents against any and all claims, actions or suits (any of the foregoing, a
"Claim") incurred by or asserted against Palm based upon infringement of a third
party patent or other intellectual property right. Palm agrees to notify 3Com
promptly of any Claim and permit 3Com at 3Com's expense to defend such Claim and
will cooperate in the defense thereof. 3Com agrees to pay any awards or
settlement amounts arising from a Claim. Neither 3Com nor Palm will enter into
or permit any settlement of any such Claim without the express written consent
of the other party. Palm may, at its option and expense, have its own counsel
participate in any proceeding that is under the direction of 3Com and will
cooperate with 3Com and its insurer in the disposition of any such matter.
ARTICLE 13
CONFIDENTIALITY
The terms of the Master Confidential Disclosure Agreement between the
parties shall apply to any Confidential Information (as defined therein) which
is the subject matter of this Agreement.
ARTICLE 14
LIMITATION OF LIABILITY
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NEITHER PARTY WILL BE LIABLE TO THE OTHER FOR ANY LOST PROFITS, LOSS OF
DATA, LOSS OF USE, COST OF COVER, BUSINESS INTERRUPTION OR OTHER SPECIAL,
INCIDENTAL, INDIRECT, PUNITIVE OR CONSEQUENTIAL DAMAGES, HOWEVER CAUSED, UNDER
ANY THEORY OF LIABILITY, ARISING FROM THE PERFORMANCE OF, OR RELATING TO, THIS
AGREEMENT. THE FOREGOING LIMITATION WILL NOT LIMIT 3COM'S OBLIGATIONS WITH
RESPECT TO PAYMENT OF DAMAGES OF ANY KIND INCLUDED IN AN AWARD OR SETTLEMENT OF
A THIRD PARTY CLAIM UNDER ANY INDEMNITY OR INFRINGEMENT DEFENSE PROVISIONS
SPECIFIED HEREIN.
ARTICLE 15
FORCE MAJEURE
Each party will be excused for any failure or delay in performing any of
its obligations under this Agreement, other than the obligations of Palm to make
certain payments to 3Com pursuant to Article 5 hereof for services rendered, if
such failure or delay is caused by Force Majeure. "Force Majeure" means any act
of God or the public enemy, any accident, explosion, fire, storm, earthquake,
flood, or any other circumstance or event beyond the reasonable control of the
party relying upon such circumstance or event.
ARTICLE 16
DISPUTE RESOLUTION
16.1 MEDIATION. If a dispute, controversy or claim ("Dispute") arises
between the parties relating to the interpretation or performance of this
Agreement or the Ancillary Agreements, or the grounds for the termination
hereof, appropriate senior executives (e.g. director or V.P. level) of each
party who shall have the authority to resolve the matter shall meet to attempt
in good faith to negotiate a resolution of the Dispute prior to pursuing other
available remedies. The initial meeting between the appropriate senior
executives shall be referred to herein as the "Dispute Resolution Commencement
Date." Discussions and correspondence relating to trying to resolve such Dispute
shall be treated as confidential information developed for the purpose of
settlement and shall be exempt from discovery or production and shall not be
admissible. If the senior executives are unable to resolve the Dispute within
thirty (30) days from the Dispute Resolution Commencement Date, and either party
wishes to pursue its rights relating to such Dispute, then the Dispute will be
mediated by a mutually acceptable mediator appointed pursuant to the mediation
rules of JAMS/Endispute within thirty (30) days after written notice by one
party to the other demanding non-binding mediation. Neither party may
unreasonably withhold consent to the selection of a mediator or the location of
the mediation. Both parties will share the costs of the mediation equally,
except that each party shall bear its own costs and expenses, including
attorney's fees, witness fees, travel expenses, and preparation costs. The
parties may also agree to replace mediation with some other form of non-binding
or binding ADR.
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16.2 ARBITRATION. Any Dispute which the parties cannot resolve through
mediation within ninety (90) days of the Dispute Resolution Commencement Date,
unless otherwise mutually agreed, shall be submitted to final and binding
arbitration under the then current Commercial Arbitration Rules of the American
Arbitration Association ("AAA"), by three (3) arbitrators in Santa Clara County,
California. Such arbitrators shall be selected by the mutual agreement of the
parties or, failing such agreement, shall be selected according to the aforesaid
AAA rules. The arbitrators will be instructed to prepare and deliver a written,
reasoned opinion stating their decision within thirty (30) days of the
completion of the arbitration. The prevailing party in such arbitration shall
be entitled to expenses, including costs and reasonable attorneys' and other
professional fees, incurred in connection with the arbitration (but excluding
any costs and fees associated with prior negotiation or mediation). The
decision of the arbitrator shall be final and non-appealable and may be enforced
in any court of competent jurisdiction. The use of any ADR procedures will not
be construed under the doctrine of laches, waiver or estoppel to adversely
affect the rights of either party.
16.3 COURT ACTION. Any Dispute regarding the following is not required to
be negotiated, mediated or arbitrated prior to seeking relief from a court of
competent jurisdiction: breach of any obligation of confidentiality;
infringement, misappropriation, or misuse of any intellectual property right;
any other claim where interim relief from the court is sought to prevent serious
and irreparable injury to one of the parties or to others. However, the parties
to the Dispute shall make a good faith effort to negotiate and mediate such
Dispute, according to the above procedures, while such court action is pending.
16.4 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in
writing, the parties will continue to provide service and honor all other
commitments under this Agreement and each Ancillary Agreement during the course
of dispute resolution pursuant to the provisions of this Article 16 with respect
to all matters not subject to such dispute, controversy or claim.
ARTICLE 17
MISCELLANEOUS
17.1 ENTIRE AGREEMENT. This Agreement, the Master Separation and
Distribution Agreement and the other Ancillary Agreements and the Exhibits and
Schedules referenced or attached hereto and thereto constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and shall supersede all prior written and oral and all contemporaneous
oral agreements and understandings with respect to the subject matter hereof and
thereof.
17.2 GOVERNING LAW. This Agreement shall be construed in accordance with
and all Disputes hereunder shall be governed by the laws of the State of
California, excluding its conflict of law rules and the United Nations
Convention on Contracts for the International Sale of Goods. The Superior Court
of Santa Clara County and/or the United States District Court for the Northern
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District of California shall have jurisdiction and venue over all Disputes
between the parties that are permitted to be brought in a court of law pursuant
to Article 16 above.
17.3 DESCRIPTIVE HEADINGS. The headings contained in this Agreement, in
any Exhibit or Schedule hereto and in the table of contents to this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized term used in any Exhibit or
Schedule but not otherwise defined therein, shall have the meaning assigned to
such term in this Agreement. When a reference is made in this Agreement to an
Article or a Section, Exhibit or Schedule, such reference shall be to an Article
or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated.
17.4 NOTICES. Notices, offers, requests, or other communications required
or permitted to be given by either party pursuant to the terms of this Agreement
shall be given in writing to the respective parties to the following addresses:
if to 3Com :
3Com Corporation
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
if to Palm:
Palm, Inc.
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
or to such other address as the party to whom notice is given may have
previously furnished to the other in writing as provided herein. Any notice
involving non-performance, termination, or renewal shall be sent by hand
delivery, recognized overnight courier or, within the United States, may also be
sent via certified mail, return receipt requested. All other notices may also
be sent by fax, confirmed by first class mail. All notices shall be deemed to
have been given and received on the earlier of actual delivery or three (3) days
from the date of postmark.
17.5 NONASSIGNABILITY. Except as specifically permitted under Article 10
above, neither party may, directly or indirectly, in whole or in part, whether
by operation of law or otherwise, assign or transfer this Agreement, without the
other party's prior written consent, and any attempted assignment, transfer or
delegation without such prior written consent shall be voidable at the sole
option of such other party. Notwithstanding the foregoing, each party (or its
permitted successive assignees or transferees hereunder) may assign or transfer
this Agreement as a whole without consent to an entity that succeeds to all or
substantially all of the business or assets of such party. Without limiting the
foregoing, this Agreement will be binding upon and inure to the benefit of the
parties and their permitted successors and assigns.
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17.6 SEVERABILITY. If any term or other provision of this Agreement is
determined by a court, administrative agency or arbitrator to be invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement will nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated is not affected in any manner materially adverse to
any party. Upon such determination that any term or other provision is invalid,
illegal or incapable of being enforced, the parties shall negotiate in good
faith to modify this Agreement so as to effect the original intent of the
parties as closely as possible in an acceptable manner to the end that
transactions contemplated hereby are fulfilled to the fullest extent possible.
17.7 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. If any term or
other provision of this Agreement or the Exhibits or Schedules attached hereto
is determined by a court, administrative agency or arbitrator to be invalid,
illegal or incapable of being enforced by any rule of law or public policy, all
other conditions and provisions of this Agreement shall nevertheless remain in
full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to either party. Upon such determination that any term or other
provision is invalid, illegal or incapable of being enforced, the parties hereto
shall negotiate in good faith to modify this Agreement so as to effect the
original intent of the parties as closely as possible in an acceptable manner to
the end that transactions contemplated hereby are fulfilled to the fullest
extent possible.
17.8 AMENDMENT. No change or amendment will be made to this Agreement
except by an instrument in writing signed on behalf of each of the parties to
such agreement.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed in duplicate originals by its duly authorized representatives.
3COM CORPORATION PALM, INC.
By:_______________________ By:__________________________
Title:____________________ Title:_______________________
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Transition Service Schedule to Master Transitional Services Agreement
1. Transition Service Schedule #:____________ (To be inserted by responsible
individual or department.)
2. Functional Area:_______________
3. Start/End Date: The Services start on the Effective Date of the Master
Transitional Services Agreement between 3Com Corporation ("3Com") and Palm
Computing, Inc. ("Palm") to which this Transition Service Schedule is
attached and end on February 1, 2001 unless otherwise indicated below.
Indicate below if other start/end date:
--------------------------------------
Start Date:_______________________
End Date:_________________________
If Start and End dates vary by service and/or country, please indicate in
Section 5 below.
4. Summary of Services (Describe the service to be provided in appropriate
detail.
- --------------------------------------------------------------------------------
Service Name Description
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
5. List of services to be provided per country and site: (List all the
services to be provided at each site. Enter Start Date and End Date if
different than Section 3 above.)
- --------------------------------------------------------------------------------
Country Site Service(s) Start Date End Date
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
6. Performance parameters/Service level: (State minimum performance expected
from each service, if applicable.):
7. Estimated Total Compensation:-----------------------
<PAGE>
8. Describe cost methodology and cost drivers affecting Estimated Total
Compensation (Describe on an individual service basis if necessary):
9. Describe the process by which the cost of services will be adjusted in the
instance of an increase/reduction in the services provided: (Describe on an
individual service basis if necessary.)
10. Software: Will software be used or included with the Services to be
provided under this Transition Service Schedule: ____ Yes
____ No
If yes, will source code be provided: ____ Yes ____ No
List software to be provided:
Software Application Number of Licenses to be Provided
-------------------- ---------------------------------
____________________________________________________________
____________________________________________________________
Upon execution of this Transition Service Schedule by both parties, this
Transition Service Schedule is hereby deemed incorporated into and made part of
that certain Master Transitional Services Agreement between 3Com Corporation and
Palm Computing, Inc.
3COM CORPORATION PALM, INC.
By:___________________________ By:________________________________
(Authorized Signature) (Authorized Signature)
Date:_________________________ Date:______________________________
Name:_________________________ Name:______________________________
Title:________________________ Title:_____________________________
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EXHIBIT 2.9
Real Estate Matters Agreement
between
3COM CORPORATION
and
PALM, INC.
_______________, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE I PROPERTY........................................................... 1
Section 1.1 Leased Property............................................. 1
Section 1.2 Shared Properties........................................... 1
Section 1.3 Headquarters Facility....................................... 2
Section 1.4 Obtaining the Lease Consents................................ 2
Section 1.5 Occupation by Palm.......................................... 3
Section 1.6 Obligation to Complete...................................... 4
Section 1.7 Form of Transfer............................................ 5
Section 1.8 Casualty; Lease Termination................................. 6
Section 1.9 Tenant's Fixtures and Fittings.............................. 6
Section 1.10 Costs....................................................... 6
ARTICLE II MISCELLANEOUS..................................................... 7
Section 2.1 Limitation of Liability..................................... 7
Section 2.2 Entire Agreement............................................ 7
Section 2.3 Governing Law............................................... 7
Section 2.4 Notices..................................................... 7
Section 2.5 Counterparts................................................ 9
Section 2.6 Binding Effect; Assignment.................................. 9
Section 2.7 Severability................................................ 9
Section 2.8 Failure or Indulgence Not Waiver; Remedies Cumulative....... 9
Section 2.9 Amendment................................................... 10
Section 2.10 Authority................................................... 10
Section 2.11 Interpretation.............................................. 10
Section 2.12 Disputes.................................................... 10
ARTICLE III DEFINITIONS...................................................... 10
</TABLE>
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REAL ESTATE MATTERS AGREEMENT
This Real Estate Matters Agreement (this "Agreement") is entered into on
__________, 2000 between 3Com Corporation, a Delaware corporation ("3Com"), and
Palm, Inc., a Delaware corporation ("Palm"). Capitalized terms used herein and
not otherwise defined herein shall have the meanings ascribed to such terms in
the Separation Agreement (as defined below).
RECITALS
WHEREAS, 3Com has transferred or will transfer to Palm effective as of the
Separation Date, substantially all of the business and assets of the Palm
Business owned by 3Com in accordance with the Master Separation and Distribution
Agreement dated as of December ___, 1999 between 3Com and Palm's predecessor
corporation, Palm Computing, Inc., a California corporation (the "Separation
Agreement").
WHEREAS, the parties desire to set forth certain agreements regarding real
estate matters.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:
ARTICLE I
PROPERTY
Section 1.1 Leased Property
(a) 3Com shall assign or cause its applicable Subsidiary to assign, and
Palm shall accept and assume, or cause its applicable Subsidiary to accept and
assume, 3Com's or its Subsidiary's interest in the Leased Properties, subject to
the other provisions of this Agreement and (to the extent not inconsistent with
the provisions of this Agreement) the terms of the Separation Agreement and the
other Ancillary Agreements. Such assignment shall be completed on the later of:
(i) the Separation Date; and (ii) the earlier of (A) the fifth (5/th/) business
day after the relevant Lease Consent has been granted and (B) the date agreed
upon by the parties in accordance with Section 1.6(a) below.
(b) Subject to the completion of the assignment to Palm or its applicable
Subsidiary of the relevant Leased Property, with respect to each Leased Property
which is also a Shared Property, Palm shall grant or cause its applicable
Subsidiary to grant to 3Com or its applicable Subsidiary a license to occupy
that part of the relevant Leased Property identified in Section A of Schedule 1
of this Agreement and 3Com shall accept or cause its applicable Subsidiary to
accept the same. Such license shall be completed immediately following
completion of the transfer of the relevant Leased Property to Palm or its
applicable Subsidiary.
Section 1.2 Shared Properties
3Com shall grant or cause its applicable Subsidiary to grant to Palm or its
applicable Subsidiary a license to occupy those parts of the Shared Properties
identified in Section B of Schedule 1 of this Agreement and Palm shall accept or
cause its applicable Subsidiary to accept the
<PAGE>
same, subject to the other provisions of this Agreement and (to the extent not
inconsistent with the provisions of this Agreement) the terms of the Separation
Agreement and the other Ancillary Agreements. Such license shall be completed on
the Separation Date.
Section 1.3 Headquarters Facility
3Com shall grant to Palm a lease of those parts of the Headquarters
Facility identified in Section C of Schedule 1 of this Agreement as leased and a
sublease of those parts of the Headquarters Facility identified in Section C of
Schedule 1 of this Agreement as subleased, and Palm shall accept the same,
subject to the other provisions of this Agreement and (to the extent not
inconsistent with the provisions of this Agreement) the terms of the Separation
Agreement and the other Ancillary Agreements. Such lease and sublease shall be
completed on the Separation Date.
Section 1.4 Obtaining the Lease Consents
(a) 3Com confirms that, with respect to each Leased Property, an
application has been made or will be made by the Separation Date to the relevant
Landlord for the Lease Consents required with respect to the transactions
contemplated by this Agreement.
(b) 3Com will use its reasonable commercial efforts to obtain the Lease
Consents as to each Leased Property, but 3Com shall not be required to commence
judicial proceedings for a declaration that a Lease Consent has been
unreasonably withheld or delayed, nor shall 3Com be required to pay any
consideration in excess of that required by the Relevant Lease or that which is
typical in the open market to obtain the relevant Lease Consent. Palm shall
cooperate as reasonably requested by 3Com to obtain the Lease Consents.
(c) Palm and 3Com will promptly satisfy or cause their applicable
Subsidiaries to satisfy the lawful requirements of the Landlord, and Palm will
take or cause its applicable Subsidiary to take all steps to assist 3Com in
obtaining the Lease Consents as to each Leased Property, including, without
limitation:
(i) if properly required by the Landlord, entering into an agreement
with the relevant Landlord to observe and perform the tenant's obligations
contained in the Relevant Lease throughout the remainder of the term of the
Relevant Lease, subject to any statutory limitations of such liability;
(ii) if properly required by the Landlord, providing a guarantee,
surety or other security (including, without limitation, a security deposit) for
the obligations of Palm or its applicable Subsidiary as tenant under the
Relevant Lease, and otherwise taking all steps which are reasonably necessary
and which Palm or its applicable Subsidiary is reasonably capable of doing to
meet the lawful requirements of the Landlord so as to ensure that the Lease
Consents are obtained; and
(iii) using all reasonable commercial efforts to assist 3Com with
obtaining the Landlord's consent to the release of any guarantee, surety or
other security which 3Com or its Subsidiary may have previously provided to the
Landlord and, if required, offering the same or equivalent security to the
Landlord in order to obtain such release.
