<PAGE>
As filed with the Securities and Exchange Commission on January 28, 2000
Registration No. 333-92657
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- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------
AMENDMENT NO. 2
TO
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.
5470 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>
Proposed
Title of Each Class of Proposed Maximum Proposed Amount of
Securities to be Maximum Amount Offering Price Maximum Aggregate Registration
Registered to be Registered(1) per Share Offering Price(2) Fee(3)
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Common Stock, par value
$0.001 per share...... 26,450,000 $16.00 $423,200,000 $111,724.80
</TABLE>
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- --------------------------------------------------------------------------------
(1) Includes 3,450,000 shares of common stock issuable upon exercise of the
underwriters' over-allotment option.
(2) 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.
(3) $26,400.00 of which has been previously paid.
--------------
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.
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<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 January 28, 2000.
23,000,000 Shares
[PALM, INC. LOGO APPEARS HERE]
Palm, Inc.
Common Stock
----------
This is an initial public offering of shares of common stock of Palm, Inc.
All of the 23,000,000 shares of common stock are being sold by Palm.
Prior to this offering, there has been no public market for the common stock.
We estimate that the initial public offering price will be between $14.00 and
$16.00 per share. 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 23,000,000 shares of the
common stock, the underwriters have the option to purchase up to an additional
3,450,000 shares from Palm at the initial public offering price less the
underwriting discount.
----------
The underwriters expect to deliver the shares in New York, New York on
, 2000.
Goldman, Sachs & Co. Morgan Stanley Dean Witter
Merrill Lynch & Co.
Robertson Stephens
----------
Prospectus dated , 2000.
<PAGE>
[Blue Palm logo with small picture of Palm V handheld device]
"Simply Palm. In all aspects of our business we strive to create solutions
that are simple and intuitive to use, elegant in their design and truly
useful in their function. These are the ideas that are driving our company
to create a world class brand. Example: Palm V handheld."
<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 allow users to automatically copy and conform, or synchronize, information
between the device and 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 technology that enables users to
synchronize information between a Palm device and a personal computer,
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.
3
<PAGE>
As of December 31, 1999, we had sold over 5.5 million Palm devices worldwide.
As of December 31, 1999, more than 33,000 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.
OUR RELATIONSHIP WITH 3COM
We are currently a wholly-owned subsidiary of 3Com Corporation. After the
completion of this offering and the private placements, 3Com will own
approximately 93.3% of the outstanding shares of our common stock, or
approximately 92.8% 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 shares of our common stock in private placements that will occur
concurrently with the closing of this offering. These investors will pay a per
share purchase price for this common stock equal to the initial public offering
price in this offering. Based on an assumed public offering price of $15.00,
America Online will purchase 5,333,333 shares, Motorola will purchase 4,333,334
shares and Nokia will purchase 5,333,333 shares of our common stock.
4
<PAGE>
THE OFFERING
<TABLE>
<S> <C>
Common stock offered....................... 23,000,000 shares
Common stock to be outstanding immediately
after this offering and the private
placements................................ 570,000,000 shares
Common stock to be held by 3Com immediately
after this offering and the private
placements................................ 532,000,000 shares
Use of proceeds............................ For payment of a dividend of at least
$50 million to 3Com, repayment of our
intercompany payable to 3Com, which was
approximately $58 million as of November
26, 1999, 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 532,000,000 shares outstanding immediately prior
to this offering and the private placements, all of which are owned by 3Com.
Unless we specifically state otherwise, the information in this prospectus does
not take into account the issuance of up to 3,450,000 shares of common stock
that the underwriters have the option to purchase. If the underwriters exercise
in full their option to purchase additional shares, 573,450,000 shares of
common stock will be outstanding after this offering and the private
placements.
The number of shares of our common stock to be outstanding immediately after
this offering listed above does not take into account approximately 25,500,000
shares of our common stock reserved for issuance under our stock plans, of
which no options to purchase shares have been granted as of January 27, 2000,
but does include an aggregate of 15,000,000 shares to be issued to America
Online, Motorola and Nokia in private placements 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>
Years Ended Six Months Ended
---------------------------------------------- -----------------
June 30, May 26, May 25, May 31, May 28, Nov. 27, Nov. 26,
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 $263,302 $435,060
Gross profit............ 1,229 2,575 36,472 114,388 247,909 116,015 188,718
Operating income
(loss)................. (2,231) (6,777) (13,513) 6,461 48,339 26,389 36,745
Net income (loss)....... (2,166) (3,062) (7,862) 4,171 29,628 16,187 22,520
Basic and diluted net
income (loss) per
share.................. $ -- $ (.01) $ (.01) $ .01 $ .06 $ .03 $ .04
Shares used in computing
basic and diluted net
income (loss) per
share.................. 532,000 532,000 532,000 532,000 532,000 532,000 532,000
Unaudited pro forma
basic and diluted net
income per share(3).... $ .06 $ .04
Shares used in computing
unaudited pro forma
basic and diluted net
income per share(3).... 535,585 535,585
</TABLE>
<TABLE>
<CAPTION>
Nov. 26, 1999
-----------------------
Pro Forma
Actual As Adjusted(4)
-------- --------------
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash and cash equivalents............................... $ 29,568 $467,376
Working capital......................................... 3,765 415,162
Total assets............................................ 247,369 555,451
Payable to 3Com Corporation............................. 57,935 --
Stockholder's net investment............................ 26,431 437,828
</TABLE>
- -------
Notes:
(1) Our fiscal year end was June 30 prior to our acquisition by U.S. Robotics.
(2) Fiscal 1996 includes only eleven months of operating results.
(3) Pro forma basic and diluted net income per share amounts are calculated
using the common shares outstanding prior to the offering of 532,000,000
shares plus the 3,585,431 shares of common stock whose proceeds will be
used to pay an assumed $50 million dividend to 3Com, based on an assumed
initial public offering price of $15.00, reduced by the estimated per share
offering costs.
(4) Pro forma as adjusted amounts give effect to the following actions as
though these actions had been taken as of November 26, 1999:
. our sale of 23,000,000 shares of common stock in this offering at an
assumed initial public offering price of $15.00 per share and after
deducting an assumed underwriting discount and estimated offering
expenses payable by us;
. our sale of 15,000,000 shares of common stock to America Online, Motorola
and Nokia concurrently with the closing of this offering at an assumed
offering price of $15.00 per share;
. for administrative convenience, 3Com intends to retain most of our
accounts receivable and accounts payable at the time of our separation;
accordingly, such accounts receivable and accounts payable are excluded
from our pro forma balance sheet as of November 26, 1999;
. payment of a dividend to 3Com of an assumed $50 million; and
. repayment of an intercompany payable to 3Com, which was approximately $58
million at November 26, 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.
Risks Related to Our Business
If we fail to develop and introduce new products and services rapidly and
successfully, we will not be able to compete effectively and our ability to
generate revenues will suffer.
We operate in a highly competitive, quickly changing environment, and our
future success depends on our ability to develop and introduce new products and
services that our customers and end users choose to buy. If we are unsuccessful
at developing and introducing new products and services that are appealing to
end users, our business and operating results would be seriously harmed because
we would not be able to compete effectively and our ability to generate
revenues would suffer.
The development of new products and services can be very difficult and
requires high levels of innovation. The development process is also lengthy and
costly. If we fail to anticipate our end users' needs and technological trends
accurately or are otherwise unable to complete the development of products and
services quickly, we will be unable to introduce new products and services into
the market on a timely basis, if at all. For example, 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, we may not be able
to secure sufficient quantities or cost-effective production of our handheld
devices or we could have costly excess production or inventories.
Historically, we have seen steady increases in demand for our products and
have generally been able to increase production to meet that demand. However,
the demand for our products depends on many factors and will be difficult to
forecast. 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
7
<PAGE>
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.
. 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.
8
<PAGE>
. New Product Introductions. As we introduce new products and services,
the timing of these introductions will affect our quarterly operating
results. We may have difficulty predicting the timing of new product and
service introductions and the user acceptance of these new products and
services. If products and services are introduced earlier or later than
anticipated, or if user acceptance is unexpectedly high or low, our
quarterly operating results may fluctuate unexpectedly. In addition, we
typically increase sales and marketing expenses to support new product
introductions.
. Use of Purchase Orders with Customers. We rely on one-time purchase
orders rather than long-term contracts with our distributor customers.
Because we cannot predict with certainty incoming purchase orders,
decreases in orders or failure to fulfill orders may cause our operating
results to fluctuate.
We rely on third-party manufacturers to produce our handheld devices, and our
reputation and results of operations could be adversely affected by our
inability to control their operations.
We outsource all of our manufacturing to Manufacturers' Services Limited and
Flextronics. We depend on these third-party manufacturers to produce sufficient
volume of our products in a timely fashion and at satisfactory quality levels.
If our third-party manufacturers fail to produce quality products on time and
in sufficient quantities, our reputation and results of operations would
suffer. We depend on Flextronics to manufacture some of our device products at
its facilities in Mexico, California and Malaysia, and the rest of our device
products are manufactured by Manufacturers' Services Limited at its Utah
facility. The cost, quality and availability of third-party manufacturing
operations are essential to the successful production and sale of our handheld
devices. Our reliance on third parties exposes us to the following risks
outside our control:
. unexpected increases in manufacturing costs;
. interruptions in shipments if one of our manufacturers is unable to
complete production;
. inability to control quality of finished device products;
. inability to control delivery schedules;
. unpredictability of manufacturing yield;
. potential lack of adequate capacity; and
. potential inability to secure adequate volumes of components.
We began working with Manufacturers' Services Limited when it purchased
3Com's Utah facility in November 1999. As a result, we have not had significant
working experience with Manufacturers' Service Limited. If we are unable to
manage our relationship with Manufacturers' Services Limited successfully, our
ability to manufacture our products would be harmed and our results of
operations would suffer.
We do not have a manufacturing agreement with Flextronics, upon whom we rely
to manufacture a significant number of our device products. We presently order
our products on a purchase order basis from Flextronics. The absence of a
manufacturing agreement means that, with little or no notice, Flextronics could
refuse to continue to manufacture all or some of the units of our devices that
we require or change the terms under which it manufactures our device products.
If Flextronics were to stop manufacturing our devices, we may be unable to
replace the lost manufacturing capacity on a timely basis and our results of
operations could be harmed. In addition, if Flextronics were to change the
terms under which they manufacture for us, our manufacturing costs could
increase and our profitability could suffer.
9
<PAGE>
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, crystals and several radio frequency and
discrete components, come from sole or single source suppliers. Alternative
sources are not currently available for these sole and single source
components. If suppliers are unable to meet our demand for sole source
components and if we are unable to obtain an alternative source or if the price
for an alternative source is prohibitive, our ability to maintain timely and
cost-effective production of our handheld computing device products would be
seriously harmed. In addition, because we rely on one-time purchase orders with
our suppliers, including our sole and single source suppliers, we cannot
predict with certainty our ability to procure components 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 six months ended November 26, 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 results of operations.
A significant portion of our revenues comes from only a small number of
distributors. Ingram Micro represented approximately 34% of our revenues in the
six months ended November 26, 1999 and 24% of our revenues in fiscal 1999. Tech
Data represented approximately 8% of our revenues in the six months ended
November 26, 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 adversely affect our ability to generate
revenues from the sale of our handheld devices.
Because we sell a significant portion of our products to distributors,
retailers and resellers, we are subject to many risks, including risks related
to their inventory levels and support for our products. The products we sell to
distributors and retailers accounted for approximately 89% of our revenues in
the six months ended November 26, 1999 and 88% of our revenues in fiscal 1999.
Our
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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.
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.
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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.
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, we may not be able to successfully
manage our business, which could cause us to fail to meet our customer demand
or to attract new customers.
Our ability to successfully offer our products and implement our business
plan in a rapidly evolving market requires an effective planning and management
process. We continue to increase the scope of our operations domestically and
internationally and have grown our shipments and headcount substantially. Our
handheld device shipments grew from approximately 461,000 units in fiscal 1997
to approximately 2 million units in fiscal 1999. At December 31, 1997, we had a
total of approximately 220 employees and at December 31, 1999, we had a total
of approximately 652 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.
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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.
The market for the delivery of Internet services through handheld devices is
new and rapidly evolving, and our business and our ability to generate revenues
from our handheld devices, Palm platform or Internet services could suffer if
this market does not develop or we fail to address this market effectively.
The market for the delivery of Internet services through handheld devices is
new and rapidly evolving. In addition, our Internet services strategy has been
developed only recently, and we must continue to adapt it to compete in the
rapidly evolving Internet services market. We only recently introduced our
Palm.net 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 future size and
growth of this market. In addition, given the limited history and rapidly
evolving nature of this market, we cannot predict the price that wireless
subscribers will be willing to pay for these products and services. These risks
could affect our ability to support the Palm.net service on a large scale and
price the service at a level that produces expected returns.
We may not be able to deliver Internet access if our telecommunications carrier
raises its rates, discontinues doing business with us or does not deliver
acceptable service.
The future success of our Internet services business substantially depends on
the capacity, affordability, reliability and security of our telecommunications
networks. Only a small number of telecommunications providers offer the network
services we require. We currently rely on BellSouth to provide all of our Palm
VII wireless network services pursuant to an agreement. Our agreement with
BellSouth permits each party to terminate the agreement on an annual basis. If
BellSouth failed to provide us with service at rates acceptable to us or at
all, we may not be able to provide Internet access to our users. In addition,
our Palm VII products are configured around the frequency standard used by
BellSouth. If we needed to switch to another telecommunications carrier, we
would have to redesign significant portions of our software and hardware to
permit transmission on a different frequency and service to users of existing
Palm VII products would be disrupted. If we were required to redesign these
elements, our Internet services part of our business could be adversely
affected. If BellSouth delivers unacceptable service, the quality of our
Internet services would suffer and we would likely lose users who are
dissatisfied with our service. In addition, BellSouth provides service only in
the continental United States. We 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
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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 ability to generate
revenues from our Internet services could be harmed if this operation is not
successful.
We may not be able to achieve any or all of the necessary components of a
successful e-commerce operation. We intend to expand our Palm.com and Palm.net
websites. This expansion will require additional expenditures, 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 growth in
the number of households and commercial, educational and government
institutions with access to the Internet. The use and growth of the Internet
will also depend on the number and quality of products and services designed
for use on the Internet. Because use of the Internet as a source of
information, products and services is a relatively recent phenomenon, it is
difficult to predict whether the number of users drawn to the Internet will
continue to increase and whether the market for commercial use of the Internet
will continue to develop and expand. Internet use patterns may decline as the
novelty of the medium recedes.
The rapid rise in the number of Internet users and the growth of electronic
commerce and applications for the Internet has placed increasing strains on the
Internet's communications and transmission infrastructure. This could lead to
significant deterioration in transmission speeds and the reliability of the
Internet as a commercial medium and could reduce the use of the Internet by
businesses and individuals. The Internet may not be able to support the demands
placed upon it by this continued growth. Any failure of the Internet to support
growth due to inadequate infrastructure or for any other reason would seriously
limit its development as a viable source of commercial and interactive content
and services. This could impair the development and acceptance of our Internet
services which could in turn harm our business prospects.