<PAGE>
Notwithstanding the foregoing, (1) except with respect to guarantees, sureties
or other security referenced in Section 1.4(c)(ii) above, Palm shall not be
required to obtain a release of any obligation entered into by 3Com or its
Subsidiary with any Landlord or other third party with respect to any Property
and (2) Palm shall not communicate or permit its applicable Subsidiary to
communicate directly with any of the Landlords unless Palm can show 3Com
reasonable grounds for doing so.
(d) If, with respect to any Leased Properties, 3Com and Palm are unable to
obtain a release by the Landlord of any guarantee, surety or other security
which 3Com or its Subsidiary has previously provided to the Landlord, Palm shall
indemnify, defend, protect and hold harmless 3Com and its Subsidiary from and
after the Separation Date against all losses, costs, claims, damages, or
liabilities incurred by 3Com or its Subsidiary as a result of Palm's occupancy
of the Leased Property with respect to such guarantee, surety or other security.
Section 1.5 Occupation by Palm
(a) Subject to compliance with Section 1.5(b) below, in the event that the
Actual Completion Date for any Leased Property does not occur on the Separation
Date, Palm or its applicable Subsidiary shall, commencing on the Separation
Date, be entitled to occupy the relevant Property (except to the extent that the
same is a Retained Part) as a licensee upon the terms and conditions contained
in 3Com's Lease. Such license shall not be revocable prior to the date for
completion as provided in Section 1.1(a) unless an enforcement action or
forfeiture by the relevant Landlord due to Palm's or its applicable Subsidiary's
occupation of the Property constituting a breach of 3Com's Lease cannot, in the
reasonable opinion of 3Com, be avoided other than by requiring Palm or its
applicable Subsidiary to immediately vacate the relevant Property, in which case
3Com may by notice to Palm immediately require Palm or its applicable Subsidiary
to vacate the relevant Property. Palm will be responsible for all costs,
expenses and liabilities incurred by 3Com or its applicable Subsidiary as a
consequence of such occupation, except for any losses, claims, costs, demands
and liabilities incurred by 3Com or its Subsidiary as a result of any
enforcement action taken by the Landlord against 3Com or its Subsidiary with
respect to any breach by 3Com or its Subsidiary of the Relevant Lease in
permitting Palm or its applicable Subsidiary to so occupy the Property without
obtaining the required Lease Consent, for which 3Com or its Subsidiary shall be
solely responsible. Neither Palm nor its applicable Subsidiary shall be entitled
to make any claim or demand against, or obtain reimbursement from, 3Com or its
applicable Subsidiary with respect to any costs, losses, claims, liabilities or
damages incurred by Palm or its applicable Subsidiary as a consequence of being
obliged to vacate the Property or in obtaining alternative premises, including,
without limitation, any enforcement action which a Landlord may take against
Palm or its applicable Subsidiary.
(b) In the event that the Actual Completion Date for any Leased Property
does not occur on the Separation Date, whether or not Palm or its applicable
Subsidiary occupies a Property as licensee as provided in Section 1.5(a) above,
Palm shall, effective as of the Separation Date, (i) pay or cause its applicable
Subsidiary to pay 3Com all rents, service charges, insurance premiums and other
sums payable by 3Com or its applicable Subsidiary under any Relevant Lease, (ii)
observe or cause its applicable Subsidiary to observe the tenant's covenants,
obligations and conditions contained in 3Com's Lease and (iii) indemnify,
defend, protect and hold harmless 3Com and its applicable
<PAGE>
Subsidiary from and against all losses, costs, claims, damages and liabilities
arising on account of any breach thereof by Palm or its applicable Subsidiary.
(c) 3Com shall supply promptly to Palm copies of all invoices, demands,
notices and other communications received by 3Com or its applicable Subsidiaries
or agents in connection with any of the matters for which Palm or its applicable
Subsidiary may be liable to make any payment or perform any obligation pursuant
to Section 1.5(a) or (b), and shall, at Palm's cost, take any steps and pass on
any objections which Palm or its applicable Subsidiary may have in connection
with any such matters. Palm shall promptly supply to 3Com any notices, demands,
invoices and other communications received by Palm or its applicable Subsidiary
or agents from any Landlord while Palm or its applicable Subsidiary occupies any
Property without the relevant Lease Consent.
Section 1.6 Obligation to Complete
(a) If, with respect to any Leased Property, at any time the relevant Lease
Consent is formally and unconditionally refused in writing, 3Com and Palm shall
commence good faith negotiations and use commercially reasonable efforts to
determine how to allocate the applicable Property, based on the relative
importance of the applicable Property to the operations of each party, the size
of the applicable Property, the number of employees of each party at the
applicable Property and the potential risk and liability to each party in the
event an enforcement action is brought by the applicable Landlord. Such
commercially reasonable efforts shall include consideration of alternate
structures to accommodate the needs of both parties and the allocation of the
costs thereof, including entering into amendments of the size, term or other
terms of the Relevant Lease, restructuring a proposed lease assignment to be a
sublease and relocating one party. If the parties are unable to agree upon an
allocation of the Property within fifteen (15) days after commencement of
negotiations between the parties as described above, then either party may, by
delivering written notice to the other, require that the matter be referred to
the Chief Financial Officers of both parties. In such event, the Chief Financial
Officers shall use commercially reasonable efforts to determine the allocation
of the Property, including having a meeting or telephone conference within ten
(10) days thereafter. If the parties are unable to agree upon the allocation of
an applicable Property within fifteen (15) days after the matter is referred to
the Chief Financial Officers of the parties as described above, the disposition
of the applicable Property and the risks associated therewith shall be allocated
between the parties as set forth in subparts (b) and (c) of this section below.
(b) If, with respect to any Leased Property, the parties are unable to
agree upon the allocation of a Property as set forth in Section 1.6(a), 3Com may
by written notice to Palm elect to apply to the relevant Landlord for consent to
sublease all of the relevant Property to Palm or its applicable Subsidiary for
the remainder of the Relevant Lease term less three (3) days at a rent equal to
the rent from time to time under the Relevant Lease, but otherwise on
substantially the same terms and conditions as the Relevant Lease. If 3Com makes
such an election, until such time as the relevant Lease Consent is obtained and
a sublease is completed, the provisions of Section 1.5 will apply and, on the
grant of the Lease Consent required to sublease the Leased Property in question,
3Com shall sublease or cause its applicable Subsidiary to sublease to Palm or
its applicable Subsidiary the relevant Property which sublease shall be for the
term and rent set forth in the Relevant Lease and otherwise on the terms of the
Relevant Lease.
<PAGE>
(c) If the parties are unable to agree upon the allocation of a Property as
set forth in Section 1.6(a) and 3Com does not make an election pursuant to
Section 1.6(b) above, 3Com may elect by written notice to Palm to require Palm
or its applicable Subsidiary to vacate the relevant Property immediately or by
such other date as may be specified in the notice served by 3Com (the "Notice
Date"), in which case Palm shall vacate or cause its applicable Subsidiary to
vacate the relevant Property on the Notice Date but shall indemnify 3Com and its
applicable Subsidiary from and against all costs, claims, losses, liabilities
and damages in relation to the relevant Property arising from and including the
Separation Date to and including the later of the Notice Date and date on which
Palm or its applicable Subsidiary vacates the relevant Property, except for any
costs, losses, damages, claims and liabilities incurred by 3Com or its
Subsidiary with respect to any enforcement action taken by the Landlord against
3Com or its Subsidiary with respect to any breach by 3Com or its Subsidiary of
the Relevant Lease in permitting Palm or its applicable Subsidiary to so occupy
the Property without obtaining the required Lease Consent. Neither Palm nor its
applicable Subsidiary shall be entitled to make any claim or demand against or
obtain reimbursement from 3Com or its applicable Subsidiary with respect to any
costs, losses, claims, liabilities or damages incurred by Palm or its applicable
Subsidiary as a consequence of being obliged to vacate the Property or obtaining
alternative premises, including, without limitation, any enforcement action
which a Landlord may take against Palm or its applicable Subsidiary.
Section 1.7 Form of Transfer
(a) The assignment to Palm or its applicable Subsidiary of each relevant
Leased Property shall be in substantially the form attached in Schedule 2, with
such amendments which in the reasonable opinion of 3Com are necessary with
respect to a particular Property, including, without limitation, in all cases
where a relevant Landlord has required a guarantor or surety to guarantee the
obligations of Palm or its applicable Subsidiary contained in the relevant Lease
Consent or any other document which Palm or its applicable Subsidiary is
required to complete, the giving of such guarantee by a guarantor or surety, and
the giving by Palm or its applicable Subsidiary and any guarantor or surety of
Palm's or its applicable Subsidiary's obligations of direct obligations to 3Com
or third parties where required under the terms of any of the Lease Consent or
any covenant, condition, restriction, easement, lease or other encumbrance to
which the Property is subject. Such amendments shall be submitted to Palm for
approval, which approval shall not be unreasonably withheld or delayed.
(b) The licenses to be granted by Palm or its applicable Subsidiary to 3Com
or its applicable Subsidiary, and 3Com or its applicable Subsidiary to Palm or
its applicable Subsidiary, with respect to the Shared Properties shall be at a
rental rate set forth in Schedule 5 hereof and be for a term of six (6) months;
provided, however, that the license as to the warehouse facility located at
2940-2990 Mead Avenue, Santa Clara, California shall be at a monthly rental
rate of $1.10 per square foot and terminate on December 31, 2000. Either party
shall have the right to terminate the license as to any of the Properties upon
thirty (30) days' prior notice. Rent shall be abated for the period from the
Separation Date to March 1, 2000. The license shall be substantially in the form
of the License Form, with such amendments as are, in the reasonable opinion of
3Com, necessary with respect to a particular Property. Such amendments shall be
submitted to Palm for approval, which approval shall not be unreasonably
withheld.
<PAGE>
(c) The lease and sublease to be granted to Palm with respect to the
Headquarters Facility shall be at a monthly rental rate of $3.72 per square foot
full service gross including furniture and copier rental through February 28,
2001, $3.82 per square foot full service gross including furniture and copier
rental from March 1, 2001 through February 28, 2002 and $3.93 per square foot
full service gross including furniture and copier rental thereafter, and be for
a term commencing on the Separation Date and expiring (i) February 28, 2003 as
to Buildings 12 and 15 and the related common areas and (ii) August 1, 2002 as
to Buildings 9 and 10 and the related common areas; provided, however, that in
the event 3Com extends its underlying lease as to Buildings 9 and 10 or
purchases the underlying fee interest in such property, the expiration date as
to Buildings 9 and 10 and the related common areas shall be automatically
extended to February 28, 2003. Either party may terminate the lease or sublease
as to any of the buildings then subject to the lease or sublease upon six (6)
months prior notice, which notice may be given at any time after December 31,
2000; provided, however, that any given termination notice may apply as to only
one building and neither party may give a termination notice within thirty (30)
days of any previous termination notice given by either party. The lease and
sublease shall commence as to the various buildings within the Headquarters
Facility in accordance with the schedule set forth in Section C of Schedule 1
hereof; provided, however, that the lease as to Buildings 12 and 15 shall not
commence until such buildings are delivered to Tenant. Rent shall be abated for
the period from the Separation Date to March 1, 2000. Such lease and sublease
shall be substantially in the form of the lease and sublease forms attached
hereto as Schedule 4 and shall include such amendments which in the reasonable
opinion of 3Com are necessary with respect to a particular Property. Such
amendments shall be submitted to Palm for approval, which approval shall not be
unreasonably withheld or delayed.
Section 1.8 Casualty; Lease Termination
The parties hereto shall grant and accept assignments, leases, subleases or
licenses of the Properties as described in this Agreement, regardless of any
casualty damage or other change in the condition of the Properties. In addition,
subject to 3Com's obligations in Section 5.6 of the Separation Agreement, in the
event that 3Com's Lease with respect to a Leased Property or a Shared Property
or 3Com's interest in the leased portion of the Headquarters Facility is
terminated prior to the Separation Date, (a) 3Com or its applicable Subsidiary
shall not be required to assign, sublease or license such Property, (b) Palm or
its applicable Subsidiary shall not be required to accept an assignment,
sublease or license of such Property and (c) neither party shall have any
further liability with respect to such Property hereunder.
Section 1.9 Tenant's Fixtures and Fittings
The provisions of the Separation Agreement and the other Ancillary
Agreements shall apply to any trade fixtures and personal property located at
each Property. The lease and sublease of the Headquarters Facility and the
licenses as to the Shared Properties shall include the rental of the furniture
at such Properties.
Section 1.10 Costs
3Com shall pay all reasonable costs and expenses incurred in connection
with obtaining the Lease Consents, including, without limitation, Landlord's
consent fees and attorneys' fees and any
<PAGE>
costs and expenses relating to re-negotiation of 3Com's Leases.
ARTICLE II
MISCELLANEOUS
Section 2.1 Limitation of Liability. IN NO EVENT SHALL ANY MEMBER OF THE
3COM GROUP OR PALM GROUP BE LIABLE TO ANY OTHER MEMBER OF THE 3COM GROUP OR PALM
GROUP FOR ANY SPECIAL, CONSEQUENTIAL, INDIRECT, INCIDENTAL OR PUNITIVE DAMAGES
OR LOST PROFITS, HOWEVER CAUSED AND ON ANY THEORY OF LIABILITY (INCLUDING
NEGLIGENCE) ARISING IN ANY WAY OUT OF THIS AGREEMENT, WHETHER OR NOT SUCH PARTY
HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGES; PROVIDED, HOWEVER, THAT THE
FOREGOING LIMITATIONS SHALL NOT LIMIT EACH PARTY'S INDEMNIFICATION OBLIGATIONS
FOR LIABILITIES TO THIRD PARTIES AS SET FORTH IN THE INDEMNIFICATION AND
INSURANCE MATTERS AGREEMENT.
Section 2.2 Entire Agreement. This Agreement, the Separation Agreement,
the other Ancillary Agreements and the Exhibits and Schedules referenced or
attached hereto and thereto, constitute the entire agreement between the parties
with respect to the subject matter hereof and shall supersede all prior written
and oral and all contemporaneous oral agreements and understandings with respect
to the subject matter hereof.
Section 2.3 Governing Law. This Agreement shall be construed in
accordance with and all Disputes hereunder shall be governed by the laws of the
State of California, excluding its conflict of law rules and the United Nations
Convention on Contracts for the International Sale of Goods. The Superior Court
of Santa Clara County and/or the United States District Court for the Northern
District of California shall have jurisdiction and venue over all Disputes
between the parties that are permitted to be brought in a court of law pursuant
to Section 5.9 of the Separation Agreement. Notwithstanding the foregoing, the
applicable Property transfers shall be performed in accordance with the laws of
the state in which the applicable Property is located.
Section 2.4 Notices. Notices, demands, offers requests or other
communications required or permitted to be given by either party pursuant to the
terms of this Agreement shall be given in writing to the respective parties to
the following addresses:
if to 3Com:
3Com Corporation
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: 408.326.6434
<PAGE>
if to Palm:
Palm Computing, Inc.
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-5001
or to such other address as the party to whom notice is given may have
previously furnished to the other in writing as provided herein. Any notice
involving non-performance, termination, or renewal shall be sent by hand
delivery, recognized overnight courier or, within the United States, may also be
sent via certified mail, return receipt requested. All other notices may also be
sent by fax, confirmed by first class mail. All notices shall be deemed to have
been given and received on the earlier of actual delivery or three (3) days from
the date of postmark.
Section 2.5 Counterparts. This Agreement, including the Schedules and
Exhibits hereto, and the other documents referred to herein, may be executed in
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
Section 2.6 Binding Effect; Assignment. This Agreement shall inure to
the benefit of and be binding upon the parties hereto and their respective legal
representatives and successors, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. This Agreement may
be enforced separately by each member of the 3Com Group and each member of the
Palm Group. Neither party may assign this Agreement or any rights or obligations
hereunder, without the prior written consent of the other party, and any such
assignment shall be void; provided, however, either party may assign this
Agreement to a successor entity in conjunction with such party's
reincorporation.
Section 2.7 Severability. If any term or other provision of this
Agreement or the Schedules or Exhibits attached hereto is determined by a court,
administrative agency or arbitrator to be invalid, illegal or incapable of being
enforced by any rule of law or public policy, all other conditions and
provisions of this Agreement shall nevertheless remain in full force and effect
so long as the economic or legal substance of the transactions contemplated
hereby is not affected in any manner materially adverse to either party. Upon
such determination that any term or other provision is invalid, illegal or
incapable of being enforced, the parties hereto shall negotiate in good faith to
modify this Agreement so as to effect the original intent of the parties as
closely as possible in an acceptable manner to the end that transactions
contemplated hereby are fulfilled to the fullest extent possible.