If the security of our websites is compromised, our reputation could suffer and
customers may not be willing to use our Internet services, which could cause
our revenues to decline.
A significant barrier to widespread use of electronic commerce sites, such as
our Palm.com site, and network services sites, such as our Palm.net site, is
concern for the security of confidential information transmitted over public
networks. Despite our efforts to protect the integrity of our Palm.com and
Palm.net sites, a party may be able to circumvent our security measures and
could misappropriate proprietary information or cause interruptions in our
operations and damage our reputation. Any such 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.
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We may not be able to maintain and expand our business if we are not able to
retain, hire and integrate sufficient qualified personnel.
Our future success depends partly on the continued contribution of our key
executive, technical, sales, marketing, 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. 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.
Xerox Corporation has filed suit against us alleging willful infringement of
a Xerox United States patent relating to computerized interpretation of
handwriting. See "Business--Legal Proceedings" for a description of the matter.
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 at all 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.
WaveWare Communications, Inc. has filed suit against us alleging, among other
things, breach of contract, fraud and deceit and misappropriation of trade
secrets. We are in the preliminary stages of investigating the allegations
contained in the suit, and we have not yet responded to the complaint. See
"Business--Legal Proceedings" for a description of this matter. An adverse
determination in this litigation could subject us to substantial damages and
require us to obtain a license from WaveWare or to modify our software. A
license may not be available at all or on terms acceptable to us.
Telxon Corporation and Penright! Corporation have filed suit against us
alleging copyright infringement, unfair competition and theft of trade secrets
and seeking damages and to enjoin the sale of our Palm OS operating system. We
are in the preliminary stages of investigating the allegations contained in the
suit, and we have not yet responded to the complaint. See "Business--Legal
Proceedings" for a description of this matter. An adverse determination in this
litigation could subject us to substantial damages and require us to obtain a
license to continue using our Palm OS operating system or to modify our
software. A license may not be available at all or on terms acceptable to us.
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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 the Xerox,
WaveWare and Telxon and Penright! suits.
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.
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 future results could be harmed by economic, political, regulatory and other
risks associated with international sales and operations.
Since we sell our products worldwide, our business is subject to risks
associated with doing business internationally. We anticipate that revenue from
international operations will represent an increasing portion of our total
revenue. In addition, two of the facilities where our devices are manufactured
are located outside the United States. Accordingly, our future results could be
harmed by a variety of factors, including:
. changes in foreign currency exchange rates;
. changes in a specific country's or region's political or economic
conditions, particularly in emerging markets;
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. 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 we may not be able to
successfully manage our operations if we fail to successfully integrate
acquired businesses.
We often evaluate acquisition opportunities that could provide us with
additional product or services offerings or additional industry expertise. Any
future acquisition could result in difficulties assimilating acquired
operations and products, diversion of capital and management's attention away
from other business issues and opportunities and amortization of acquired
intangible assets. Integration of acquired companies may result in problems
related to integration of technology and inexperienced management teams. Our
management has had limited experience in assimilating acquired organizations
and products into our operations. We may not successfully integrate any
operations, personnel or products that we may acquire in the future. If we fail
to successfully integrate acquisitions, our business could be materially
harmed.
Potential year 2000 problems associated with our products, our internal systems
or the products of our suppliers and customers could harm our reputation or
cause us to make expenditures to fix the problems.
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. To date we have not experienced any material
problems attributable to the inability to recognize dates beginning with the
year 2000 in our products or internal systems. It is possible that our current
products contain undetected errors or defects associated with year 2000 date
functions that may result in material costs or liabilities to us in the future.
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 released a
downloadable software patch to fix this problem. If any of our products
experienced a material year 2000 error, 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, if we experienced a material year 2000 related failure, we could
experience delays in our ability to manufacture and ship products and deliver
services, disruptions in 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.
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Risks Related to Our Separation from 3Com
We currently use 3Com's operational and administrative infrastructure, and our
ability to satisfy our customers and operate our business will suffer if we do
not develop our own infrastructure quickly and cost-effectively.
We currently use 3Com's systems to support our operations, including systems
to manage inventory, order processing, human resources, shipping, accounting,
payroll and internal computing operations. Many of these systems are
proprietary to 3Com and are very complex. These systems have been modified, and
are in the process of being further modified, to enable us to separately track
items related to our business. These modifications, however, may result in
unexpected system failures or the loss or corruption of data.
We are in the process of creating our own systems to replace 3Com's systems.
We may not be successful in implementing these systems and transitioning data
from 3Com's systems to ours.
Any failure or significant downtime in 3Com's or our own information systems
could prevent us from taking customer orders, shipping products or billing
customers and could harm our business. In addition, 3Com's and our information
systems require the services of employees with extensive knowledge of these
information systems and the business environment in which we operate. In order
to successfully implement and operate our systems, we must be able to attract
and retain a significant number of highly skilled employees. If we fail to
attract and retain the highly skilled personnel required to implement,
maintain, and operate our information systems, our business could suffer.
In addition, we currently have office space in 3Com's Santa Clara campus. We
have entered into arrangements with 3Com to lease these facilities under a
lease that is terminable with six months notice beginning in July 2001 and
expires in July 2002. After this transition period, we will need to find
alternative facilities. If we fail to find replacement facilities in a timely
fashion, our business will be harmed.
Our stock price may decline and we will not be able to operate our business
without 3Com's control if 3Com does not complete its distribution of our common
stock.
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 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.
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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 93.3% of our
outstanding common stock, or approximately 92.8% 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.
Our consolidated financial statements have been carved out from the
consolidated financial statements of 3Com using the historical results of
operations and historical bases of the assets and liabilities of the 3Com
handheld computing business that we comprise. Accordingly, the historical
financial information we have included in this prospectus does not necessarily
reflect what our financial position, results of operations and cash flows would
have been had we been a separate, stand-alone entity during the periods
presented. 3Com did not account for us, and we were not operated, as a
separate, stand-alone entity for the periods presented. Our costs and expenses
include allocations from 3Com for centralized corporate services and
infrastructure costs, including:
. legal;
. accounting;
. treasury;
. real estate;
. information technology;
. distribution;
. customer service;
. sales;
. marketing; and
. engineering.
These allocations have been determined on bases that 3Com and Palm considered
to be reasonable reflections of the utilization of services provided to or the
benefit received by Palm. The historical financial information is not
necessarily indicative of what our results of operations, financial position
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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 financing from other sources may not 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 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 and, because of 3Com's controlling
ownership, we may not resolve these conflicts on the most favorable terms to
us.
Conflicts of interest may arise between 3Com and us in a number of areas
relating to our past and ongoing relationships, including:
. labor, tax, employee benefit, indemnification and other matters arising
from our separation from 3Com;
. intellectual property matters;
. employee retention and recruiting;
. sales or distributions by 3Com of all or any portion of its ownership
interest in us;
. the nature, quality and pricing of transitional services 3Com has agreed
to provide us; and
. business opportunities that may be attractive to both 3Com and us.
Nothing restricts 3Com from competing with us.
We may not be able to resolve any potential conflicts, and even if we do, the
resolution may be less favorable than if we were dealing with an unaffiliated
party. The agreements we have entered into with 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.
20
<PAGE>
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;
. 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 all of the 532,000,000 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.
21
<PAGE>
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;
. 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
$14.25 in net tangible book value per share.
22
<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. Our actual results could differ materially from the
results contemplated by these forward-looking statements due to a number of
factors, including those discussed in "Risk Factors", "Managements' Discussion
and Analysis of Financial Condition and Results of Operations" and elsewhere in
this prospectus. 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.
23
<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 and the private placements, 3Com will own
approximately 93.3% of the outstanding shares of our common stock, or
approximately 92.8% if the underwriters fully exercise their option to purchase
additional shares. 3Com currently plans to complete its divestiture of Palm
approximately six months after this offering by distributing all of its shares
of our common
24
<PAGE>
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.
25
<PAGE>
USE OF PROCEEDS
We estimate that our net proceeds from this offering will be approximately
$320.7 million, based on an assumed initial public offering price of $15.00 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
$225 million, based on an assumed offering price of $15.00 per share. We intend
to use the proceeds of this offering and the private placements for:
. payment of a dividend to 3Com of at least $50 million, provided that if
the aggregate estimated net proceeds of this offering and the private
placements exceed $620 million, 3Com may elect to receive an additional
dividend of up to 50% of the amount of the aggregate estimated net
proceeds in excess of $620 million;
. repayment of an intercompany payable to 3Com, which was approximately
$58 million at November 26, 1999;
. increased capital expenditures of approximately $25 million 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 of approximately $30 million 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.
26
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of November 26, 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 November 26,
1999, the declaration of a dividend payable to 3Com of $50 million; and
. on a pro forma as adjusted basis to reflect our receipt of the estimated
net proceeds from the sale of 23,000,000 shares of common stock in this
offering and our sale of 15,000,000 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>
November 26, 1999
------------------------------
Pro Forma
Actual Pro Forma As Adjusted
------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Payable to 3Com
Corporation(1)(2)............ $57,935 $ 107,935 $ --
======= ========= =========
Stockholders' equity:
Preferred stock............. $ -- $ -- $ --
Common stock................ -- -- 570
Additional paid-in capital.. -- -- 545,173
3Com Corporation equity
(deficiency)(1)............ 26,395 (107,951) (107,951)
Accumulated other
comprehensive income
(loss)..................... 36 36 36
------- --------- ---------
Total stockholders' equity
(deficiency)............. $26,431 $(107,915) $ 437,828
======= ========= =========
Total capitalization.... $26,431 $(107,915) $ 437,828
======= ========= =========
</TABLE>
- --------
Notes:
(1) We intend to declare a dividend payable to 3Com of $50 million, provided
that if the aggregate estimated net proceeds of this offering and the
private placements exceed $620 million, 3Com may elect to receive an
additional dividend of up to 50% of the amount of the aggregate estimated
net proceeds in excess of $620 million. We intend to pay this dividend
using a portion of the proceeds from this offering.
(2) We intend to repay our intercompany payable to 3Com, which was
approximately $58 million as of November 26, 1999, using a portion of the
proceeds of this offering.
27
<PAGE>
DILUTION
Our net tangible book value at November 26, 1999 was approximately $14.6
million, or $.03 per share. Pro forma net tangible book value per share is
determined by dividing our pro forma tangible net worth, which is total
tangible assets less total liabilities after giving 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 November 26, 1999 and
the payment to 3Com of an assumed dividend of $50 million, by the number of
shares of common stock outstanding immediately before this offering and the
private placements. Dilution in pro forma net tangible book value per share
represents the difference between the amount per share paid by purchasers of
shares of our common stock in this offering and the private placements and the
pro forma net tangible book value per share of our common stock immediately
afterwards. After giving effect to the following:
. our sale of 23,000,000 shares of common stock in this offering at an
assumed initial public offering price of $15.00 per share and after
deducting an assumed underwriting discount and estimated offering
expenses payable by us; and
. our sale of 15,000,000 shares of common stock to America Online,
Motorola and Nokia in private placements concurrently with the closing
of this offering at an assumed offering price of $15.00 per share;
our pro forma as adjusted net tangible book value at November 26, 1999 would
have been approximately $426.0 million, or $.75 per share. This represents an
immediate increase in pro forma net tangible book value of $.98 per share to
our existing stockholder and an immediate dilution in pro forma net tangible
book value of $14.25 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.................. $15.00
Pro forma net tangible book value per share as of November 26,
1999.......................................................... $(.23)
Increase in pro forma book value per share attributable to new
investors (including the private placements).................. .98
-----
Pro forma, as adjusted, net tangible book value per share after
this offering and the private placements........................ .75
------
Dilution in pro forma net tangible book value per share to new
investors (including the private placements).................... $14.25
======
</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 November 26, 1999,
there were no options outstanding to purchase shares of common stock. To the
extent that any options are granted and exercised, there will be further
dilution to new investors.
28
<PAGE>
The following table sets forth, as of November 26, 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 $15.00 per share, before deducting the estimated underwriting discounts and
commissions and offering expenses payable by us.
<TABLE>
<CAPTION>
Average
Shares Purchased Total Consideration Price
---------------------- ----------------------- Per
Number Percentage Amount Percentage Share
----------- ---------- ------------ ---------- --------
<S> <C> <C> <C> <C> <C>
Existing stockholder.... 532,000,000 93.3% $ -- --% $ --
New investors (including
the private
placements)............ 38,000,000 6.7 570,000,000 100.0 15.00
----------- ----- ------------ ----- --------
Total................. 570,000,000 100.0% $570,000,000 100.0% $ 1.00
=========== ===== ============ ===== ========
</TABLE>
No cash was paid by 3Com in consideration for our common stock. Accordingly,
the cash consideration related to the existing stockholder is reported as zero
in the above 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 92.8% of the total number of shares of
common stock outstanding; and
. the number of shares held by new investors will be increased to
41,450,000 shares or approximately 7.2% of the total number of shares of
our common stock outstanding after this offering.
29
<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 six
months ended November 27, 1998 and November 26, 1999 and the consolidated
balance sheet data as of November 26, 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>
Years Ended Six Months Ended
------------------------------------------------ ------------------
June 30, May 26, May 25, May 31, May 28, Nov. 27, Nov. 26,
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 $263,302 $435,060
Cost of revenues........ 174 4,479 77,685 157,749 315,616 147,287 246,342
------- ------- -------- -------- -------- -------- --------
Gross profit........... 1,229 2,575 36,472 114,388 247,909 116,015 188,718
------- ------- -------- -------- -------- -------- --------
Operating expenses:
Sales and marketing.... 1,099 2,783 30,305 70,765 127,726 57,862 102,686
Research and
development........... 1,384 4,716 13,442 21,863 46,027 20,460 28,551
General and
administrative........ 977 1,853 6,238 15,299 23,692 11,304 16,956
Purchased in-process
technology............ -- -- -- -- 2,125 -- --
Separation costs....... -- -- -- -- -- -- 3,780
------- ------- -------- -------- -------- -------- --------
Total operating
expenses............. 3,460 9,352 49,985 107,927 199,570 89,626 151,973
------- ------- -------- -------- -------- -------- --------
Operating income
(loss)................. (2,231) (6,777) (13,513) 6,461 48,339 26,389 36,745
Interest and other
income (expense), net.. 65 81 (515) (56) (223) (100) 214
------- ------- -------- -------- -------- -------- --------
Income (loss) before
income taxes........... (2,166) (6,696) (14,028) 6,405 48,116 26,289 36,959
Income tax provision
(credit)............... -- (3,634) (6,166) 2,234 18,488 10,102 14,439
------- ------- -------- -------- -------- -------- --------
Net income (loss)....... $(2,166) $(3,062) $ (7,862) $ 4,171 $ 29,628 $ 16,187 $ 22,520
======= ======= ======== ======== ======== ======== ========
Basic and diluted net
income (loss) per
share.................. $ -- $ (.01) $ (.01) $ .01 $ .06 $ .03 $ .04
======= ======= ======== ======== ======== ======== ========
Shares used in computing
basic and diluted net
income (loss) per
share.................. 532,000 532,000 532,000 532,000 532,000 532,000 532,000
======= ======= ======== ======== ======== ======== ========
Unaudited pro forma
basic and diluted net
income per share(3).... $ .06 $ .04
======== ========
Shares used in computing
unaudited pro forma
basic and diluted net
income per share(3).... 535,585 535,585
======== ========
<CAPTION>
June 30, May 26, May 25, May 31, May 28, Nov. 26,
1995(1) 1996(2) 1997 1998 1999 1999
-------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Balance Sheet Data:
Working capital.................. $ 987 $ 3,899 $ 26,963 $ 53,354 $ 12,682 $ 3,765
Total assets..................... 2,432 9,618 45,984 115,359 152,247 247,369
Payable to 3Com Corporation...... -- 752 4,412 15,617 40,509 57,935
Stockholder's net investment..... 627 6,466 31,245 65,675 34,018 26,431
</TABLE>
- -------
Notes:
(1)Our fiscal year end was June 30 prior to our acquisition by U.S. Robotics.