Section 2.8 Failure or Indulgence Not Waiver; Remedies Cumulative. No
failure or delay on the part of either party hereto in the exercise of any right
hereunder shall impair such right or be construed to be a waiver of, or
acquiescence in, any breach of any representation, warranty or agreement herein,
nor shall any single or partial exercise of any such right preclude other or
further exercise thereof or of any other right. All rights and remedies existing
under this Agreement or the Exhibits or Schedules attached hereto are cumulative
to, and not exclusive of, any rights or remedies otherwise available.
<PAGE>
Section 2.9 Amendment. No change or amendment will be made to this
Agreement or the Exhibits or Schedules attached hereto except by an instrument
in writing signed on behalf of each of the parties to such agreement.
Section 2.10 Authority. Each of the parties hereto represents to the
other that (a) it has the corporate or other requisite power and authority to
execute, deliver and perform this Agreement, (b) the execution, delivery and
performance of this Agreement by it have been duly authorized by all necessary
corporate or other action, (c) it has duly and validly executed and delivered
this Agreement, and (d) this Agreement is a legal, valid and binding obligation,
enforceable against it in accordance with its terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equity principles.
Section 2.11 Interpretation. The headings contained in this Agreement, in
any Exhibit or Schedule hereto and in the table or contents to this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized term used in any Schedule or
Exhibit but not otherwise defined therein, shall have the meaning assigned to
such term in this Agreement. When a reference is made in this Agreement to an
Article or a Section, Exhibit or Schedule, such reference shall be to an Article
or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated.
Section 2.12 Disputes. Any Disputes that arise under this Agreement shall
be resolved in accordance with the provisions of Section 5.9 of the Separation
Agreement.
ARTICLE III
DEFINITIONS
The following terms, as used herein, shall have the following meanings:
Actual Completion Date means, with respect to each Property, the date upon which
completion of the assignment, lease or sublease of that Property actually takes
place.
Headquarters Facility means Buildings 9, 10, 12 and 15 located at 3Com's campus
at Santa Clara, California, as set forth in Section C of Schedule 1 of this
Agreement, together with the non-exclusive right to use the Building 1 and
Building 9 cafeterias, the Building 6 bistro cafe, the Building 5 annex, the
Company Store, food and beverage facilities located on 3Com's campus upon the
terms and subject to the restrictions set forth in the lease and sublease forms
attached hereto a Schedule 4.
Landlord means the landlord under 3Com's Lease, and its successors and assigns,
and includes the holder of any other interest which is superior to the interest
of the landlord under 3Com's Lease.
Lease Consents means all consents, waivers or amendments required from the
Landlord or other third parties under the Relevant Leases to assign the Relevant
Leases to Palm or its applicable Subsidiary.
Leased Properties means those Properties in Section A of Schedule 1 of this
Agreement.
<PAGE>
License Form means the form license attached hereto as Schedule 3.
Property means the Leased Properties, the Shared Properties and the Headquarters
Facility.
Relevant Leases means those of 3Com's Leases with respect to which the
Landlord's consent is required for assignment or sublease to a third party or
which prohibit assignments or subleases.
Retained Parts means those parts of the Leased Properties which, following
assignment to Palm or its applicable Subsidiary, are intended to be licensed to
3Com or its applicable Subsidiary.
Shared Properties means those Properties listed in (a) Section A of Schedule 1
as a Property involving a license back to 3Com and (b) Section B of Schedule 1
of this Agreement.
3Com's Lease means, in relation to each Property, the lease(s) or sublease(s) or
license(s) under which 3Com or its applicable Subsidiary holds such Property and
any other supplemental document completed prior to the Actual Completion Date.
IN WITNESS WHEREOF, each of the parties has caused this Agreement to be
executed on its behalf by its officers thereunto duly authorized on the day and
year first above written.
3COM CORPORATION
By: _______________________
Name: _____________________
Title: ____________________
PALM, INC.
By: _______________________
Name: _____________________
Title: ____________________
<PAGE>
Schedule 1
----------
Properties
Section A: Leased Properties
----------------------------------------------------------
Address License back Area to be
to licensed
3Com?
(Y/N)
----------------------------------------------------------
Tour Kupka A Y 5,750
18 Rue Hoche
92800 Paris La Defense,
France
----------------------------------------------------------
3180 139th Ave. SE, N
Ste. # 200
Bellevue, WA
----------------------------------------------------------
321 Main Street, Elm N
Suite
Farmington, CT
----------------------------------------------------------
1750 Montgomery Street N
San Francisco, CA
----------------------------------------------------------
Immeuble Alliance 1 N
77 rue Samuel Morse
B.P. 59 3400
Montpellier, FR
----------------------------------------------------------
<PAGE>
Section B: Shared Properties
----------------------------------------------------------
Address Area to be Approximate Number
licensed of Employees
----------------------------------------------------------
2940-2290 Mead Ave. ~800 SF 0 - storage
Santa Clara, CA
----------------------------------------------------------
605 N 5600 West N/A 1
Salt Lake City, UT
----------------------------------------------------------
3800 Golf Rd. N/A 5
Chicago, IL
----------------------------------------------------------
220 Warfdale Rd. N/A 18
Winnersh, England
----------------------------------------------------------
3 Changhi North St. N/A 5
#2 Singapore
----------------------------------------------------------
Six Concourse Pkwy N/A 1
#1450
Atlanta, GA
----------------------------------------------------------
7760 France Ave. N/A 1
South, 6th Fl.
Bloomington MN
----------------------------------------------------------
1100 Burloak Dr. N/A 3
Burlington, ON,
----------------------------------------------------------
3001 N. Rocky Point, N/A 1
Ste. #200
Tampa, FL
----------------------------------------------------------
2070 Chain Bridge Rd. N/A 1
Vienna, VA
----------------------------------------------------------
3606 AK Maarssen N/A 2
Netherlands
----------------------------------------------------------
D-85609 N/A 7
Aschheim-Dornach,
Germany
----------------------------------------------------------
Frosundaviks Alle 15, N/A 3
Box 1251
171 24 Solna Sweden
----------------------------------------------------------
<PAGE>
----------------------------------------------------------
54 Thurgauer Strasse N/A 1
CH-8050 Zurich
Switzerland
----------------------------------------------------------
Li Po Chun Chambers, N/A 3
89 Des Voeux Rd.
Central Hong Kong
----------------------------------------------------------
65 Berry St.level N/A 2
12/13
Sydney Australia
----------------------------------------------------------
2-28-8 Honkomagome N/A 3
Bunkyo-Ku
Tokyo Japan 113-6591
----------------------------------------------------------
50 Raffles Place N/A 3
#27-05/06
Singapore
----------------------------------------------------------
Avenida Paseo De Las N/A 1
Palmas 405-903
Mexico City, Mexico
----------------------------------------------------------
Avenida Alfredo N/A 1
Agidio #177
Sao Paolo, Brazil
----------------------------------------------------------
<PAGE>
Section C: Headquarters Facility
----------------------------------------------------------
Address Leased or Estimated Estimated
Subleased? Commencement Square
Area Date Footage
----------------------------------------------------------
5400 Bayfront Plaza, Leased 3/1/00 34,989
Bldg 12
Santa Clara, CA
----------------------------------------------------------
5400 Bayfront Plaza, Leased 12/01/00 34,989
Bldg. 15
Santa Clara, CA
----------------------------------------------------------
5400 Bayfront Plaza, Subleased 3/1/00 63,595
Bldg. 9
----------------------------------------------------------
5400 Bayfront Plaza, Subleased 3/1/00 83,079
Bldg. 10
----------------------------------------------------------
Common Area Subleased 3/1/00 12,837
----------------------------------------------------------
<PAGE>
Schedule 2
----------
Form Assignment for Leased Properties
<PAGE>
Schedule 3
----------
Form License for Shared Properties
<PAGE>
Schedule 4
----------
Form Lease and Sublease for the Headquarters Facility
<PAGE>
Schedule 5
----------
License Rental Rates
----------------------------------------------------------
Approximate Allocation
Cost per Person per Month
----------------------------------------------------------
----------------------------------------------------------
Chicago $ 1,900.00
----------------------------------------------------------
Winnersh $ 1,900.00
----------------------------------------------------------
Singapore - Campus to Field $ 1,900.00
----------------------------------------------------------
----------------------------------------------------------
Salt Lake City $ 1,900.00
----------------------------------------------------------
Field - Americas
----------------------------------------------------------
Atlanta, GA $ 1,900.00
----------------------------------------------------------
Bloomington, MN $ 1,900.00
----------------------------------------------------------
Burlington, ON $ 1,900.00
----------------------------------------------------------
Tampa, FL $ 1,900.00
----------------------------------------------------------
Vienna, VA $ 1,900.00
----------------------------------------------------------
----------------------------------------------------------
Field - EMEA
----------------------------------------------------------
Maarsen, Netherlands $ 1,900.00
----------------------------------------------------------
Munich, Germany $ 1,900.00
----------------------------------------------------------
Solna, Sweden $ 1,900.00
----------------------------------------------------------
Zurich, Switzerland $ 1,900.00
----------------------------------------------------------
<PAGE>
----------------------------------------------------------
----------------------------------------------------------
Field - APR
----------------------------------------------------------
Hong Kong $ 1,900.00
----------------------------------------------------------
North Sydney, Australia $ 1,900.00
----------------------------------------------------------
Japan $ 1,900.00
----------------------------------------------------------
Singapore (Sales Office) $ 1,900.00
----------------------------------------------------------
----------------------------------------------------------
Field - Latin America
----------------------------------------------------------
Mexico $ 1,900.00
----------------------------------------------------------
Brazil $ 1,900.00
----------------------------------------------------------
<PAGE>
EXHIBIT 2.10
MASTER CONFIDENTIAL DISCLOSURE AGREEMENT
between
3COM CORPORATION
and
PALM, INC.
Effective as of ______, 2000
<PAGE>
MASTER CONFIDENTIAL DISCLOSURE AGREEMENT
This Master Confidential Disclosure Agreement (the "Agreement") is
effective as of ________, 2000 (the "Effective Date"), between 3Com Corporation,
a Delaware corporation ("3Com"), having an office at 5400 Bayfront Plaza, Santa
Clara, California, 95052 and Palm, Inc., a Delaware corporation ("Palm"), having
an office at 5400 Bayfront Plaza, Santa Clara, California, 95052.
WHEREAS, the Board of Directors of 3Com has determined that it is in the
best interest of 3Com and its stockholders to separate 3Com's existing
businesses into two independent businesses;
WHEREAS, as part of the foregoing, 3Com and Palm's predecessor, Palm
Computing, Inc., a California Corporation, have entered into a Master Separation
and Distribution Agreement (as defined below), which provides, among other
things, for the separation of certain Palm assets and Palm liabilities, the
initial public offering of Palm stock, the distribution of such stock, and the
execution and delivery of certain other agreements in order to facilitate and
provide for the foregoing; and
WHEREAS, also as part of the foregoing, the parties further desire to enter
into this Agreement to provide for the protection of their Confidential
Information (as defined below).
NOW, THEREFORE, in consideration of the mutual promises of the parties, and
of good and valuable consideration, it is agreed by and between the parties as
follows:
ARTICLE 1
DEFINITIONS
For the purpose of this Agreement the following capitalized terms are
defined in this Article 1 and shall have the meaning specified herein:
1.1 ANCILLARY AGREEMENTS. "Ancillary Agreements" means the items and
agreements listed in Section 2.1 of the Master Separation and Distribution
Agreement and all agreements and documents contemplated by such agreements.
1.2 CONFIDENTIAL INFORMATION.
(a) "Confidential Information" means business information, technical
data, know-how and other information which is not otherwise in the public domain
and of which the owner actively undertakes to restrict or control the disclosure
to Third Parties in a manner reasonably intended to maintain its
confidentiality, and which (i) the Disclosing Party disclosed to the Receiving
Party or the Receiving Party had access to on or before the Separation Date,
(ii) is the subject of any Transaction Agreement and known to or in the
possession of the Receiving Party as of the Separation Date or (iii) is
disclosed to the Receiving Party pursuant to any Transaction Agreement for a
period of one (1) year after the Effective Date. Confidential Information may
include information relating to, by way of example, research, products,
services, customers, markets,
-1-
<PAGE>
software, developments, inventions, processes, designs, drawings, engineering,
marketing or finances, and may be in writing, disclosed orally or learned by
inspection of computer programming code, equipment or facilities.
(b) Confidential Information of Third Parties that is known to, in
the possession of or acquired by a Receiving Party pursuant to a relationship
with the Disclosing Party shall be deemed the Disclosing Party's Confidential
Information for purposes herein.
(c) Notwithstanding the foregoing provisions of this Section 1.2,
Confidential Information shall exclude information that: (i) was in the
Receiving Party's possession before receipt from the Disclosing Party and
obtained from a source other than the Disclosing Party and other than through
the prior relationship of the Disclosing Party and the Receiving Party before
the Separation Date; (ii) is or becomes a matter of public knowledge through no
fault of the Receiving Party; (iii) is rightfully received by the Receiving
Party from a Third Party without a duty of confidentiality; (iv) is disclosed by
the Disclosing Party to a Third Party without a duty of confidentiality on the
Third Party; (v) is independently developed by the Receiving Party; or (vi) is
disclosed by the Receiving Party with the Disclosing Party's prior written
approval.
1.3 CONFIDENTIALITY PERIOD. "Confidentiality Period" means, (i) with
respect to Confidential Information that is not Highly Confidential Information,
five (5) years, and (ii) with respect to Highly Confidential Information, in
perpetuity, after either (A) the Separation Date with respect to Confidential
Information of the Disclosing Party that is known to or in the possession of the
Receiving Party as of the Separation Date or (B) the date of disclosure with
respect to Confidential Information that is disclosed by the Disclosing Party to
the Receiving Party after the Separation Date.
1.4 DISCLOSING PARTY. "Disclosing Party" means the party owning or
disclosing the relevant Confidential Information.
1.5 DISTRIBUTION DATE. "Distribution Date" has the meaning set forth in
the Master Separation and Distribution Agreement.
1.6 HIGHLY CONFIDENTIAL INFORMATION. "Highly Confidential Information"
means Confidential Information that is source code for products that are
commercially released or for which substantial steps have been taken to
commercialization.
1.7 MASTER SEPARATION AND DISTRIBUTION AGREEMENT. "Master Separation and
Distribution Agreement" means that certain Master Separation and Distribution
Agreement between 3Com and Palm.
1.8 PERSON. "Person" means an individual, a partnership, a corporation, a
limited liability company, an association, a joint stock company, a trust, a
joint venture, an unincorporated organization, and a governmental entity or any
department, agency or political subdivision thereof.
1.9 RECEIVING PARTY. "Receiving Party" means the non-owning party or
recipient of the relevant Confidential Information.
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<PAGE>
1.10 SEPARATION DATE. "Separation Date" means 12:01 a.m., Pacific Time,
February 26, 2000, or such other date as may be fixed by the Board of Directors
of 3Com.
1.11 SUBSIDIARY. "Subsidiary" of any Person means a corporation or other
organization, whether incorporated or unincorporated, of which at least a
majority of the securities or interests having by the terms thereof ordinary
voting power to elect at least a majority of the board of directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries; provided, however, that no Person that is not directly or
indirectly wholly-owned by any other Person shall be a Subsidiary of such other
Person unless such other Person controls, or has the right, power or ability to
control, that Person. For purposes of this Agreement, Palm shall be deemed not
to be a subsidiary of 3Com.
1.12 THIRD PARTY. "Third Party" means a Person other than 3Com and its
Subsidiaries and Palm and its Subsidiaries.
1.13 TRANSACTION AGREEMENTS. "Transaction Agreements" mean the Master
Separation and Distribution Agreement and the Ancillary Agreements.
ARTICLE 2
CONFIDENTIALITY
2.1 CONFIDENTIALITY AND NON-USE OBLIGATIONS. During the Confidentiality
Period, the Receiving Party shall (i) protect the Confidential Information of
the Disclosing Party by using the same degree of care, but no less than a
reasonable degree of care, to prevent the unauthorized use, dissemination, or
publication of the Confidential Information as Receiving Party uses to protect
its own confidential information of a like nature, (ii) not use such
Confidential Information in violation of any use restriction in any Transaction
Agreement, and (iii) not disclose such Confidential Information to any Third
Party, except as expressly permitted under this Agreement, in the Transaction
Agreements or in any other agreements entered into between the parties in
writing, without prior written consent of the Disclosing Party.
2.2 DISCLOSURE TO SUBLICENSEES. The Receiving Party has the right to
disclose to its sublicensees permitted under a Transaction Agreement portions of
Confidential Information as reasonably necessary in the exercise of the
Receiving Party's sublicense rights under such Transaction Agreement, subject to
the sublicensee's agreement in writing to confidentiality and non-use terms at
least as protective of the Disclosing Party as the provisions of this Agreement.
2.3 CONTRACT MANUFACTURERS AND FOUNDRIES. The Receiving Party has the
right to disclose to its contract manufacturers and foundries permitted under
any Transaction Agreement portions of the Confidential Information as reasonably
necessary in the exercise of the Receiving Party's "have made" rights under any
Transaction Agreement, subject to the contract manufacturer's and foundry's
agreement in writing to confidentiality and non-use terms at least as protective
of the Disclosing Party as the provisions of this Agreement.