(2)Fiscal 1996 includes only eleven months of operating results.
(3) Pro forma basic and diluted net income per share amounts are calculated
using the common shares outstanding prior to the offering of 532,000,000
shares plus the 3,585,431 shares of common stock whose proceeds will be
used to pay an assumed $50 million dividend to 3Com, based on an assumed
initial public offering price of $15.00 per share, reduced by the estimated
per share offering costs.
30
<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.
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 31, 1999, we had sold over 5.5 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 and the private placements, 3Com will own
approximately 93.3% of our outstanding common stock, or approximately 92.8% 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
Approximately 99% of our revenues to date have been generated from sales of
our handheld devices and related peripherals and accessories. Less than 1% of
our revenues to date have been derived 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
32% of our total revenues for the six months ended November 26, 1999.
Revenues from our handheld device products, which have accounted for
approximately 99% of our revenues to date, consist primarily of sales to
distributors, retailers and resellers and to end users
31
<PAGE>
who buy through our Palm.com website. We recognize revenues when the product
has been shipped. We have not offered maintenance and support contracts for our
handheld device products. We provide for estimated product returns, price
protection, warranty, royalties and post-sale telephone support in the period
in which revenue is recognized.
Revenues from licensing of the Palm platform to manufacturers of other
handheld devices, which have accounted for less than 1% of our revenues to
date, 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 otherwise earned in accordance
with American Institute of Certified Public Accountants Statement of Position
No. 97-2, Software Revenue Recognition. Maintenance and support is provided in
connection with the licensing agreements. Because most of our licensing
activity has occurred relatively recently, none of these agreements has been
renewed to date.
Revenues from Internet services, which have accounted for less than 1% of our
revenues to date, consist primarily of fees paid by subscribers for our
wireless Internet access service, Palm.net. We recognize subscription service
revenues over the period during which services are provided, typically one
month. As of December 31, 1999 we had approximately 34,000 subscribers to our
Palm.net service.
To date we have earned no enterprise application hosting fees or advertising
revenues related to our Palm.com and Palm.net Internet services.
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.
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<PAGE>
We do not expect that changes in foreign currency exchange rates will have a
material effect on our financial position or results of operations, as
substantially all of our revenues are denominated in U.S. dollars, and the
effect of any significant remaining foreign currency exposures would be offset
by hedging strategies.
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.
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>
Years Ended Six Months Ended
----------------------- -----------------
May 25, May 31, May 28, Nov. 27, Nov. 26,
1997 1998 1999 1998 1999
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Revenues............................ 100% 100% 100% 100% 100%
Cost of revenues.................... 68 58 56 56 57
--- --- --- --- ---
Gross profit........................ 32 42 44 44 43
--- --- --- --- ---
Operating expenses:
Sales and marketing............... 27 26 23 22 24
Research and development.......... 12 8 8 8 6
General and administrative........ 5 5 4 4 4
Purchased in-process technology... -- -- 1 -- --
Separation costs.................. -- -- -- -- 1
--- --- --- --- ---
Total operating expenses........ 44 39 36 34 35
--- --- --- --- ---
Operating income (loss)............. (12) 3 8 10 8
Interest and other income (expense),
net................................ -- -- -- -- --
--- --- --- --- ---
Income (loss) before income taxes... (12) 3 8 10 8
Income tax provision (credit)....... (5) 1 3 4 3
--- --- --- --- ---
Net income (loss)................... (7)% 2% 5% 6% 5%
=== === === === ===
</TABLE>
33
<PAGE>
Six Months Ended November 26, 1999 and November 27, 1998
Revenues
Revenues in the six months ended November 26, 1999 and November 27, 1998
consisted almost entirely of revenues from sales of our handheld device
products. Revenues were $435.1 million in the six months ended November 26,
1999, a 65% increase over revenues of $263.3 million in the six months ended
November 27, 1998. The increase in revenues during this period was driven by
increased demand for our handheld devices, which reflects the growing market
adoption of our products. Average selling prices over this period decreased
slightly due to a price reduction in October 1999 on existing products not
fully offset by sales of the new Palm Vx and Palm VII devices which have higher
average selling prices. International revenues have become an increasing
percentage of our total revenues, representing 32% of total revenues in the six
months ended November 26, 1999 compared to 25% in the six months ended November
27, 1998. As we continue to expand the number of international markets we
serve, we expect our international business to continue to increase as a
percentage of our overall business. Revenues from new handheld device products
introduced during the preceding four quarters represented substantially all of
our revenues for the six months ended November 26, 1999.
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 six months ended
November 26, 1999, costs related to our wireless Internet service resulting
from the introduction of our Palm VII product. Gross margin was 43% of revenues
in the six months ended November 26, 1999, a one percentage point decline from
a gross margin of 44% of revenues in the six months ended November 27, 1998.
The decline in gross margin in the six months ended November 26, 1999 was a
result of cost of revenues including $5.2 million of 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 $102.7 million in the
six months ended November 26, 1999, a 77% increase over expenses of $57.9
million in the six months ended November 27, 1998. Sales and marketing expenses
represented 24% of revenues in the six months ended November 26, 1999 compared
to 22% in the six months ended November 27, 1998. Approximately $25.1 million
of the increase in expenses was due to additional spending on U.S. demand
generation activities and media advertising production and placement.
Approximately $9.2 million of the increase in expenses was due to increased
sales and marketing activities in Europe and approximately $3.5 million of the
increase was due to increased headcount.
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 $28.6 million in the six months ended November 26, 1999, a 40% increase
over expenses of $20.5 million in the six months ended November 27, 1998.
Research and development expenses represented 6% of revenues in the six months
ended November 26, 1999 compared to 8% in the six months ended November 27,
1998. Approximately $6.1 million of the increase in research and development
spending from period to period was 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. Incremental spending resulting from the acquisition of Smartcode in
34
<PAGE>
February 1999 accounted for approximately $1.0 million of the increase in
research and development spending.
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 $17.0 million in
the six months ended November 26, 1999, an increase of 50% over expenses of
$11.3 million in the six months ended November 27,1998. General and
administrative expenses represented 4% of revenues in the six months ended
November 26, 1999 as well as in the six months ended November 27, 1998. The
$5.7 million increase in expenses was due to approximately $4.1 million of
increased infrastructure costs as we continue to build our infrastructure to
support a stand-alone, publicly-held company and a $3.7 million increase in
allocated costs from 3Com due to our revenue growth. These increases were
offset by a $2.1 million reduction in the provision for doubtful accounts
receivable.
Separation Costs
Separation costs consist of one-time costs, such as consulting and
professional fees, associated with the process of becoming a stand-alone,
publicly held company. Separation costs were $3.8 million in the six months
ended November 26, 1999. We expect these costs to continue at similar to
slightly increased levels for the remainder of the fiscal year.
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 six months ended November
26, 1999 was 39% compared to 38% in the six months ended November 27, 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 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. Revenues from new handheld device
products introduced during the preceding four quarters represented over 85% of
our revenues for fiscal 1999, 1998 and 1997. The growth in revenues in fiscal
1999 and fiscal 1998 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.
35
<PAGE>
Gross Margin
Gross margin was 44% of revenues in fiscal 1999, a two percentage point
increase over fiscal 1998. Gross margin was 42% of revenues in fiscal 1998, a
10 percentage point increase over gross margin of 32% of revenues 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, 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 as a percentage of revenues were 23% in fiscal
1999 compared to 26% in fiscal 1998 and 27% in fiscal 1997. Sales and marketing
expenses have increased in each period, but have declined as a percentage of
revenues due to fixed costs being spread over a higher revenue base. The
absolute dollar increase in sales and marketing expenses in fiscal 1999
resulted primarily from an increase in advertising of $29.6 million, which
includes 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. In addition, marketing expenses increased
by $15.7 million due to our expansion into the European market. The absolute
dollar increase in sales and marketing expenses in fiscal 1998 was primarily
the result of an increase of $25.1 million in costs associated with the
continued growth of our sales and marketing organization in the United States.
In addition, approximately $11.3 million of the increase was due to the
expansion of our sales organization into Europe 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.
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 absolute dollar
increase in research and development expenses in fiscal 1999 resulted primarily
from an increase of $8.2 million in personnel-related expenses associated with
expanding the size of our engineering organization and an increase of $4.0
million in expenses related to contractors, consultants and project materials.
During fiscal 1999, we also incurred an additional $6.9 million in engineering
costs to develop our wireless Internet access service that supports our
wireless Palm VII device. The absolute dollar increase in research and
development expenses in fiscal 1998 resulted primarily from the expansion of
our development activities, including personnel-related expenses, contractor
and consulting fees and product development expenditures. The decrease in
research and development expenses as a percentage of revenues from fiscal 1997
to fiscal 1998 resulted from economies of scale as fixed costs were spread over
a higher revenue base.
36
<PAGE>
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 in fiscal 1999
resulted from an increase in allocated costs from 3Com of $4.3 million 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 of $3.3 million for doubtful accounts receivable.
Approximately half of the increased provision for doubtful accounts was due to
specific reserves provided for a number of different customer account balances.
The remaining increase in the provision resulted from the overall increase in
our level of accounts receivable, which increased by nearly 200% over the
previous year.
Purchased In-Process Technology
We acquired Smartcode Technologie SARL on February 8, 1999 for $17.4 million
in cash, including approximately $0.2 million 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. Approximately $5.4 million of the purchase price
was allocated to existing technology, with this amount being amortized over
four years.
The purchased in-process technology acquired related primarily to
Globalpulse, a software GSM terminal adapter which acts as a software modem for
products utilizing the Palm operating system. The estimated value for the in-
process technology was determined using the income approach which discounted to
present value the cash flows expected to be derived from products that were
still in the process of development at the date of acquisition. The projections
were based on future expectations of the revenue and expenses to be generated
in connection with the products that were still under development. Revenues and
operating profit attributable to the in-process technology were estimated to
total $50.0 million and $9.4 million, respectively, over a five-year projection
period. The resulting projected net cash flows were discounted to their present
value of $2.1 million using a discount rate of 40%, which was calculated based
on the weighted average cost of capital, adjusted for the technology risk
associated with the purchased in-process technology, which was considered to be
significant due to the nature of the technology under development. For
projected cash flows attributable to existing technology, a discount rate of
35% was used, which reflects the weighted average cost of capital, adjusted for
the technology risk associated with these technologies.
The nature of the efforts required to develop the purchased in-process
technology into commercially viable products principally relates to the
completion of all planning, designing, prototyping, verification and testing
activities that are necessary to establish whether the products will be able to
meet its design specifications, including functions, features and technical
performance requirements. The estimated cost to develop the in-process
technology was approximately $0.3 million, all of which was expected to be
incurred before the end of fiscal 2000. The actual cost to develop the in-
process technology has been consistent with the forecasted amount. The primary
project was completed in July 1999 and Palm began to derive revenue beginning
in the second quarter of fiscal 2000. As of November 26, 1999, revenues have
been as expected.
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.
37
<PAGE>
Quarterly Results of Operations
The following tables present our operating results for each of the ten fiscal
quarters in the period ended November 26, 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 necessarily 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, Nov. 26,
1997 1997 1998 1998 1998 1998 1999 1999 1999 1999
-------- -------- ------- ------- -------- -------- -------- -------- -------- --------
(in thousands)
<S> <C> <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 $258,555
Cost of revenues........ 29,906 42,115 37,392 48,336 62,998 84,289 67,583 100,746 98,324 148,018
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Gross profit............ 21,769 27,882 28,374 36,363 53,071 62,944 58,306 73,588 78,181 110,537
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Operating expenses:
Sales and marketing..... 11,314 20,286 17,335 21,830 23,969 33,893 28,725 41,139 42,648 60,038
Research and
development............ 4,538 5,170 5,209 6,946 9,738 10,722 10,989 14,578 12,507 16,044
General and
administrative......... 2,470 3,290 3,181 6,358 6,233 5,071 5,739 6,649 7,160 9,796
Purchased in-process
technology............. -- -- -- -- -- -- 2,125 -- -- --
Separation costs........ -- -- -- -- -- -- -- -- -- 3,780
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Total operating
expenses............... 18,322 28,746 25,725 35,134 39,940 49,686 47,578 62,366 62,315 89,658
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Operating income
(loss)................. 3,447 (864) 2,649 1,229 13,131 13,258 10,728 11,222 15,866 20,879
Interest and other
income (expense), net.. (35) (44) (5) 28 (25) (75) (15) (108) (63) 277
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes........... 3,412 (908) 2,644 1,257 13,106 13,183 10,713 11,114 15,803 21,156
Income tax provision
(credit)............... 1,190 (317) 922 439 5,036 5,066 4,116 4,270 6,145 8,294
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ 2,222 $ (591) $ 1,722 $ 818 $ 8,070 $ 8,117 $ 6,597 $ 6,844 $ 9,658 $ 12,862
======= ======= ======= ======= ======== ======== ======== ======== ======== ========
As a Percentage of
Revenues:
Revenues................ 100% 100% 100% 100% 100% 100% 100% 100% 100% 100%
Cost of revenues........ 58 60 57 57 54 57 54 58 56 57
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Gross profit............ 42 40 43 43 46 43 46 42 44 43
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Operating expenses:
Sales and marketing..... 22 29 26 26 22 23 23 24 24 23
Research and
development............ 9 7 8 8 8 7 9 8 7 6
General and
administrative......... 5 5 5 7 5 4 4 4 4 4
Purchased in-process
technology............. -- -- -- -- -- -- 2 -- -- --
Separation costs........ -- -- -- -- -- -- -- -- -- 1
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Total operating
expenses............... 36 41 39 41 35 34 38 36 35 34
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Operating income
(loss)................. 6 (1) 4 2 11 9 8 6 9 9
Interest and other
income (expense), net.. -- -- -- -- -- -- -- -- -- --
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes........... 6 (1) 4 2 11 9 8 6 9 9
Income tax provision
(credit)............... 2 -- 1 1 4 3 3 2 4 4
------- ------- ------- ------- -------- -------- -------- -------- -------- --------
Net income (loss)....... 4% (1)% 3% 1% 7% 6% 5% 4% 5% 5%
======= ======= ======= ======= ======== ======== ======== ======== ======== ========
</TABLE>
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<PAGE>
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 November 26, 1999, we reported cash of $29.6 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 which 3Com will retain for administrative convenience. 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 of $50 million, provided
that if the aggregate estimated net proceeds of this offering and the private
placements exceed $620 million, 3Com may elect to receive an additional
dividend of up to 50% of the amount of the aggregate estimated net proceeds in
excess of $620 million. In addition, we will make a payment to 3Com of an
intercompany payable, which was approximately $58 million as of November 26,
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, fund our increased working capital needs
associated with revenue growth and fund increased capital and marketing
expenditures.