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<PAGE>
2.4 RESIDUALS. Notwithstanding any other provision of this Agreement, the
Receiving Party shall be free, and the Disclosing Party hereby grants to the
Receiving Party, except as otherwise provided in this Section 2.4, the right, to
use or exploit for any purpose and without restriction the Residuals resulting
from access to or work with the Confidential Information of the Disclosing
Party. "Residuals" means information retained in the unaided memory of an
individual who has had access to Confidential Information. The Receiving Party
shall have no obligation to pay royalties for any use of Residuals. However,
this Section 2.4 does not grant the Receiving Party any rights under any patents
or copyrights of the Disclosing Party.
2.5 COMPELLED DISCLOSURE. If the Receiving Party or any of its respective
Subsidiaries believes that it will be compelled by a court or other authority to
disclose Confidential Information of the Disclosing Party, it shall (i) give the
Disclosing Party prompt written notice so that the Disclosing Party may take
steps to oppose such disclosure, and (ii) cooperate with the Disclosing Party in
its attempts to oppose such disclosure. If the Receiving Party complies with the
above, it shall not be prohibited from complying with such requirement to
disclose, but shall take all reasonable steps to make such disclosure subject to
a suitable protective order or otherwise prevent unrestricted or public
disclosure.
2.6 NO RESTRICTION ON DISCLOSING PARTY. Nothing in this Agreement shall
restrict the Disclosing Party from using, disclosing, or disseminating its own
Confidential Information in any way.
2.7 NO RESTRICTION ON REASSIGNMENT. This Agreement shall not restrict
reassignment of the Receiving Party's employees.
2.8 THIRD PARTY RESTRICTIONS. Nothing in the Agreement supersedes any
restriction imposed by Third Parties on their Confidential Information, and
there is no obligation on the Disclosing Party to conform Third Party agreements
to the terms of this Agreement.
ARTICLE 3
WARRANTY DISCLAIMER
EACH PARTY ACKNOWLEDGES AND AGREES THAT ALL CONFIDENTIAL INFORMATION IS
PROVIDED ON AN "AS IS, WHERE IS" BASIS AND THAT NEITHER PARTY NOR ANY OF ITS
SUBSIDIARIES HAS MADE OR WILL MAKE ANY WARRANTY WHATSOEVER, EXPRESS, IMPLIED OR
STATUTORY, INCLUDING, WITHOUT LIMITATION, ANY IMPLIED WARRANTIES OF
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, TITLE, ENFORCEABILITY OR NON-
INFRINGEMENT.
ARTICLE 4
CONFIDENTIALITY OF AGREEMENT
Each party agrees that the terms and conditions of the Transaction
Agreements marked as confidential shall be treated as Confidential Information
and that neither party will disclose such
-4-
<PAGE>
terms or conditions to any Third Party without the prior written consent of the
other party, provided, however, that each party may disclose such terms and
conditions of such agreements marked as confidential:
(a) as required by any court or other governmental body (subject to
Section 2.5);
(b) as otherwise required by law (subject to Section 2.5);
(c) in confidence, to legal counsel of the parties, accountants, and
other professional advisors;
(d) in confidence to banks, investors and other financing sources and
their advisors;
(e) in connection with the enforcement of this Agreement or rights
under this Agreement; or
(f) in confidence, in connection with an actual or prospective merger
or acquisition or similar transaction.
ARTICLE 5
TERM AND TERMINATION
5.1 TERM. This Agreement shall remain in full force and effect unless and
until terminated by the mutual written agreement of the parties.
5.2 SURVIVAL. Articles 2 (with respect to Confidential Information
acquired or disclosed prior to the date of termination), 3, 4, 6, 7 and 8 shall
survive any termination of this Agreement.
ARTICLE 6
DISPUTE RESOLUTION
6.1 MEDIATION. If a dispute, controversy or claim ("Dispute") arises
between the parties relating to the interpretation or performance of this
Agreement or the grounds for the termination hereof, appropriate senior
executives (e.g. director or V.P. level) of each party who shall have the
authority to resolve the matter shall meet to attempt in good faith to negotiate
a resolution of the Dispute prior to pursuing other available remedies. The
initial meeting between the appropriate senior executives shall be referred to
herein as the "Dispute Resolution Commencement Date." Discussions and
correspondence relating to trying to resolve such Dispute shall be treated as
confidential information developed for the purpose of settlement and shall be
exempt from discovery or production and shall not be admissible. If the senior
executives are unable to resolve the Dispute within thirty (30) days from the
Dispute Resolution Commencement Date, and either party wishes to pursue its
rights relating to such Dispute, then the Dispute will be mediated by a mutually
acceptable
-5-
<PAGE>
mediator appointed pursuant to the mediation rules of JAMS/Endispute within
thirty (30) days after written notice by one party to the other demanding non-
binding mediation. Neither party may unreasonably withhold consent to the
selection of a mediator or the location of the mediation. Both parties will
share the costs of the mediation equally, except that each party shall bear its
own costs and expenses, including attorney's fees, witness fees, travel
expenses, and preparation costs. The parties may also agree to replace mediation
with some other form of non-binding or binding ADR.
6.2 ARBITRATION. Any Dispute which the parties cannot resolve through
mediation within ninety (90) days of the Dispute Resolution Commencement Date,
unless otherwise mutually agreed, shall be submitted to final and binding
arbitration under the then current Commercial Arbitration Rules of the American
Arbitration Association ("AAA"), by three (3) arbitrators in Santa Clara County,
California. Such arbitrators shall be selected by the mutual agreement of the
parties or, failing such agreement, shall be selected according to the aforesaid
AAA rules. The arbitrators will be instructed to prepare and deliver a written,
reasoned opinion stating their decision within thirty (30) days of the
completion of the arbitration. The prevailing party in such arbitration shall
be entitled to expenses, including costs and reasonable attorneys' and other
professional fees, incurred in connection with the arbitration (but excluding
any costs and fees associated with prior negotiation or mediation). The
decision of the arbitrator shall be final and non-appealable and may be enforced
in any court of competent jurisdiction. The use of any ADR procedures will not
be construed under the doctrine of laches, waiver or estoppel to adversely
affect the rights of either party.
6.3 COURT ACTION. Any Dispute regarding the following is not required to
be negotiated, mediated or arbitrated prior to seeking relief from a court of
competent jurisdiction: breach of any obligation of confidentiality;
infringement, misappropriation, or misuse of any intellectual property right;
any other claim where interim relief from the court is sought to prevent serious
and irreparable injury to one of the parties or to others. However, the parties
to the Dispute shall make a good faith effort to negotiate and mediate such
Dispute, according to the above procedures, while such court action is pending.
6.4 CONTINUITY OF SERVICE AND PERFORMANCE. Unless otherwise agreed in
writing, the parties will continue to provide service and honor all other
commitments under this Agreement and each Ancillary Agreement during the course
of dispute resolution pursuant to the provisions of this Article 6 with respect
to all matters not subject to such dispute, controversy or claim..
ARTICLE 7
MISCELLANEOUS PROVISIONS
7.1 EXPORT RESTRICTIONS. Both parties shall adhere to all applicable laws,
regulations and rules relating to the export of technical data, and shall not
export or reexport any technical data, any products received from Disclosing
Party, or the direct product of such technical data, to any proscribed country
listed in such applicable laws, regulations and rules unless properly
authorized.
-6-
<PAGE>
7.2 NO IMPLIED LICENSES. Nothing contained in this Agreement shall be
construed as conferring any rights by implication, estoppel or otherwise, under
any intellectual property right, other than the rights expressly granted in this
Agreement with respect to Confidential Information. Neither party is required
hereunder to furnish or disclose to the other any technical or other
information.
7.3 INFRINGEMENT SUITS. Neither party shall have any obligation hereunder
to institute any action or suit against Third Parties for misappropriation of
any of its Confidential Information or to defend any action or suit brought by a
Third Party that alleges infringement of any intellectual property rights by the
Receiving Party's authorized use of the Disclosing Party's Confidential
Information.
7.4 NO OTHER OBLIGATIONS. NEITHER PARTY ASSUMES ANY RESPONSIBILITIES OR
OBLIGATIONS WHATSOEVER, OTHER THAN THE RESPONSIBILITIES AND OBLIGATIONS
EXPRESSLY SET FORTH IN THIS AGREEMENT OR A SEPARATE WRITTEN AGREEMENT BETWEEN
THE PARTIES.
7.5 ENTIRE AGREEMENT. This Agreement, the Master Separation and
Distribution Agreement and the other Ancillary Agreements and the Exhibits and
Schedules referenced or attached hereto and thereto constitute the entire
agreement between the parties with respect to the subject matter hereof and
thereof and shall supersede all prior written and oral and all contemporaneous
oral agreements and understandings with respect to the subject matter hereof and
thereof. Notwithstanding the foregoing, the parties agree that any agreements
entered into between them on or after the Separation Date for the protection of
specific Confidential Information shall supersede the terms of this Agreement
with respect to such Confidential Information.
7.6 GOVERNING LAW. This Agreement shall be construed in accordance with
and all Disputes hereunder shall be governed by the laws of the State of
California, excluding its conflict of law rules and the United Nations
Convention on Contracts for the International Sale of Goods. The Superior Court
of Santa Clara County and/or the United States District Court for the Northern
District of California shall have jurisdiction and venue over all Disputes
between the parties that are permitted to be brought in a court of law pursuant
to Section 6 above.
7.7 INTERPRETATION. The headings contained in this Agreement, in any
Exhibit hereto and in the table of contents to this Agreement are for reference
purposes only and shall not affect in any way the meaning or interpretation of
this Agreement. Any capitalized term used in any Exhibit but not otherwise
defined therein, shall have the meaning assigned to such term in this Agreement.
When a reference is made in this Agreement to an Article or a Section or an
Exhibit, such reference shall be to an Article or Section of, or an Exhibit to,
this Agreement unless otherwise indicated.
7.8 NOTICES. Notices, offers, requests or other communications required or
permitted to be given by either party pursuant to the terms of this Agreement
shall be given in writing to the respective parties to the following addresses:
if to 3Com :
-7-
<PAGE>
3Com Corporation
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
if to Palm:
Palm, Inc.
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
or to such other address as the party to whom notice is given may have
previously furnished to the other in writing as provided herein. Any notice
involving non-performance, termination, or renewal shall be sent by hand
delivery, recognized overnight courier or, within the United States, may also be
sent via certified mail, return receipt requested. All other notices may also
be sent by fax, confirmed by first class mail. All notices shall be deemed to
have been given and received on the earlier of actual delivery or three (3) days
from the date of postmark.
7.9 NONASSIGNABILITY. Neither party may, directly or indirectly, in whole
or in part, whether by operation of law or otherwise, assign or transfer this
Agreement, without the other party's prior written consent, and any attempted
assignment, transfer or delegation without such prior written consent shall be
voidable at the sole option of such other party. Notwithstanding the foregoing,
each party (or its permitted successive assignees or transferees hereunder) may
assign or transfer this Agreement as a whole without consent to a Person that
succeeds to all or substantially all of the business or assets of such party as
long as such Person agrees to accept all the terms and conditions set forth
herein. Without limiting the foregoing, this Agreement will be binding upon and
inure to the benefit of the parties and their permitted successors and assigns.
7.11 SEVERABILITY. If any term or other provision of this Agreement or the
Exhibits attached hereto is determined by a court, administrative agency or
arbitrator to be invalid, illegal or incapable of being enforced by any rule of
law or public policy, all other conditions and provisions of this Agreement
shall nevertheless remain in full force and effect so long as the economic or
legal substance of the transactions contemplated hereby is not affected in any
manner materially adverse to either party. Upon such determination that any
term or other provision is invalid, illegal or incapable of being enforced, the
parties hereto shall negotiate in good faith to modify this Agreement so as to
effect the original intent of the parties as closely as possible in an
acceptable manner to the end that transactions contemplated hereby are fulfilled
to the fullest extent possible.
7.12 FAILURE OR INDULGENCE NOT WAIVER; REMEDIES CUMULATIVE. No failure or
delay on the part of either party hereto in the exercise of any right hereunder
shall impair such right or be construed to be a waiver of, or acquiescence in,
any breach of any representation, warranty or agreement herein, nor shall any
single or partial exercise of any such right preclude other or further exercise
thereof or of any other right. All rights and remedies existing under this
-8-
<PAGE>
Agreement or the Exhibits attached hereto are cumulative to, and not exclusive
of, any rights or remedies otherwise available.
7.13 AMENDMENT. No change or amendment will be made to this Agreement or
the Exhibits attached hereto except by an instrument in writing signed on behalf
of each of the parties to such agreement.
7.14 COUNTERPARTS. This Agreement, including the Ancillary Agreements and
the Exhibits and Schedules hereto and thereto and the other documents referred
to herein or therein, may be executed in counterparts, each of which shall be
deemed to be an original but all of which shall constitute one and the same
agreement.
WHEREFORE, the parties have signed this Master Confidential Disclosure
Agreement effective as of the date first set forth above.
3COM CORPORATION PALM, INC.
By:_____________________________ By:__________________________________
Name:___________________________ Name:________________________________
Title:__________________________ Title:_______________________________
-9-
<PAGE>
EXHIBIT 2.11
Indemnification and Insurance Matters Agreement
between
3COM CORPORATION
and
PALM, INC.
______________, 2000
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C> <C>
ARTICLE I. MUTUAL RELEASES; INDEMNIFICATION.................................................. 1
Section 1.1. Release of Pre-Closing Claims............................................... 1
Section 1.2. Indemnification by Palm..................................................... 2
Section 1.3. Indemnification by 3Com..................................................... 2
Section 1.4. Indemnification With Respect to Environmental Actions and Conditions........ 3
Section 1.5. Reductions for Insurance Proceeds and Other Recoveries...................... 4
Section 1.6. Procedures for Defense, Settlement and Indemnification of Third Party Claims
............................................................................ 4
Section 1.7. Additional Matters.......................................................... 5
Section 1.8. Survival of Indemnities..................................................... 6
ARTICLE II. INSURANCE MATTERS................................................................ 6
Section 2.1. Palm Insurance Coverage During the Transition Period........................ 6
Section 2.2. Cooperation and Agreement Not to Release Carriers........................... 7
Section 2.3. Palm Insurance Coverage After the Insurance Transition Period............... 7
Section 2.4. Responsibilities for Deductibles and/or Self-insured Obligations............ 7
Section 2.5. Procedures With Respect to Insured Palm Liabilities......................... 8
Section 2.6. Insufficient Limits of Liability for 3Com Liabilities and Palm Liabilities.. 8
Section 2.7. Cooperation................................................................. 8
Section 2.8. No Assignment or Waiver..................................................... 8
Section 2.9. No Liability................................................................ 8
Section 2.10. Additional or Alternate Insurance........................................... 9
Section 2.11. Further Agreements.......................................................... 9
Section 2.12. Matters Governed by Employee Matters Agreement.............................. 9
ARTICLE III. MISCELLANEOUS.................................................................. 10
Section 3.1. Entire Agreement............................................................ 10
Section 3.2. Governing Law............................................................... 10
Section 3.3. Dispute Resolution.......................................................... 10
Section 3.4. Notices..................................................................... 11
Section 3.5. Parties in Interest......................................................... 11
Section 3.6. Other Agreements Evidencing Indemnification Obligations..................... 12
Section 3.7. Counterparts................................................................ 12
Section 3.8. Assignment.................................................................. 12
Section 3.9. Severability................................................................ 12
Section 3.10. Failure or Indulgence Not Waiver............................................ 13
Section 3.11. Amendment................................................................... 13
Section 3.12. Authority................................................................... 13
Section 3.13. Interpretation.............................................................. 13
</TABLE>
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TABLE OF CONTENTS
(continued)
<TABLE>
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<S> <C> <C>
ARTICLE IV. DEFINITIONS...................................................................... 13
Section 4.1. 3Com Business............................................................... 13
Section 4.2. 3Com Facilities............................................................. 13
Section 4.3. 3Com Group.................................................................. 13
Section 4.4. 3Com Indemnitees............................................................ 14
Section 4.5. Action...................................................................... 14
Section 4.6. Affiliated Company.......................................................... 14
Section 4.7. Assets...................................................................... 14
Section 4.8. Assignment Agreement........................................................ 14
Section 4.9. Coverage Amount............................................................. 14
Section 4.10. Employee Matters Agreement.................................................. 14
Section 4.11. Environmental Actions....................................................... 14
Section 4.12. Environmental Conditions.................................................... 15
Section 4.13. Environmental Laws.......................................................... 15
Section 4.14. Hazardous Materials......................................................... 15
Section 4.15. Indemnitee.................................................................. 15
Section 4.16. Insurance Policies.......................................................... 15
Section 4.17. Insurance Proceeds.......................................................... 15
Section 4.18. Insurance Transition Period................................................. 16
Section 4.19. Insured Palm Liability...................................................... 16
Section 4.20. IPO Date.................................................................... 16
Section 4.21. IPO Liabilities............................................................. 16
Section 4.22. IPO Registration Statement.................................................. 16
Section 4.23. Liabilities................................................................. 16
Section 4.24. Non-US Plan................................................................. 16
Section 4.25. Palm Business............................................................... 16
Section 4.26. Palm Contracts.............................................................. 16
Section 4.27. Palm Covered Parties........................................................ 17
Section 4.28. Palm Facilities............................................................. 17
Section 4.29. Palm Group.................................................................. 17
Section 4.30. Palm Indemnitees............................................................ 17
Section 4.31. Palm Liabilities............................................................ 17
Section 4.32. Person...................................................................... 17
Section 4.33. Pre-Separation Third Party Site Liabilities................................. 17
Section 4.34. Release..................................................................... 17
Section 4.35. Separation.................................................................. 18
Section 4.36. Separation Agreement........................................................ 18
Section 4.37. Separation Date............................................................. 18
Section 4.38. Shared 3Com Percentage...................................................... 18
</TABLE>
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TABLE OF CONTENTS
(continued)
<TABLE>
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<S> <C> <C>
Section 4.39. Shared Palm Percentage...................................................... 18
Section 4.40. Shared Percentage........................................................... 18
Section 4.41. Subsidiary.................................................................. 18
Section 4.42. Tax Sharing Agreement....................................................... 19
Section 4.43. Taxes....................................................................... 19
Section 4.44. Third Party Claim........................................................... 19
</TABLE>
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<PAGE>
INDEMNIFICATION AND INSURANCE MATTERS AGREEMENT
This Indemnification and Insurance Matters Agreement (this "Agreement") is
entered into on _________, 2000 between 3Com Corporation, a Delaware corporation
("3Com"), and Palm, Inc., a Delaware corporation ("Palm"). Capitalized terms
used herein and not otherwise defined herein shall have the meanings ascribed to
such terms in the Article IV below.
RECITALS
WHEREAS, 3Com and its Subsidiaries have transferred or will transfer to
Palm and its Subsidiaries effective as of the Separation Date, substantially all
of the assets of the Palm Business in accordance with the Master Separation and
Distribution Agreement dated as of December ___, 1999 between 3Com and Palm's
predecessor corporation, Palm Computing, Inc., a California corporation (the
"Separation Agreement").
WHEREAS, the parties desire to set forth certain agreements regarding
indemnification and insurance.
NOW, THEREFORE, in consideration of the foregoing and the covenants and
agreements set forth below, the parties hereto agree as follows:
ARTICLE I.
MUTUAL RELEASES; INDEMNIFICATION
Section 1.1. Release of Pre-Closing Claims.
(a) Palm Release. Except as provided in Section 1.1(c) and Schedule 1.1 to
this Agreement, effective as of the Separation Date, Palm does hereby, for
itself and as agent for each member of the Palm Group, remise, release and
forever discharge the 3Com Indemnitees from any and all Liabilities whatsoever,
whether at law or in equity (including any right of contribution), whether
arising under any contract or agreement, by operation of law or otherwise,
existing or arising from any acts or events occurring or failing to occur or
alleged to have occurred or to have failed to occur or any conditions existing
or alleged to have existed on or before the Separation Date, including in
connection with the transactions and all other activities to implement any of
the Separation, the IPO and the Distribution.
(b) 3Com Release. Except as provided in Section 1.1(c) and Schedule 1.1 to
this Agreement, effective as of the Separation Date, 3Com does hereby, for
itself and as agent for each member of the 3Com Group, remise, release and
forever discharge the Palm Indemnitees from any and all Liabilities whatsoever,
whether at law or in equity (including any right of contribution), whether
arising under any contract or agreement, by operation of law or otherwise,
existing or arising from any acts or events occurring or failing to occur or
alleged to have occurred or to have failed to occur or any conditions existing
or alleged to have existed on or before the Separation Date,
<PAGE>
including in connection with the transactions and all other activities to
implement any of the Separation, the IPO and the Distribution.
(c) No Impairment. Nothing contained in Section 1.1(a) or (b) shall impair
any right of any Person to enforce the Separation Agreement or any other
Ancillary Agreement (including this Agreement), in each case in accordance with
its terms.
(d) No Actions as to Released Claims. Palm agrees, for itself and as agent
for each member of the Palm Group, not to make any claim or demand, or commence
any Action asserting any claim or demand, including any claim of contribution or
any indemnification, against 3Com or any member of the 3Com Group, or any other
Person released pursuant to Section 1.1(a), with respect to any Liabilities
released pursuant to Section 1.1(a). 3Com agrees, for itself and as agent for
each member of the 3Com Group, not to make any claim or demand, or commence any
Action asserting any claim or demand, including any claim of contribution or any
indemnification, against Palm or any member of the Palm Group, or any other
Person released pursuant to Section 1.1(b), with respect to any Liabilities
released pursuant to Section 1.1(b).
(e) Further Instruments. At any time, at the request of any other party,
each party shall cause each member of its respective Group to execute and
deliver releases reflecting the provisions hereof.
Section 1.2. Indemnification by Palm. Except as otherwise provided in this
Agreement, Palm shall, for itself and as agent for each member of the Palm
Group, indemnify, defend (or, where applicable, pay the defense costs for) and
hold harmless the 3Com Indemnitees from and against any and all Liabilities that
any third party seeks to impose upon the 3Com Indemnitees, or which are imposed
upon the 3Com Indemnitees, and that relate to, arise out of or result from any
of the following items (without duplication):
(i) the Palm Business, any Palm Liability or any Palm Contract;
(ii) any breach by Palm or any member of the Palm Group of the
Separation Agreement or any of the Ancillary Agreements (including this
Agreement); and
(iii) any IPO Liabilities.
In the event that any member of the Palm Group makes a payment to the 3Com
Indemnitees hereunder, and any of the 3Com Indemnitees subsequently diminishes
the Liability on account of which such payment was made, either directly or
through a third-party recovery, 3Com will promptly repay (or will procure a 3Com
Indemnitee to promptly repay) such member of the Palm Group the amount by which
the payment made by such member of the Palm Group exceeds the actual cost of the
associated indemnified Liability. This Section 1.2 shall not apply to any
Liability indemnified under Section 1.4.
Section 1.3. Indemnification by 3Com. Except as otherwise provided in this
Agreement, 3Com shall, for itself and as agent for each member of the 3Com
Group, indemnify, defend (or, where applicable, pay the defense costs for) and
hold harmless the Palm Indemnitees from and
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against any and all Liabilities that any third party seeks to impose upon the
Palm Indemnitees, or which are imposed upon the Palm Indemnitees, and that
relate to, arise out of or result from any of the following items (without
duplication):
(i) the 3Com Business or any Liability of the 3Com Group other than
the Palm Liabilities; and
(ii) any breach by 3Com or any member of the 3Com Group of the
Separation Agreement or any of the Ancillary Agreements (including this
Agreement).
In the event that any member of the 3Com Group makes a payment to the Palm
Indemnitees hereunder, and any of the Palm Indemnitees subsequently diminishes
the Liability on account of which such payment was made, either directly or
through a third-party recovery, Palm will promptly repay (or will procure a Palm
Indemnitee to promptly repay) such member of the 3Com Group the amount by which
the payment made by such member of the 3Com Group exceeds the actual cost of the
indemnified Liability. This Section 1.3 shall not apply to any Liability
indemnified under Section 1.4.
Section 1.4. Indemnification With Respect to Environmental Actions and
Conditions.
(a) Indemnification by Palm. Palm shall, for itself and as agent for each
member of the Palm Group, indemnify, defend and hold harmless the 3Com
Indemnitees from and against any and all Environmental Actions relating to,
arising out of or resulting from Environmental Conditions (i) arising out of
operations occurring on and after the Separation Date at any of the Palm
Facilities, or (ii) on any of the Palm Facilities arising from an event causing
contamination that first occurs on or after the Separation Date (including any
Release of Hazardous Materials occurring after the Separation Date that migrates
to any of the Palm Facilities), except to the extent that such Environmental
Conditions arise out of the operations of the 3Com Group on and after the
Separation Date.
(b) Indemnification by 3Com. 3Com shall, for itself and as agent for each
member of the 3Com Group, indemnify, defend and hold harmless the Palm
Indemnitees from and against any and all Environmental Actions relating to,
arising out of or resulting from any of the following items:
(i) Environmental Conditions (x) existing on, under, about or in the
vicinity of any of the Palm Facilities prior to the Separation Date, or (y)
arising out of operations occurring on or before the Separation Date at any of
the Palm Facilities;
(ii) Except as arising out of the operations of the Palm Group on and
after the Separation Date, Environmental Conditions on, under, about or arising
out of operations occurring at any time, whether before or after the Separation
Date, at any of the 3Com Facilities; and
(iii) Pre-Separation Third Party Site Liabilities.
(c) Agreement Regarding Payments to Indemnitee. In the event an
Indemnifying Party makes any payment to or on behalf of an Indemnitee with
respect to an Environmental Action for
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which the Indemnifying Party is obligated to indemnify under this Section 1.4,
and the Indemnitee subsequently receives any payment from a third party on
account of the same financial obligation covered by the payment made by the
Indemnifying Party for that Environmental Action or otherwise diminishes the
financial obligation, the Indemnitee will promptly pay the Indemnifying Party
the amount by which the payment made by the Indemnifying Party, exceeds the
actual cost of the financial obligation.
Section 1.5. Reductions for Insurance Proceeds and Other Recoveries. The
amount that any party (an "Indemnifying Party") is or may be required to pay to
any other Person (an "Indemnitee") pursuant to Section 1.2, 1.3 or 1.4, as
applicable, shall be reduced (retroactively or prospectively) by any Insurance
Proceeds or other amounts actually recovered from third parties by or on behalf
of such Indemnitee in respect of the related loss. The existence of a claim by
an Indemnitee for monies from an insurer or against a third party in respect of
any indemnifiable loss shall not, however, delay any payment pursuant to the
indemnification provisions contained herein and otherwise determined to be due
and owing by an Indemnifying Party. Rather the Indemnifying Party shall make
payment in full of the amount determined to be due and owing by it against an
assignment by the Indemnitee to the Indemnifying Party of the entire claim of
the Indemnitee for Insurance Proceeds or against such third party.
Notwithstanding any other provisions of this Agreement, it is the intention of
the parties that no insurer or any other third party shall be (i) entitled to a
benefit it would not be entitled to receive in the absence of the foregoing
indemnification provisions, or (ii) relieved of the responsibility to pay any
claims for which it is obligated. If an Indemnitee has received the payment
required by this Agreement from an Indemnifying Party in respect of any
indemnifiable loss and later receives Insurance Proceeds or other amounts in
respect of such indemnifiable loss, then such Indemnitee shall hold such
Insurance Proceeds or other amounts in trust for the benefit of the Indemnifying
Party (or Indemnifying Parties) and shall pay to the Indemnifying Party, as
promptly as practicable after receipt, a sum equal to the amount of such
Insurance Proceeds or other amounts received, up to the aggregate amount of any
payments received from the Indemnifying Party pursuant to this Agreement in
respect of such indemnifiable loss (or, if there is more than one Indemnifying
Party, the Indemnitee shall pay each Indemnifying Party, its proportionate share
(based on payments received from the Indemnifying Parties) of such Insurance
Proceeds).
Section 1.6. Procedures for Defense, Settlement and Indemnification of
Third Party Claims.
(a) Notice of Claims. If a 3Com Indemnitee or a Palm Indemnitee (as
applicable) (an "Indemnitee") shall receive notice or otherwise learn of the
assertion by a Person (including any Governmental Authority) who is not a member
of the 3Com Group or the Palm Group of any claim or of the commencement by any
such Person of any Action (collectively, a "Third Party Claim") with respect to
which a party (an "Indemnifying Party") may be obligated to provide
indemnification to such Indemnitee pursuant to Section 1.2, 1.3 or 1.4, or any
other section of the Separation Agreement or any Ancillary Agreement (including
this Agreement), 3Com and Palm (as applicable) will ensure that such Indemnitee
shall give such Indemnifying Party written notice thereof within 30 days after
becoming aware of such Third Party Claim. Any such notice shall describe the
Third Party Claim in reasonable detail. Notwithstanding the foregoing, the delay
or
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failure of any Indemnitee or other Person to give notice as provided in this
Section 1.6(a) shall not relieve the related Indemnifying Party of its
obligations under this Article I, except to the extent that such Indemnifying
Party is actually and substantially prejudiced by such delay or failure to give
notice.
(b) Defense By Indemnifying Party. An Indemnifying Party will manage the
defense of and may settle or compromise any Third Party Claim. Within 30 days
after the receipt of notice from an Indemnitee in accordance with Section 1.6(a)
(or sooner, if the nature of such Third Party Claim so requires), the
Indemnifying Party shall notify the Indemnitee that the Indemnifying Party will
assume responsibility for managing the defense of such Third Party Claim, which
notice shall specify any reservations or exceptions.
(c) Defense By Indemnitee. If an Indemnifying Party fails to assume
responsibility for managing the defense of a Third Party Claim, or fails to
notify an Indemnitee that it will assume responsibility as provided in Section
1.6(a), such Indemnitee may manage the defense of such Third Party Claim;
provided, however, that the Indemnifying Party shall reimburse all such costs
and expenses in the event it is ultimately determined that the Indemnifying
Party is obligated to indemnify the Indemnitee with respect to such Third Party
Claim.
(d) No Settlement By Indemnitee Without Consent. Unless the Indemnifying
Party has failed to manage the defense of the Third Party Claim in accordance
with the terms of this Agreement, no Indemnitee may settle or compromise any
Third Party Claim without the consent of the Indemnifying Party.
(e) No Consent to Certain Judgments or Settlements Without Consent.
Notwithstanding any provision of this Section 1.6, no party shall consent to
entry of any judgment or enter into any settlement of a Third Party Claim
without the consent of the other party (such consent not to be unreasonably
withheld) if the effect of such judgment or settlement is to (A) permit any
injunction, declaratory judgment, other order or other nonmonetary relief to be
entered, directly or indirectly, against the other party or (B) affect the other
party in a material fashion due to the allocation of Liabilities and related
indemnities set forth in the Separation Agreement, this Agreement or any other
Ancillary Agreement.
Section 1.7. Additional Matters.
(a) Cooperation in Defense and Settlement. With respect to any Third Party
Claim that implicates both Palm and 3Com in a material fashion due to the
allocation of Liabilities, responsibilities for management of defense and
related indemnities set forth in the Separation Agreement, this Agreement or any
of the Ancillary Agreements, the parties agree to cooperate fully and maintain a
joint defense (in a manner that will preserve the attorney-client privilege with
respect thereto) so as to minimize such Liabilities and defense costs associated
therewith. The party that is not responsible for managing the defense of such
Third Party Claims shall, upon reasonable request, be consulted with respect to
significant matters relating thereto and may, if necessary or helpful, associate
counsel to assist in the defense of such claims.
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(b) Substitution. In the event of an Action in which the Indemnifying
Party is not a named defendant, if either the Indemnitee or the Indemnifying
Party shall so request, the parties shall endeavor to substitute the
Indemnifying Party for the named defendant. If such substitution or addition
cannot be achieved for any reason or is not requested, the rights and
obligations of the parties regarding indemnification and the management of the
defense of claims as set forth in this Article I shall not be altered.
(c) Subrogation. In the event of payment by or on behalf of any
Indemnifying Party to or on behalf of any Indemnitee in connection with any
Third Party Claim, such Indemnifying Party shall be subrogated to and shall
stand in the place of such Indemnitee, in whole or in part based upon whether
the Indemnifying Party has paid all or only part of the Indemnitee's Liability,
as to any events or circumstances in respect of which such Indemnitee may have
any right, defense or claim relating to such Third Party Claim against any
claimant or plaintiff asserting such Third Party Claim or against any other
person. Such Indemnitee shall cooperate with such Indemnifying Party in a
reasonable manner, and at the cost and expense of such Indemnifying Party, in
prosecuting any subrogated right, defense or claim.
(d) Not Applicable to Taxes. This Agreement shall not apply to Taxes
(which are covered by the Tax Sharing Agreement).
Section 1.8. Survival of Indemnities. Subject to Section 3.8, the rights
and obligations of the members of the 3Com Group and the Palm Group under this
Article I shall survive the sale or other transfer by any party of any Assets or
businesses or the assignment by it of any Liabilities or the sale by any member
of the 3Com Group or the Palm Group of the capital stock or other equity
interests of any Subsidiary to any Person.
ARTICLE II.
INSURANCE MATTERS
Section 2.1. Palm Insurance Coverage During the Transition Period.
(a) Maintain Comparable Insurance. Throughout the period beginning on the
Separation Date and ending on the Distribution Date (i.e., the "Insurance
Transition Period"), 3Com shall, subject to insurance market conditions and
other factors beyond its control, maintain policies of insurance, including for
the benefit of Palm or any of its Subsidiaries, directors, officers, employees
or other covered parties (collectively, the "Palm Covered Parties") which are
comparable to those maintained generally by 3Com; provided, however, that if
3Com determines that (i) the amount or scope of such coverage will be reduced to
a level materially inferior to the level of coverage in existence immediately
prior to the Insurance Transition Period or (ii) the retention or deductible
level applicable to such coverage, if any, will be increased to a level
materially greater than the levels in existence immediately prior to the
Insurance Transition Period, 3Com shall give Palm notice of such determination
as promptly as practicable. Upon notice of such determination, Palm shall be
entitled to no less than 60 days to evaluate its options regarding continuance
of coverage hereunder and may cancel its interest in all or any portion of such
coverage as of any day within such 60 day period.
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(b) Reimbursement for Premiums. Palm shall promptly pay or reimburse 3Com,
as the case may be, for premium expenses, and Palm Covered Parties shall
promptly pay or reimburse 3Com for any costs and expenses which 3Com may incur
in connection with the insurance coverages maintained pursuant to this Section
2.1, including but not limited to any subsequent premium adjustments. All
payments and reimbursements by Palm and Palm Covered Parties to 3Com shall be
made within thirty (30) days after Palm's receipt of an invoice from 3Com.