Cash provided by operating activities was $66.3 million for the six months
ended November 26, 1999. Cash provided by operating activities was $84.0
million in fiscal 1999, cash used in operating activities was $21.4 million in
fiscal 1998 and $31.2 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
39
<PAGE>
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.
We had capital expenditures of $5.7 million in the six months ended November
26, 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
Interest Rate Sensitivity
As of November 26, 1999, we had cash and cash equivalents of $29.6 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.
40
<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, No. 133,
"Accounting for Derivative Instruments and Hedging Activities" and SFAS No.
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 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.
To date we have not experienced any material problems attributable to the
inability to recognize dates beginning with the year 2000 in our products or
internal systems. We face risks associated with the year 2000 issue if we
encounter undetected errors or defects. 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.
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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 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 released a downloadable software patch to fix this problem. If any
of our products experienced a material year 2000 error, 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. 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 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 have been implemented and
these plans will be validated and modified as needed.
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;
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. consultant and contractor fees to assist in assessments and to perform
remediation and integration testing; 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.
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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 6,900
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 31,
1999, more than 33,000 developers had registered to use Palm developer tools to
create software applications for the Palm platform. We provide these developer
tools at no charge to our developer community. While no license revenue is
derived directly from these developers, we believe the existence of software
applications developed by third-party developers helps to increase the market
for our handheld device products and services. 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
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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.
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 focusing on increasing the adoption of Palm devices by 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 six months of fiscal 2000, revenues
outside the United States accounted for 32% of our total revenues compared to
25% for the first six 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
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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 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
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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;
. 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
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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.
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 our capital stock.
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Sony. In November 1999, we entered into a non-exclusive, royalty-bearing
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.
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.
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 our capital stock.
International Business Machines. In January 2000, we entered into a non-
binding memorandum of understanding with IBM pursuant to which the parties
intend to enter into a definitive agreement or set of agreements to integrate,
develop, market and deploy Palm and IBM products and services in the enterprise
market. The memorandum is non-binding, and we may not be able to enter into one
or more definitive, binding agreements with IBM regarding this relationship.
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 31, 1999, more than 33,000
developers had registered to create applications for the Palm platform. In
addition, over 6,900 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.
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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 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.
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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.
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 December 31, 1999, we had 263 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. The components that
make up our devices are supplied by a number of vendors such as AMD, Fujitsu
and Toshiba, who each supply DRAM memory chips, and Motorola, the supplier of
our microprocessor. 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. Key components of our
handheld device products that we obtain from sole and single source suppliers
include displays, power supply integrated circuits, digital signal processors,
Motorola
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microprocessors, crystals and several radio frequency and discrete components.
We obtain displays from Sharp, integrated circuits from Anadigics, Analog
Devices, Burr Brown, Fairchild, Linear Tech, Linfinity, Lucent, Maxim, Micro
Linear, Motorola, Seiko Epson, Sharp, Siemens, Toko and others, digital signal
processors from Lucent, discrete components from Murata, Coilcraft, Sumida
Electronics and Toko and crystals from KDS and Murata.
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
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. We believe that we compete more favorably than
many of our current competitors with respect to some or all of these factors
due to our operating history, greater number of customers, greater number of
third-party software application and greater brand recognition.
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. We
believe that we compete more favorably than many of our current competitors
with respect to some or all of these factors due to our operating history,
greater number of customers, greater number of third-party software application
and greater brand recognition. 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 13 United States patents
issued for our technology and we have 61 United States patent applications
pending. We also have 3 foreign patents issued and 25 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
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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.
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 shipped as soon as possible after receipt of an order,
usually within one to four weeks. With very few exceptions, orders may be
canceled or rescheduled by the customer without penalty.
Employees
As of December 31, 1999, we had a total of approximately 652 employees, of
which approximately 77 were in supply chain and service and support, 263 were
in engineering, 249 were in sales and marketing and 63 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
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willful infringement of a Xerox United States patent, relating to computerized
interpretation of handwriting. The complaint seeks unspecified damages and
injunctive relief. Xerox has asserted that Graffiti software and certain of our
products infringe the patent. On June 25, 1999, the Court stayed the action
pending reexamination of the patent by the U.S. Patent and Trademark Office. On
December 15, 1999, we received a Notice of Intent to Issue Reexamination
Certificate from the United States Patent and Trademark Office stating that the
reexamination has been terminated and that a certificate will be issued in due
course. The notice stated that the certificate will indicate that there will be
no changes to the patent specification or drawing and that all claims of the
patent will be confirmed without any changes. On January 18, 2000, the court
held a status hearing during which it lifted the stay of the action and
established that all of the parties' briefs relating to motions for summary
judgment would be filed with the court by April 28, 2000. We anticipate that
oral argument on these motions will be heard thereafter. No trial date has been
set. 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.
On July 22, 1999, we filed a copyright infringement action against Olivetti
and CompanionLink in the United States District Court for the Northern District
of California and obtained a preliminary injunction against further
distribution, sale, import or export of Olivetti Office USA's "Royal daVinci"
handheld device and the daVinci OS Software Development Kit, distributed by
CompanionLink Software, Inc. The injunction is to remain in effect pending the
outcome of the lawsuit. We also initiated a copyright infringement action in
Hong Kong on July 21, 1999, against EchoLink Design Ltd., the company
responsible for developing the operating system software contained in the
daVinci products. The High Court of the Hong Kong Special Administrative Region
issued an order the same day restraining EchoLink from further copying,
distribution, sale, import or export of Palm OS operating system source code or
EchoLink's "NEXUS OS" source code, which we maintain infringes our copyrights.
On December 13, 1999, WaveWare Communications, Inc. filed suit against 3Com,
Palm and others in the Superior Court of California, San Mateo County. The case
is captioned WaveWare Communications, Inc. v. 3Com Corporation; Palm Computing,
Inc.; and Mark Bercow, No. 411331. The complaint alleges breach of contract,
constructive fraud, fraud and deceit, negligent misrepresentation,
misappropriation of assets and trade secrets, unfair competition, unjust
enrichment and intentional interference with economic advantage in connection
with our and 3Com's discussions with WaveWare concerning WaveWare's potential
acquisition by 3Com. The complaint seeks unspecified monetary damages and
injunctive relief. We have not yet responded to the complaint. To date, no
trial date has been set, and no discovery has been exchanged. 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.
On December 27, 1999, Telxon Corporation and Penright! Corporation filed a
complaint in the U.S. District Court for the Northern District of Ohio, Eastern
Division (Case No. 1:99CV3157) against 3Com and Palm alleging copyright
infringement, unfair competition and theft of trade secrets. The plaintiffs
allege that the Palm OS operating system contains graphical user interface
software copied from the plaintiffs' software. The complaint seeks unspecified
compensatory and treble damages and to enjoin, among other things, distribution
and sales of the Palm OS operating system. We are in the preliminary stages of
investigating the allegations contained in the complaint. To date, no trial
date has been set, and no discovery has been exchanged. 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.
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MANAGEMENT
Directors, Executive Officers and Key Employees
Set forth below is information concerning our directors and executive
officers and their ages as of January 25, 2000.