Section 2.2. Cooperation and Agreement Not to Release Carriers. Each of
3Com and Palm will share such information as is reasonably necessary in order to
permit the other to manage and conduct its insurance matters in an orderly
fashion. Each of 3Com and Palm, at the request of the other, shall cooperate
with and use commercially reasonable efforts to assist the other in recoveries
for claims made under any insurance policy for the benefit of any insured party,
and neither 3Com nor Palm, nor any of their Subsidiaries, shall take any action
which would intentionally jeopardize or otherwise interfere with either party's
ability to collect any proceeds payable pursuant to any insurance policy. Except
as otherwise contemplated by the Separation Agreement, this Agreement or any
Ancillary Agreement, after the Separation Date, neither 3Com nor Palm shall (and
shall ensure that no member of their respective Groups shall), without the
consent of the other, provide any insurance carrier with a release, or amend,
modify or waive any rights under any such policy or agreement, if such release,
amendment, modification or waiver would adversely affect any rights or potential
rights of any member of the other Group thereunder. However, nothing in this
Section 2.2 shall (A) preclude any member of any Group from presenting any claim
or from exhausting any policy limit, (B) require any member of any Group to pay
any premium or other amount or to incur any Liability, or (C) require any member
of any Group to renew, extend or continue any policy in force.
Section 2.3. Palm Insurance Coverage After the Insurance Transition
Period. From and after expiration of the Insurance Transition Period, Palm shall
be responsible for obtaining and maintaining insurance programs for its risk of
loss and such insurance arrangements shall be separate and apart from 3Com's
insurance programs. Notwithstanding the foregoing, 3Com, upon the request of
Palm, shall use all commercially reasonable efforts to assist Palm in the
transition to its own separate insurance programs from and after the Insurance
Transition Period, and shall provide Palm with any information that is in the
possession of 3Com and is reasonably available and necessary to either obtain
insurance coverages for Palm or to assist Palm in preventing unintended self-
insurance, in whatever form.
Section 2.4. Responsibilities for Deductibles and/or Self-insured
Obligations. Palm will reimburse 3Com for all amounts necessary to exhaust or
otherwise satisfy all applicable self-insured retentions, amounts for fronted
policies, deductibles and retrospective premium adjustments and similar amounts
not covered by Insurance Policies in connection with Palm Liabilities and
Insured Palm Liabilities.
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Section 2.5. Procedures With Respect to Insured Palm Liabilities.
(a) Reimbursement. Palm will reimburse 3Com for all amounts incurred to
pursue insurance recoveries from Insurance Policies for Insured Palm
Liabilities.
(b) Management of Claims. The defense of claims, suits or actions giving
rise to potential or actual Insured Palm Liabilities will be managed (in
conjunction with 3Com's insurers, as appropriate) by the party that would have
had responsibility for managing such claims, suits or actions had such Insured
Palm Liabilities been Palm Liabilities.
Section 2.6. Insufficient Limits of Liability for 3Com Liabilities and
Palm Liabilities.
In the event that there are insufficient limits of liability available
under 3Com's Insurance Policies in effect prior to the Distribution Date to
cover the Liabilities of 3Com and/or Palm that would otherwise be covered by
such Insurance Policies, then to the extent that other insurance is not
available to 3Com and/or Palm for such Liabilities an adjustment will be made in
accordance with the following procedures:
(a) Each party will be allocated an amount equal to their Shared
Percentage of the lesser of (A) the available limits of liability available
under 3Com's Insurance Policies in effect prior to the Distribution Date net of
uncollectible amounts attributable to insurer insolvencies, and (B) the proceeds
received from 3Com's Insurance Policies if the Liabilities are the subject of
disputed coverage claims and, following consultation with each other, 3Com
and/or Palm agree to accept less than full policy limits from 3Com's and Palm's
insurers (the "Coverage Amount").
(b) A party who receives more than its share of the Coverage Amount (the
"Overallocated Party") agrees to reimburse the other party (the "Underallocated
Party") to the extent that the Liabilities of the Underallocated Party that
would have been covered under such Insurance Policies is less than the
Underallocated Party's share of the Coverage Amount.
(c) This Section 2.6(a) shall terminate ten years following the
Distribution Date.
Section 2.7. Cooperation. 3Com and Palm will cooperate with each other in
all respects, and they shall execute any additional documents which are
reasonably necessary, to effectuate the provisions of this Article II.
Section 2.8. No Assignment or Waiver. This Agreement shall not be
considered as an attempted assignment of any policy of insurance or as a
contract of insurance and shall not be construed to waive any right or remedy of
any member of the 3Com Group in respect of any Insurance Policy or any other
contract or policy of insurance.
Section 2.9. No Liability. Palm does hereby, for itself and as agent for
each other member of the Palm Group, agree that no member of the 3Com Group or
any 3Com Indemnitee shall have any Liability whatsoever as a result of the
insurance policies and practices of 3Com and its Subsidiaries as in effect at
any time prior to the Distribution Date, including as a result of the level or
scope of any such insurance, the creditworthiness of any insurance carrier, the
terms and conditions
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of any policy, the adequacy or timeliness of any notice to any insurance carrier
with respect to any claim or potential claim or otherwise.
Section 2.10. Additional or Alternate Insurance. Notwithstanding any
provision of this Agreement, during the Insurance Transition Period 3Com and
Palm shall work together to evaluate insurance options and secure additional or
alternate insurance for Palm and/or 3Com if desired and cost effective. Nothing
in this Agreement shall be deemed to restrict any member of the Palm Group from
acquiring at its own expense any other insurance policy in respect of any
Liabilities or covering any period.
Section 2.11. Further Agreements. The Parties acknowledge that they
intend to allocate financial obligations without violating any laws regarding
insurance, self-insurance or other financial responsibility. If it is determined
that any action undertake pursuant to the Separation Agreement, this Agreement
or any Ancillary Agreement is violative of any insurance, self-insurance or
related financial responsibility law or regulation, the parties agree to work
together to do whatever is necessary to comply with such law or regulation while
trying to accomplish, as much as possible, the allocation of financial
obligations as intended in the Separation Agreement, this Agreement and any
Ancillary Agreement.
Section 2.12. Matters Governed by Employee Matters Agreement. This Article
II shall not apply to any insurance policies that are the subject of the
Employee Matters Agreement.
ARTICLE III.
MISCELLANEOUS
Section 3.1. Entire Agreement. This Agreement, the Master Separation
Agreement, the other Ancillary Agreements and the Exhibits and Schedules
attached hereto and thereto, constitutes the entire agreement between the
parties with respect to the subject matter hereof and shall supersede all prior
written and oral and all contemporaneous oral agreements and understandings with
respect to the subject matter hereof.
Section 3.2. Governing Law. This Agreement shall be construed in
accordance with and all Disputes hereunder shall be governed by the laws of the
State of California, excluding its conflict of law rules and the United Nations
Convention on Contracts for the International Sale of Goods. The Superior Court
of Santa Clara County and/or the United States District Court for the Northern
District of California shall have jurisdiction and venue over all Disputes
between the parties that are permitted to be brought in a court of law pursuant
to Section 3.3.
Section 3.3. Dispute Resolution. If a dispute, controversy or claim
("Dispute") arises between the parties relating to the interpretation or
performance of this Agreement, or the grounds for the termination hereof,
appropriate senior executives (e.g. director or V.P. level) of each party who
shall have the authority to resolve the matter shall meet to attempt in good
faith to negotiate a resolution of the Dispute prior to pursuing other available
remedies. The initial meeting between the appropriate senior executives shall be
referred to herein as the "Dispute Resolution Commencement Date." Discussions
and correspondence relating to trying to resolve such Dispute shall be treated
as
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confidential information developed for the purpose of settlement and shall be
exempt from discovery or production and shall not be admissible. If the senior
executives are unable to resolve the Dispute within thirty (30) days from the
Dispute Resolution Commencement Date, and either party wishes to pursue its
rights relating to such Dispute, then the Dispute will be mediated by a mutually
acceptable mediator appointed pursuant to the mediation rules of JAMS/Endispute
within thirty (30) days after written notice by one party to the other demanding
non-binding mediation. Neither party may unreasonably withhold consent to the
selection of a mediator or the location of the mediation. Both parties will
share the costs of the mediation equally, except that each party shall bear its
own costs and expenses, including attorney's fees, witness fees, travel
expenses, and preparation costs. The parties may also agree to replace mediation
with some other form of non-binding or binding ADR.
Any Dispute which the parties cannot resolve through mediation within
ninety (90) days of the Dispute Resolution Commencement Date, unless otherwise
mutually agreed, shall be submitted to final and binding arbitration under the
then current Commercial Arbitration Rules of the American Arbitration
Association ("AAA"), by three (3) arbitrators in Santa Clara County, California.
Such arbitrators shall be selected by the mutual agreement of the parties or,
failing such agreement, shall be selected according to the aforesaid AAA rules.
The arbitrators will be instructed to prepare and deliver a written, reasoned
opinion stating their decision within thirty (30) days of the completion of the
arbitration. The prevailing party in such arbitration shall be entitled to
expenses, including costs and attorneys' and other professional fees, incurred
in connection with the arbitration (but excluding any costs and fees associated
with prior negotiation or mediation). The decision of the arbitrator shall be
final and non-appealable and may be enforced in any court of competent
jurisdiction. The use of any ADR procedures will not be construed under the
doctrine of laches, waiver or estoppel to adversely affect the rights of either
party.
Any Dispute regarding the following is not required to be negotiated,
mediated or arbitrated prior to seeking relief from a court of competent
jurisdiction: breach of any obligation of confidentiality; infringement,
misappropriation, or misuse of any intellectual property right; any other claim
where interim relief from the court is sought to prevent serious and irreparable
injury to one of the parties or to others. However, the parties to the Dispute
shall make a good faith effort to negotiate and mediate such Dispute, according
to the above procedures, while such court action is pending.
Section 3.4. Notices. Notices, offers, requests or other communications
required or permitted to be given by either party pursuant to the terms of this
Agreement shall be given in writing to the respective parties to the following
addresses:
if to 3Com:
3Com Corporation
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-6434
if to Palm:
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Palm Computing, Inc.
5400 Bayfront Plaza
Santa Clara, California 95052
Attention: General Counsel
Fax: (408) 326-5001
or to such other address as the party to whom notice is given may have
previously furnished to the other in writing as provided herein. Any notice
involving non-performance, termination, or renewal shall be sent by hand
delivery, recognized overnight courier or, within the United States, may also be
sent via certified mail, return receipt requested. All other notices may also
be sent by fax, confirmed by first class mail. All notices shall be deemed to
have been given and received on the earlier of actual delivery or three (3) days
from the date of postmark.
Section 3.5. Parties in Interest. This Agreement, including the
Schedules and Exhibits hereto, and the other documents referred to herein, shall
be binding upon 3Com, 3Com's Subsidiaries, Palm and Palm's Subsidiaries and
inure solely to the benefit of the Palm Indemnitees and the 3Com Indemnitees and
their respective permitted assigns, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement.
Section 3.6. Other Agreements Evidencing Indemnification Obligations.
3Com hereby agrees to execute, for the benefit of any Palm Indemnitee, such
documents as may be reasonably requested by such Palm Indemnitee, evidencing
3Com's agreement that the indemnification obligations of 3Com set forth in this
Agreement inure to the benefit of and are enforceable by such Palm Indemnitee.
Palm hereby agrees to execute, for the benefit of any 3Com Indemnitee, such
documents as may be reasonably requested by such 3Com Indemnitee, evidencing
Palm's agreement that the indemnification obligations of Palm set forth in this
Agreement inure to the benefit of and are enforceable by such 3Com Indemnitee.
Section 3.7. Counterparts. This Agreement, including the Schedules and
Exhibits hereto, and the other documents referred to herein, may be executed in
counterparts, each of which shall be deemed to be an original but all of which
shall constitute one and the same agreement.
Section 3.8. Assignment. This Agreement shall inure to the benefit of
and be binding upon the parties hereto and their respective legal
representatives and successors, and nothing in this Agreement, express or
implied, is intended to confer upon any other Person any rights or remedies of
any nature whatsoever under or by reason of this Agreement. This Agreement may
be enforced separately by each member of the 3Com Group and each member of the
Palm Group. Neither party may assign this Agreement or any rights or obligations
hereunder, without the prior written consent of the other party, and any such
assignment shall be void; provided, however, either party may assign this
Agreement to a successor entity in conjunction with such party's
reincorporation.
Section 3.9. Severability. If any term or other provision of this
Agreement or the Schedules or Exhibits attached hereto is determined by a
nonappealable decision by a court, administrative agency or arbitrator to be
invalid, illegal or incapable of being enforced by any rule of law or public
policy, all other conditions and provisions of this Agreement shall nevertheless
remain
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in full force and effect so long as the economic or legal substance of the
transactions contemplated hereby is not affected in any manner materially
adverse to any party. Upon such determination that any term or other provision
is invalid, illegal or incapable of being enforced, the parties hereto shall
negotiate in good faith to modify this Agreement so as to effect the original
intent of the parties as closely as possible in an acceptable manner to the end
that transactions contemplated hereby are fulfilled to the fullest extent
possible.
Section 3.10. Failure or Indulgence Not Waiver. No failure or delay on
the part of either party hereto in the exercise of any right hereunder shall
impair such right or be construed to be a waiver of, or acquiescence in, any
breach of any representation, warranty or agreement herein, nor shall any single
or partial exercise of any such right preclude other or further exercise thereof
or of any other right.
Section 3.11. Amendment. No change or amendment will be made to this
Agreement except by an instrument in writing signed on behalf of each of the
parties to this Agreement.
Section 3.12. Authority. Each of the parties hereto represents to the
other that (a) it has the corporate or other requisite power and authority to
execute, deliver and perform this Agreement, (b) the execution, delivery and
performance of this Agreement by it have been duly authorized by all necessary
corporate or other action, (c) it has duly and validly executed and delivered
this Agreement, and (d) this Agreement is a legal, valid and binding obligation,
enforceable against it in accordance with its terms subject to applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting creditors' rights generally and general equity principles.
Section 3.13. Interpretation. The headings contained in this Agreement,
in any Exhibit or Schedule hereto and in the table or contents to this Agreement
are for reference purposes only and shall not affect in any way the meaning or
interpretation of this Agreement. Any capitalized term used in any Schedule or
Exhibit but not otherwise defined therein, shall have the meaning assigned to
such term in this Agreement. When a reference is made in this Agreement to an
Article or a Section, Exhibit or Schedule, such reference shall be to an Article
or Section of, or an Exhibit or Schedule to, this Agreement unless otherwise
indicated.
ARTICLE IV.
DEFINITIONS
Section 4.1. 3Com Business. "3Com Business" means any business of 3Com
other than the Palm Business.
Section 4.2. 3Com Facilities. "3Com Facilities" means all of the real
property and improvements thereon owned or occupied at any time on or before the
Separation Date by any member of the 3Com Group, whether for the 3Com Business
or the Palm Business, excluding the Palm Facilities.
Section 4.3. 3Com Group. "3Com Group" means 3Com, each Subsidiary and
Affiliated Company of 3Com (other than any member of the Palm Group) immediately
after the Separation
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<PAGE>
Date, after giving effect to the Non-US Plan and each Person that becomes a
Subsidiary or Affiliate Company of 3Com after the Separation Date.
Section 4.4. 3Com Indemnitees. "3Com Indemnitees" means 3Com, each
member of the 3Com Group and each of their respective directors, officers and
employees.
Section 4.5. Action. "Action" means any demand, action, suit,
countersuit, arbitration, inquiry, proceeding or investigation by or before any
federal, state, local, foreign or international governmental authority or any
arbitration or mediation tribunal.
Section 4.6. Affiliated Company. "Affiliated Company" of any Person
means any entity that controls, is controlled by, or is under common control
with such Person. As used herein, "control" means the possession, directly or
indirectly, of the power to direct or cause the direction of the management and
policies of such entity, whether through ownership of voting securities or other
interests, by contract or otherwise.
Section 4.7. Assets. "Assets" has the meaning set forth in Section 4.4
of the Assignment Agreement.
Section 4.8. Assignment Agreement. "Assignment Agreement" means the
General Assignment and Assumption Agreement attached as Exhibit C to the
Separation Agreement.
Section 4.9. Coverage Amount. "Coverage Amount" has the meaning set
forth in Section 2.6(a) of this Agreement.
Section 4.10. Employee Matters Agreement. "Employee Matters Agreement"
means the Employee Matters Agreement attached as Exhibit E to the Separation
Agreement.
Section 4.11. Environmental Actions. "Environmental Actions" means any
notice, claim, act, cause of action, order, decree or investigation by any third
party (including, without limitation, any Governmental Authority) alleging
potential liability (including potential liability for investigatory costs,
cleanup costs, governmental response costs, natural resources damages, damage to
flora or fauna caused by Environmental Conditions, real property damages,
personal injuries or penalties) arising out of, based on or resulting from the
Release of or exposure of any individual to any Hazardous Materials.
Section 4.12. Environmental Conditions. "Environmental Conditions" means
the presence in the environment, including the soil, groundwater, surface water
or ambient air, of any Hazardous Material at a level which exceeds any
applicable standard or threshold under any Environmental Law or otherwise
requires investigation or remediation (including, without limitation,
investigation, study, health or risk assessment, monitoring, removal, treatment
or transport) under any applicable Environmental Laws.
-13-
<PAGE>
Section 4.13. Environmental Laws. "Environmental Laws" means all laws and
regulations of any Governmental Authority with jurisdiction that relate to the
protection of the environment (including ambient air, surface water, ground
water, land surface or subsurface strata) including laws and regulations
relating to the Release of Hazardous Materials, or otherwise relating to the
treatment, storage, disposal, transport or handling of Hazardous Materials, or
to the exposure of any individual to a Release of Hazardous Materials.
Section 4.14. Hazardous Materials. "Hazardous Materials" means chemicals,
pollutants, contaminants, wastes, toxic substances, radioactive and biological
materials, hazardous substances, petroleum and petroleum products or any
fraction thereof.
Section 4.15. Indemnitee. "Indemnitee" has the meaning set forth in
Section 1.5(a) hereof.
Section 4.16. Insurance Policies. "Insurance Policies" means insurance
policies pursuant to which a Person makes a true risk transfer to an insurer.
Section 4.17. Insurance Proceeds. "Insurance Proceeds" means those
monies:
(a) received by an insured from an insurance carrier; or
(b) paid by an insurance carrier on behalf of the insured;
from Insurance Policies.
Section 4.18. Insurance Transition Period. "Insurance Transition Period"
has the meaning set forth in Section 2.1 of this Agreement.
Section 4.19. Insured Palm Liability. "Insured Palm Liability" means any
Palm Liability to the extent that (i) it is covered under the terms of 3Com's
Insurance Policies in effect prior to the Distribution Date, and (ii) Palm is
not a named insured under, or otherwise entitled to the benefits of, such
Insurance Policies.
Section 4.20. IPO Date. "IPO Date" means the date on which Palm effects
its initial public offering of common stock. Scheduled to occur on or before
June 2, 2000.
Section 4.21. IPO Liabilities. "IPO Liabilities" means any Liabilities
relating to, arising out of or resulting from any untrue statement or alleged
untrue statement of a material fact or omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading, with respect to all information contained in the IPO
Registration Statement or any preliminary, final or supplemental prospectus
forming a part of a IPO Registration Statement.
Section 4.22. IPO Registration Statement. "IPO Registration Statement"
means the registration statement on Form S-1 pursuant to the Securities Act to
be filed with the SEC registering the shares of common stock of Palm to be
issued in the IPO, together with all amendments thereto.
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<PAGE>
Section 4.23. Liabilities. "Liabilities" has the meaning set forth in
Section 4.15 of the Assignment Agreement.
Section 4.24. Non-US Plan. "Non-US Plan" means the plan of reorganization
described in Exhibit K of the Separation Agreement.
Section 4.25. Palm Business. "Palm Business" means the business and
operations of Palm, as described in the IPO Registration Statement and except as
otherwise expressly provided herein, any terminated, divested or discontinued
businesses or operations that at the time of termination, divestiture or
discontinuation primarily related to the Palm Business as then conducted.
Section 4.26. Palm Contracts. "Palm Contracts" has the meaning set forth
in Section 4.23 of the Assignment Agreement.
Section 4.27. Palm Covered Parties. "Palm Covered Parties" shall have the
meaning set forth in Section 2.1(a) of this Agreement.
Section 4.28. Palm Facilities. "Palm Facilities" means all of those
facilities to be transferred to Palm on the Separation Date as set forth on
Schedule 1 to the Real Estate Matters Agreement.
Section 4.29. Palm Group. "Palm Group" means Palm, each Subsidiary and
Affiliated Company of Palm immediately after the Separation Date or that is
contemplated to be a Subsidiary or Affiliated Company of Palm pursuant to the
Non-US Plan and each Person that becomes a Subsidiary or Affiliate Company of
Palm after the Separation Date.
Section 4.30. Palm Indemnitees. "Palm Indemnitees" means Palm, each
member of the Palm Group and each of their respective directors, officers and
employees.
Section 4.31. Palm Liabilities. "Palm Liabilities" has the meaning set
forth in Section 1.3 of the Assignment Agreement.
Section 4.32. Person. "Person" means an individual, a partnership, a
corporation, a limited liability company, an association, a joint stock company,
a trust, a joint venture, an unincorporated organization and a governmental
entity or any department, agency or political subdivision thereof.
Section 4.33. Pre-Separation Third Party Site Liabilities. "Pre-
Separation Third Party Site Liabilities" means any and all Environmental Actions
arising out of Hazardous Materials found on, under or about any landfill any
waste, storage, transfer or recycling site and resulting from or arising out of
Hazardous Materials stored, treated, recycled disposed or otherwise handled at
such site prior to the Separation Date (whether for the operation of the Palm
Business or for the operation of any past or presently (as of the date hereof)
existing 3Com Business as operated on or before the Separation Date).
Section 4.34. Release. "Release" means any release, spill, emission,
leaking, pumping, injection, deposit, disposal, discharge, dispersal, leaching
or migration into the indoor or outdoor
-15-
<PAGE>
environment, including, without limitation, the movement of Hazardous Materials
through ambient air, soil, surface water, groundwater, wetlands, land or
subsurface strata.
Section 4.35. Separation. "Separation" means the transfer and
contribution from 3Com to Palm, and Palm's receipt and assumption of, directly
or indirectly, substantially all of the Assets and Liabilities currently
associated with the Palm Business and the stock, investments or similar
interests currently held by 3Com in subsidiaries and other entities that conduct
such business.
Section 4.36. Separation Agreement. "Separation Agreement" means the
Master Separation and Distribution Agreement dated as of December ___, 1999, of
which this is an Exhibit thereto.
Section 4.37. Separation Date. " Separation Date" means the effective date
and time of each transfer of property, assumption of liability, license,
undertaking, or agreement in connection with the Separation, which shall be
12:01 a.m., Pacific Time, February 26, 2000, or such date as may be fixed by the
Board of Directors of 3Com.
Section 4.38. Shared 3Com Percentage. "Shared 3Com Percentage" means 90%.
Section 4.39. Shared Palm Percentage. "Shared Palm Percentage" means 10%.
Section 4.40. Shared Percentage. "Shared Percentage" means the Shared
Palm Percentage or the Shared 3Com Percentage, as the case may be.
Section 4.41. Subsidiary. "Subsidiary" of any Person means a corporation
or other organization whether incorporated or unincorporated of which at least a
majority of the securities or interests having by the terms thereof ordinary
voting power to elect at least a majority of the board of directors or others
performing similar functions with respect to such corporation or other
organization is directly or indirectly owned or controlled by such Person or by
any one or more of its Subsidiaries, or by such Person and one or more of its
Subsidiaries; provided, however, that no Person that is not directly or
indirectly wholly-owned by any other Person shall be a Subsidiary of such other
Person unless such other Person controls, or has the right, power or ability to
control, that Person.
Section 4.42. Tax Sharing Agreement. "Tax Sharing Agreement" means the Tax
Sharing Agreement, attached as Exhibit F to the Separation Agreement.
Section 4.43. Taxes. "Taxes" has the meaning set forth in the Tax Sharing
Agreement.
Section 4.44. Third Party Claim. "Third Party Claim" has the meaning set
forth in Section 1.5(a) of this Agreement.
[SIGNATURES ON FOLLOWING PAGE]
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<PAGE>
IN WITNESS WHEREOF, each of the parties has caused this Indemnification and
Insurance Matters Agreement to be executed on its behalf by its officers
thereunto duly authorized on the day and year first above written.
3COM CORPORATION PALM, INC.
By:___________________________ By:_______________________________
Name:_________________________ Name:_____________________________
Title:________________________ Title:____________________________
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<PAGE>
EXHIBIT 2.12
PALM INC.
NON-U.S. PLAN
This document describes, by jurisdiction, the transfers of assets and
liabilities from various foreign subsidiaries of 3Com Corporation to newly-
formed subsidiaries of Palm, Inc. that will occur as part of the separation of
the Palm business from the 3Com business. In certain jurisdictions, these
transfers of assets and liabilities may result in the transfer, by operation of
law, of those employees of the 3Com subsidiary who work in the Palm business.
In these cases, the 3Com subsidiaries would be required to give prior written
notice of the proposed transfers to the affected employees and consult with
employees and/or employee representatives. If the transfer of employees does
not occur as a matter of law, the appropriate Palm subsidiary will offer
employment to the relevant employees on terms expected to be substantially the
same as their current employment with the local 3Com subsidiary.
1. Canada
------
. Before the prescribed "Separation Date," Palm, Inc. will form a
wholly-owned subsidiary in Canada (Palm Canada).
. On the Separation Date, or as soon as practicable thereafter,
Palm Canada will assume certain liabilities of 3Com Canada
related to the Palm business. Concurrently, 3Com Canada will
transfer to Palm Canada all of 3Com Canada's rights in those of
its tangible assets related to the Palm business. The parties
will settle in cash the difference between the fair market value
of the transferred assets and the amount of the assumed
liabilities. It is expected that the assumed liabilities will
exceed the value of the transferred assets, so that the required
cash payment would be made by 3Com Canada to Palm Canada.
2. Mexico
------
. Before the Separation Date, Palm will cause a legal entity to be
registered or established in Mexico (Palm Mexico). Palm, Inc.
will own all of the stock of Palm Mexico, either directly or
through its wholly-owned Delaware subsidiary, Palm International,
Inc.
. On the Separation Date, or as soon as practicable thereafter,
Palm Mexico may assume certain liabilities related to the Palm
business from 3Com de Mexico. If so, 3Com de Mexico will pay Palm
Mexico cash equal to the amount of the assumed liabilities.
3. France
------
. Before the Separation Date, Palm Technology Investment Holdings,
a wholly-owned Irish subsidiary of Palm, Inc., will form Palm
Ltd., a private liability company under the laws of England and
Wales. Palm Ltd. will form a wholly-owned subsidiary in France
("Palm France"), which will be incorporated as an SAS (societe
par actions simplifee).
<PAGE>
. On the Separation Date, or as soon as practicable thereafter,
Palm France will assume certain liabilities of 3Com France
related to the Palm business. Concurrently, 3Com France will
transfer to Palm France all of 3Com France's rights in those of
its tangible assets related to the Palm business. The parties
will settle in cash the difference between the fair market value
of the transferred assets and the amount of the assumed
liabilities. It is expected that the assumed liabilities will
exceed the value of the transferred assets, so that the required
cash payment would be made by 3Com France to Palm France.
4. Ireland
-------
. Before the Separation Date, Palm Technology Investment Holdings
will form another Irish subsidiary, Palm Manufacturing
Technologies Limited, which, after the Separation Date, will
manufacture and procure Palm products.
5. Italy
-----
. Before the Separation Date Palm Italia will be formed or
established as either a limited liability company wholly-owned by
Palm Ltd. or as a registered branch of Palm Ltd. or one of its
European subsidiaries.
. There are no Palm assets or liabilities in Italy to transfer to
Palm Italia.
6. Netherlands
-----------
. Before the Separation Date, Palm Ltd. will form a wholly-owned
subsidiary under the laws of the Netherlands (Palm Netherlands),
incorporated as a Dutch "BV."
. On the Separation Date, or as soon as practicable thereafter,
Palm Netherlands will assume certain liabilities of 3Com Benelux
related to the Palm business. Concurrently, 3Com Benelux will
transfer to Palm Netherlands all of 3Com Benelux's rights in
those of its tangible assets related to the Palm business. The
parties will settle in cash the difference between the fair
market value of the transferred assets and the amount of the
assumed liabilities. It is expected that the assumed liabilities
will exceed the value of the transferred assets, so that the
required cash payment would be made by 3Com Benelux to Palm
Netherlands.
7. Sweden
------
. Before the Separation Date, Palm Ltd. will form a wholly-owned
subsidiary under the laws of Sweden (Palm Sweden), incorporated
as an "A/B."
. On the Separation Date, or as soon as practicable thereafter,
Palm Sweden will assume certain liabilities of 3Com Nordic A/B
related to the Palm business. Concurrently, 3Com Nordic will
transfer to Palm Sweden all of 3Com Nordic's rights in those of
its tangible
-2-
<PAGE>
assets related to the Palm business. The parties will settle in cash the
difference between the fair market value of the transferred assets and the
amount of the assumed liabilities. It is expected that the assumed liabilities
will exceed the value of the transferred assets, so that the required cash
payment would be made by 3Com Nordic to Palm Sweden.
8. Switzerland
-----------
. Before the Separation Date, Palm Switzerland will be formed or
established as either a wholly-owned subsidiary of Palm Ltd.,
incorporated as a Swiss GmbH or SARL, or as a registered branch
of Palm Ltd. or one of its European subsidiaries.
. There are no Palm assets or liabilities in Switzerland to
transfer to Palm Switzerland.
9. United Kingdom
--------------
. On the Separation Date, or as soon as practicable thereafter,
Palm Ltd. will acquire the tangible assets owned by 3Com Europe
Ltd., and will assume certain liabilities of 3Com Europe related
to the Palm business. If the transaction is structured as a sale,
the parties will settle in cash the difference between the fair
market value of the transferred assets and the amount of the
assumed liabilities. It is expected that the assumed liabilities
will exceed the value of the transferred assets, so that the
required cash payment would be made by 3Com Europe to Palm Ltd.
The parties may, however, decide to structure the transaction in
a form other than a sale.
10. Australia
---------
. Before the Separation Date, Palm Ltd. will form a wholly-owned
private limited company under the laws New South Wales (Palm
Australia).
. On the Separation Date, or as soon as practicable thereafter,
Palm Australia will assume certain liabilities of 3Com Australia
related to the Palm business. Concurrently, 3Com Australia will
transfer to Palm Australia all of 3Com Australia's rights in
those of its tangible assets related to the Palm business. The
parties will settle in cash the difference between the fair
market value of the transferred assets and the amount of the
assumed liabilities. It is expected that the assumed liabilities
will exceed the value of the transferred assets, so that the
required cash payment would be made by 3Com Australia to Palm
Australia.
11. Hong Kong
---------
. Before the Separation Date, Palm Ltd. will form a wholly-owned
limited liability company under Hong Kong law (Palm HK).
-3-
<PAGE>
. On the Separation Date, or as soon as practicable thereafter,
Palm HK will assume certain liabilities of 3Com Asia Ltd. related
to the Palm business. Concurrently, 3Com Asia will transfer to
Palm HK all of 3Com Asia's rights in those of its tangible assets
related to the Palm business. The parties will settle in cash the
difference between the fair market value of the transferred
assets and the amount of the assumed liabilities. It is expected
that the assumed liabilities will exceed the value of the
transferred assets, so that the required cash payment would be
made by 3Com Asia to Palm HK.
12. Japan
-----
. Before the Separation Date, Palm, Inc. will form a wholly-owned
subsidiary (Palm K.K.), which will be incorporated as a kabushiki
kaisha.
. On the Separation Date, or as soon as practicable thereafter,
Palm K.K. will assume certain liabilities of 3Com Japan K.K.
related to the Palm business. Concurrently, 3Com Japan will
transfer to Palm K.K. all of 3Com Japan's rights in those of its
tangible assets related to the Palm business. The parties will
settle in cash the difference between the fair market value of
the transferred assets and the amount of the assumed liabilities.
It is expected that the assumed liabilities will exceed the value
of the transferred assets, so that the required cash payment
would be made by 3Com Japan to Palm K.K.
13. Singapore
---------
. Before the Separation Date, Palm Ltd. will form a wholly-owned
subsidiary (Palm Singapore), incorporated as a Singapore private
limited company.
. On the Separation Date, or as soon as practicable thereafter,
3Com Asia/Pacific will transfer to Palm, Inc. all of 3Com
Asia/Pacific's rights in those of its tangible assets related to
the Palm business. In consideration, Palm, Inc. will pay cash and
assume certain liabilities of 3Com Asia/Pacific related to the
Palm business.
. On the Separation Date, or as soon as practicable thereafter,
Palm Singapore will assume certain liabilities of 3Com South Asia
related to the Palm business. Concurrently, 3Com South Asia will
transfer to Palm Singapore all of 3Com South Asia's rights in
those of its tangible assets related to the Palm business. The
parties will settle in cash the difference between the fair
market value of the transferred assets and the amount of the
assumed liabilities. It is expected that the assumed liabilities
will exceed the value of the transferred assets, so that the
required cash payment would be made by 3Com South Asia to Palm
Singapore.
-4-
<PAGE>
EXHIBIT 10.7
PALM COMPUTING
MANAGEMENT RETENTION AGREEMENT
This Management Retention Agreement (the "Agreement") is made and entered into
by and between Carl J. Yankowski (the "Employee") and Palm Computing (the
"Company"), effective as of the latest date set forth by the signatures of the
parties hereto below (the "Effective Date").
R E C I T A L S
---------------
A. It is expected that the Company from time to time will consider the
possibility of an acquisition by another company or other change of control.
The Board of Directors of the Company (the "Board") recognizes that such
consideration can be a distraction to the Employee and can cause the Employee to
consider alternative employment opportunities. The Board has determined that it
is in the best interests of the Company and its stockholders to assure that the
Company will have the continued dedication and objectivity of the Employee,
notwithstanding the possibility, threat or occurrence of a Change of Control (as
defined below) of the Company.
B. The Board believes that it is in the best interests of the Company and its
stockholders to provide the Employee with an incentive to continue his
employment and to motivate the Employee to maximize the value of the Company
upon a Change of Control for the benefit of its stockholders.
C. The Board believes that it is imperative to provide the Employee with
severance benefits upon Employee's termination of employment following a Change
of Control which provides the Employee with enhanced financial security and
provides incentive and encouragement to the Employee to remain with the Company
notwithstanding the possibility of a Change of Control.
D. Certain capitalized terms used in the Agreement are defined in Section 5
below.
The parties hereto agree as follows:
1. Term of Agreement. This Agreement shall terminate upon the date that all
-----------------
obligations of the parties hereto with respect to this Agreement have been
satisfied.
2. At-Will Employment. The Company and the Employee acknowledge that the
------------------
Employee's employment is and shall continue to be at-will, as defined under
applicable law, and may be terminated by either party at any time, with or
without cause. If the Employee's employment terminates for any reason,
including (without limitation) any termination prior to a Change of Control, the
Employee shall not be entitled to any payments, benefits, damages, awards or
compensation other than as provided by this Agreement, or as may otherwise be
available in accordance with the Company's established employee plans or
pursuant to other written agreements with the Company.
<PAGE>
3. Change of Control Severance Benefits.
------------------------------------
(a) Involuntary Termination other than for Cause, Death or Disability or
--------------------------------------------------------------------
Voluntary Termination for Good Reason Following A Change of Control. If, within
- -------------------------------------------------------------------
twenty-four (24) months following a Change of Control, Employee's employment is
terminated (i) involuntarily by the Company other than for Cause, death or
Disability or (ii) by the Employee pursuant to a Voluntary Termination for Good
Reason, then, subject to Employee entering into a standard form of mutual
release of claims with the Company, the Company shall provide Employee with the
following benefits upon such termination:
(i) Severance Payment. A lump-sum cash payment in an amount equal to
-----------------
two hundred percent (200%) of the Employee's Annual Compensation;
(ii) Continued Employee Benefits. Company-paid health, dental,
---------------------------
vision, long-term disability and life insurance coverage at the same level of
coverage as was provided to such Employee immediately prior to the Change of
Control and at the same ratio of Company premium payment to Employee premium
payment as was in effect immediately prior to the Change of Control (the
"Company-Paid Coverage"). If such coverage included the Employee's dependents
immediately prior to the Change of Control, such dependents shall also be
covered at Company expense. Company-Paid Coverage shall continue until the
earlier of (i) two years from the date of termination, or (ii) the date upon
which the Employee and his dependents become covered under another employer's
group health, dental, vision, long-term disability or life insurance plans that
provide Employee and his dependents with comparable benefits and levels of
coverage. For purposes of Title X of the Consolidated Budget Reconciliation Act
of 1985 ([ ]COBRA[ ]), the date of the "qualifying event" for Employee and his
or her dependents shall be the date upon which the Company-Paid Coverage
commences, and each month of Company-Paid Coverage provided hereunder shall
offset a month of continuation coverage otherwise due under COBRA.
(iii) Pro-Rated Bonus Payment. A lump-sum cash payment equal to 100%
-----------------------
of such Employee's target bonus as in effect for the fiscal year in which the
Change of Control occurs, pro-rated by multiplying such bonus amount by a
fraction, the numerator of which shall be the number of days prior to occurrence
of the Change of Control during such fiscal year, and the denominator of which
shall be three-hundred and sixty-five.
(iv) Equity Compensation Accelerated Vesting. One Hundred percent
---------------------------------------
(100%) of the unvested portion of any stock option, restricted stock or other
Company equity compensation held by the Employee shall automatically be
accelerated in full so as to become completely vested.
(b) Voluntary Resignation; Termination For Cause. If the Employee's
--------------------------------------------
employment terminates by reason of the Employee's voluntary resignation (and is
not a Voluntary Termination for Good Reason), or if the Employee is terminated
for Cause, then the Employee shall not be entitled to receive severance or other
benefits except for those (if any) as may then be established under the
Company's then existing severance and benefits plans or pursuant to other
written agreements with the Company.
<PAGE>
(c) Disability; Death. If the Employee's employment with the Company
-----------------
terminates as a result of the Employee's Disability, or if Employee's employment
is terminated due to the death of the Employee, then the Employee shall not be
entitled to receive severance or other benefits except for those (if any) as may
then be established under the Company's then existing severance and benefits
plans or pursuant to other written agreements with the Company.
(d) Termination Apart from Change of Control. In the event the Employee's
----------------------------------------
employment is terminated for any reason, either prior to the occurrence of a
Change of Control or after the twenty-four (24) month period following a Change
of Control, then the Employee shall be entitled to receive severance and any
other benefits only as may then be established under the Company's existing
severance and benefits plans or pursuant to other written agreements with the
Company.
4. Golden Parachute Excise Tax Full Gross-Up. In the event that the benefits
-----------------------------------------
provided for in this Agreement or otherwise payable to the Employee constitute
"parachute payments" within the meaning of Section 280G of the Internal Revenue
Code of 1986, as amended (the "Code") and will be subject to the excise tax
imposed by Section 4999 of the Code, then the Employee shall receive (i) a
payment from the Company sufficient to pay such excise tax, plus (ii) an
additional payment from the Company sufficient to pay the excise tax and federal
and state income and employment taxes arising from the payments made by the
Company to Employee pursuant to this sentence. Unless the Company and the
Executive otherwise agree in writing, the determination of Executive's excise
tax liability and the amount required to be paid under this Section 4 shall be
made in writing by the Company's independent auditors who are primarily used by
the Company immediately prior to the Change of Control (the "Accountants"). For
purposes of making the calculations required by this Section 4, the Accountants
may make reasonable assumptions and approximations concerning applicable taxes
and may rely on reasonable, good faith interpretations concerning the
application of Sections 280G and 4999 of the Code. The Company and the Employee
shall furnish to the Accountants such information and documents as the
Accountants may reasonably request in order to make a determination under this
Section. The Company shall bear all costs the Accountants may reasonably incur
in connection with any calculations contemplated by this Section 4.
5. Definition of Terms. The following terms referred to in this Agreement
-------------------
shall have the following meanings:
(a) Annual Compensation. "Annual Compensation" shall mean an amount equal
-------------------
to the sum of (i) the Employee's Company annual base salary as in effect
immediately preceding the Change of Control, and (ii) 100% of the Employee's
Target Bonus.
(b) Target Bonus. "Target Bonus" shall mean Employee's annual bonus,
------------
assuming 100% "on target" satisfaction of any objective or subjective
performance milestones.
(c) Cause. "Cause" shall mean (i) an act of personal dishonesty taken by
-----
the Employee in connection with his responsibilities as an employee and intended
to result in substantial personal enrichment of the Employee, (ii) Employee
being convicted of a felony, (iii) a willful act by the Employee which
constitutes gross misconduct and which is injurious to the Company, (iv)
following
<PAGE>
delivery to the Employee of a written demand for performance from the Company
which describes the basis for the Company's reasonable belief that the Employee
has not substantially performed his duties, continued violations by the Employee
of the Employee's obligations to the Company which are demonstrably willful and
deliberate on the Employee's part.
(d) Change of Control. "Change of Control" means the occurrence of any of
-----------------
the following events:
(i) Any "person" (as such term is used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended) becomes the
"beneficial owner" (as defined in Rule 13d-3 under said Act), directly or
indirectly, of securities of the Company representing fifty percent (50%) or
more of the total voting power represented by the Company's then outstanding
voting securities; or
(ii) the consummation of the sale or disposition by the Company
of all or substantially all the Company's assets; or
(iii) The consummation of a merger or consolidation of the
Company with any other corporation, other than a merger or consolidation which
would result in the voting securities of the Company outstanding immediately
prior thereto continuing to represent (either by remaining outstanding or by
being converted into voting securities of the surviving entity) at least fifty
percent (50%) of the total voting power represented by the voting securities of
the Company or such surviving entity outstanding immediately after such merger
or consolidation; or
(iv) A change in the composition of the Board occurring within a
two-year period, as a result of which fewer than a majority of the directors are
Incumbent Directors. "Incumbent Directors" shall mean directors who either
(A)+are directors of the Company as of the date upon which this Agreement was
entered into, or (B) are elected, or nominated for election, to the Board with
the affirmative votes of at least a majority of those directors whose election
or nomination was not in connection with any transaction described in
subsections (i), (ii), or (iii) above, or in connection with an actual or
threatened proxy contest relating to the election of directors to the Company;
or
(v) The sale or disposition to third parties (other than
pursuant to a spin-off or similar transaction) by the Company of all or
substantially all of any the Carrier, PCBU, Enterprise, Palm or comparable
business units; provided, however, that such transactions shall only constitute
a "Change of Control" under this Agreement with respect to the Section 16
executive officers working primarily for the sold or disposed business unit
immediately prior to the effective date of the Change of Control who are not
offered a comparable position within the Company.
(e) Disability. "Disability" shall mean that the Employee has been
----------
unable to perform his Company duties as the result of his incapacity due to
physical or mental illness, and such inability, at least 26 weeks after its
commencement, is determined to be total and permanent by a physician selected by
the Company or its insurers and acceptable to the Employee or the Employee's
legal representative (such Agreement as to acceptability not to be unreasonably
withheld). Termination resulting from Disability may only be effected after at
least 30 days' written notice by
<PAGE>
the Company of its intention to terminate the Employee's employment. In the
event that the Employee resumes the performance of substantially all of his
duties hereunder before the termination of his employment becomes effective, the
notice of intent to terminate shall automatically be deemed to have been
revoked.
(f) Voluntary Termination for Good Reason. "Voluntary Termination
-------------------------------------
for Good Reason" shall mean the Employee voluntarily resigns after the
occurrence of any of the following (i) without the Employee's express written
consent, a material reduction of the Employee's duties, title, authority or
responsibilities, relative to the Employee's duties, title, authority or
responsibilities as in effect immediately prior to such reduction, or the
assignment to Employee of such reduced duties, title, authority or
responsibilities; provided, however, that a reduction in duties, title,
authority or responsibilities solely by virtue of the Company being acquired and
made part of a larger entity (as, for example, when the senior vice-president of
a business unit of the Company remains as such following a Change of Control)
shall not by itself constitute grounds for a "Voluntary Termination for Good
Reason;" (ii) without the Employee's express written consent, a material
reduction, without good business reasons, of the facilities and perquisites
(including office space and location) available to the Employee immediately
prior to such reduction; (iii) a reduction by the Company in the base salary of
the Employee as in effect immediately prior to such reduction; (iv) a material
reduction by the Company in the aggregate level of employee benefits, including
bonuses, to which the Employee was entitled immediately prior to such reduction
with the result that the Employee's aggregate benefits package is materially
reduced (other than a reduction that generally applies to Company employees);
(v) the relocation of the Employee to a facility or a location more than thirty-
five (35) miles from the Employee's then present location, without the
Employee's express written consent; (vi) the failure of the Company to obtain
the assumption of this agreement by any successors contemplated in Section 7(a)
below; or (vii) any act or set of facts or circumstances which would, under
California case law or statute constitute a constructive termination of the
Employee.
6. Non-Solicitation. In consideration for the severance benefits Employee
----------------
is to receive herein, if any, Employee agrees that he or she will not, at any
time during the one year following his or her termination date, directly or
indirectly solicit any individuals to leave the Company's (or any of its
subsidiaries') employ for any reason or interfere in any other manner with the
employment relationships at the time existing between the Company (or any of its
subsidiaries) and its current or prospective employees.
7. Successors.
----------
(a) Company's Successors. Any successor to the Company (whether
--------------------
direct or indirect and whether by purchase, merger, consolidation, liquidation
or otherwise) to all or substantially all of the Company's business and/or
assets shall assume the obligations under this Agreement and agree expressly to
perform the obligations under this Agreement in the same manner and to the same
extent as the Company would be required to perform such obligations in the
absence of a succession. For all purposes under this Agreement, the term Company
shall include any successor to the Company's business and/or assets which
executes and delivers the assumption agreement described in this Section 7(a) or
which becomes bound by the terms of this Agreement by operation of law.
<PAGE>
(b) Employee's Successors. The terms of this Agreement and all rights
---------------------
of the Employee hereunder shall inure to the benefit of, and be enforceable by,
the Employee's personal or legal representatives, executors, administrators,
successors, heirs, distributees, devisees and legatees.
8. Notice.
------
(a) General. Notices and all other communications contemplated by
-------
this Agreement shall be in writing and shall be deemed to have been duly given
when personally delivered or one day following mailing via Federal Express or
similar overnight courier service. In the case of the Employee, mailed notices
shall be addressed to him at the home address which he most recently
communicated to the Company in writing. In the case of the Company, mailed
notices shall be addressed to its corporate headquarters, and all notices shall
be directed to the attention of its Secretary.
(b) Notice of Termination. Any termination by the Company for Cause
---------------------
or by the Employee pursuant to a Voluntary Termination for Good Reason shall be
communicated by a notice of termination to the other party hereto given in
accordance with Section 8(a) of this Agreement. Such notice shall indicate the
specific termination provision in this Agreement relied upon, shall set forth in
reasonable detail the facts and circumstances claimed to provide a basis for
termination under the provision so indicated, and shall specify the termination
date (which shall be not more than 30 days after the giving of such notice). The
failure by the Employee to include in the notice any fact or circumstance which
contributes to a showing of Voluntary Termination for Good Reason shall not
waive any right of the Employee hereunder or preclude the Employee from
asserting such fact or circumstance in enforcing his rights hereunder.
9. Pooling of Interests Limitation. To the extent any of the benefits
-------------------------------
(including the equity compensation vesting acceleration and the 280G excise tax
gross-up) hereunder would cause a contemplated Change of Control transaction
that was intended to be accounted for as a "pooling-of-interests" transaction to
become ineligible for such accounting treatment under generally accepted
accounting principles, as determined by the Accountants, then this Agreement
shall automatically be deemed amended to provide Employee with such lesser
benefits as would allow for the contemplated Change of Control transaction to be
accounted for as a "pooling-of-interests" transaction.
10. Miscellaneous Provisions.
------------------------
(a) No Duty to Mitigate. The Employee shall not be required to
-------------------
mitigate the value of any benefits contemplated by this Agreement, nor shall any
such benefits be reduced by any earnings or benefits that the Employee may
receive from any other source.
(b) Waiver. No provision of this Agreement shall be modified, waived
------
or discharged unless the modification, waiver or discharge is agreed to in
writing and signed by the Employee and by two authorized officers of the Company
(other than the Employee). No waiver by either party of any breach of, or of
compliance with, any condition or provision of this Agreement by the other party
shall be considered a waiver of any other condition or provision or of the same
condition or provision at another time.
<PAGE>
(c) Whole Agreement. No agreements, representations or
---------------
understandings (whether oral or written and whether express or implied) which
are not expressly set forth in this Agreement, other than the employment offer
letter dated November 30, 1999, have been made or entered into by either party
with respect to the subject matter hereof. This Agreement and the offer letter
represent the entire understanding of the parties hereto with respect to the
subject matter hereof and supersedes all prior arrangements and understandings
regarding same.
(d) Choice of Law. The validity, interpretation, construction and
-------------
performance of this Agreement shall be governed by the laws of the State of
California.
(e) Severability. The invalidity or unenforceability of any provision
------------
or provisions of this Agreement shall not affect the validity or enforceability
of any other provision hereof, which shall remain in full force and effect.
(f) Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together will
constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the
case of the Company by its duly authorized officer, as of the day and year set
forth below.
COMPANY PALM COMPUTING
By: /s/ Eric A. Benhamou
-----------------------------------
ERIC A. BENHAMOU
Title: Chairman & CEO, 3Com Corporation
Date: December 1, 1999
---------------------------------
By: /s/ Mark D. Michael
------------------------------------
MARK D. MICHAEL
Title: S.V.P., General Counsel &
Secretary
Date: December 1, 1999
---------------------------------
EMPLOYEE /s/ Carl J. Yankowski
---------------------------------
CARL J. YANKOWSKI
Date: December 1, 1999
--------------------------------
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
UNAUDITED FINANCIAL STATEMENTS AS AT AUGUST 27, 1999 AND FOR THE THREE MONTH
PERIOD THEN ENDED AND THE AUDITED FINANCIAL STATEMENTS AS AT MAY 28, 1999 AND
FOR THE YEAR THEN ENDED AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C> <C>
<PERIOD-TYPE> YEAR 3-MOS
<FISCAL-YEAR-END> MAY-28-1999 JUN-02-1999
<PERIOD-START> JUN-01-1998 MAY-29-1999
<PERIOD-END> MAY-28-1999 AUG-27-1999
<CASH> 478 37,138
<SECURITIES> 0 0
<RECEIVABLES> 95,839 86,216
<ALLOWANCES> 3,817 3,287
<INVENTORY> 12,186 31,230
<CURRENT-ASSETS> 130,229 179,125
<PP&E> 14,054 16,357
<DEPRECIATION> 5,918 7,197
<TOTAL-ASSETS> 152,247 201,346
<CURRENT-LIABILITIES> 77,720 88,051
<BONDS> 0 0
0 0
0 0
<COMMON> 0 0
<OTHER-SE> 74,527 113,295
<TOTAL-LIABILITY-AND-EQUITY> 152,247 201,346
<SALES> 563,525 176,505
<TOTAL-REVENUES> 563,525 176,505
<CGS> 315,616 98,324
<TOTAL-COSTS> 515,186 160,639
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 223 63
<INCOME-PRETAX> 48,116 15,803
<INCOME-TAX> 18,488 6,145
<INCOME-CONTINUING> 29,628 9,658
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 0
<NET-INCOME> 29,628 9,658
<EPS-BASIC> 0 0
<EPS-DILUTED> 0 0
</TABLE>