<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...... 57 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............. 39 Vice President, Strategic Alliances & Platform Development
Gregory S. Rhine........ 42 Vice President, Worldwide Sales
Peng K. Lim............. 37 Vice President, Worldwide Product Engineering
Daniel S. Keller........ 43 Vice President, Platform Engineering
Dinesh Raghavan......... 45 Vice President, Global Supply Chain Operations
Charles Yort............ 41 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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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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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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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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The following table sets forth the number of shares of 3Com common stock
beneficially owned on December 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 December 31, 1999 was 343,174,491.
<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).............................. 55,791 *
Susan G. Swenson................................... -- *
Alan J. Kessler(4)................................. 179,716 *
Judy Bruner(5)..................................... 77,943 *
Stephen Yu(6)...................................... 11,278 *
All directors and executive officers as a group.... 2,233,545 *
</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 December 31, 1999.
(2) Includes 60,000 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1999 and 60,000 shares are held by Mr.
Barksdale and his spouse.
(3) Includes 55,791 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1999.
(4) Includes 179,716 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1999.
(5) Includes 75,922 shares issuable upon the exercise of options exercisable
within 60 days of December 31, 1999.
(6) Includes 10,539 shares issuable upon the exercise of options exercisable
within 60 days of December 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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<PAGE>
Treatment of 3Com Options
We intend to assume substantially all of the 3Com options held by our
employees on the distribution date. As of December 31, 1999, our employees held
options to purchase 3,389,784 shares of 3Com common stock at a weighted average
exercise price per share of $29.36. The price of 3Com common stock on that date
was $47.00. 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 December 31, 1999, our employees held 39,000
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 January
27, 2000, a total of 20,000,000 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, 25,000,000
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 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.
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<PAGE>
No optionee may be granted an option to purchase more than 3,000,000 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 6,000,000
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 within 12 months following a change of control, 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 5,000,000 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, 10,000,000 shares, or
a lesser amount as may be determined by our board of directors.
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.
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<PAGE>
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 4,000 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 Director Plan provides for the periodic
grant of nonstatutory stock options to our non-employee directors.
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<PAGE>
Number of Shares Available under the Director Plan. As of January 27, 2000, a
total of 500,000 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 500,000 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 40,000 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 25,000 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 40,000 share option becomes exercisable as to 33% of the shares
subject to the option on each anniversary of the date of grant, and each 25,000
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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<PAGE>
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 80.1% 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 80.1% 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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<PAGE>
. 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
relating to governmental, accounting, contractual and other similar
requirements of our ongoing businesses, 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. It is anticipated that we will bear the costs
and expenses associated with this offering and 3Com will bear the costs and
expenses associated with the distribution. 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
inventory to us that it holds related to our business, to the extent that the
inventory was, prior to the separation date, a 3Com asset.
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Excluded Assets. The general assignment and assumption agreement also
provides that 3Com will not transfer most accounts receivable related to our
business.
Assumption of Liabilities. Effective on the separation date, we will assume
liabilities from 3Com, to the extent that these liabilities were, prior to the
separation date, liabilities held by 3Com related to our business and except as
provided in an ancillary or other agreement.
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.
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.
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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. To date, there are no patents or patent
applications that have resulted 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 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.
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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.
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.
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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.
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.
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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.
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.
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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.
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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 93.3%, or about 92.8% 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. None of our executive officers, directors
or director nominees currently owns any shares of our common stock, but those
who own shares of 3Com common stock will be treated on the same terms as other
holders of 3Com stock in any distribution by 3Com. See "Stock Ownership of
Directors and Executive Officers" for a description of the ownership of 3Com
stock by our directors and executive officers.
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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 2,000,000,000 shares
of common stock, $0.001 par value, and 125,000,000 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 532,000,000 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
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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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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 FleetBoston 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..........
FleetBoston Robertson Stephens Inc..........................
-------------
Total..................................................... 23,000,000
=============
</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
3,450,000 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 3,450,000 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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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 directors of 3Com and Palm and
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.
A prospectus in electronic format may be made available on the websites
maintained by one or more Underwriters or securities dealers. The Underwriters
may agree to allocate a number of shares to Underwriters for sale to their
online brokerage account holders. Internet distributions will be allocated by
the lead managers to Underwriters that may make Internet distributions on the
same basis as other allocations. In addition, shares may be sold by the
Underwriters to securities dealers who resell shares to online brokerage
account holders.
Palm estimates that its share of the total expenses of the offering,
excluding underwriting discounts and commissions, will be approximately
$4,420,000.
Palm has agreed to indemnify the several Underwriters against specified
liabilities, including liabilities under the Securities Act of 1933.
Goldman, Sachs & Co. has from time to time performed various investment
banking services for 3Com in the past, and it may from time to time in the
future perform investment banking services for 3Com and Palm for which they
have received and will receive customary fees.
82
<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.
83
<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.
84
<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, November 26,
1999 (unaudited) and Pro Forma at November 26, 1999 (unaudited)........ F-3
Consolidated Statements of Operations for the Years Ended May 25, 1997,
May 31, 1998, May 28, 1999 and Six Months Ended November 27, 1998 and
November 26, 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 Six Months ended
November 26, 1999 (unaudited).......................................... F-5
Consolidated Statements of Cash Flows for the Years Ended May 25, 1997,
May 31, 1998, May 28, 1999 and Six Months Ended November 27, 1998 and
November 26, 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.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
November 29, 1999
(January 24, 2000 as to the third, fourth and fifth paragraphs of Note 13 and
all of Note 15)
F-2
<PAGE>
PALM, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands, except par value amounts)
<TABLE>
<CAPTION>
Pro Forma
May 31, May 28, November 26, November 26,
1998 1999 1999 1999
-------- -------- ------------ ------------
(Unaudited) (Unaudited)
<S> <C> <C> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents....... $ -- $ 478 $ 29,568 $ 29,568
Accounts receivable, net of
allowance for doubtful accounts
of $4,451, $3,817 and $5,141... 80,985 95,839 129,726 --
Inventories..................... 13,769 12,186 36,695 36,695
Deferred income taxes........... 8,092 20,688 26,137 26,137
Prepaids and other.............. 192 1,038 2,182 2,182
-------- -------- -------- --------
Total current assets.......... 103,038 130,229 224,308 94,582
Property and equipment, net....... 9,121 8,136 10,276 10,276
Goodwill, intangibles and other
assets........................... 175 13,829 12,733 12,733
Deferred income taxes............. 3,025 53 52 52
-------- -------- -------- --------
Total assets................ $115,359 $152,247 $247,369 $117,643
======== ======== ======== ========
LIABILITIES AND STOCKHOLDER'S
NET INVESTMENT
Current liabilities:
Accounts payable................ $ 15,792 $ 35,577 $ 71,586 $ 26,206
Payable to 3Com Corporation..... 15,617 40,509 57,935 107,935
Other accrued liabilities....... 18,275 40,793 90,832 90,832
Current portion of long-term
debt........................... -- 668 190 190
-------- -------- -------- --------
Total current liabilities..... 49,684 117,547 220,543 225,163
-------- -------- -------- --------
Long-term debt.................... -- 682 395 395
Commitments and contingencies
(Notes 7 and 13)
Stockholder's net investment:
Preferred stock, $.001 par
value, 125,000 shares
authorized pro forma; none
outstanding pro forma.......... -- -- -- --
Common stock, $.001 par value,
2,000,000 shares authorized pro
forma; 532,000 shares
outstanding pro forma.......... -- -- -- --
3Com Corporation equity
(deficiency)................... 65,675 34,151 26,395 (107,951)
Accumulated other comprehensive
income (loss).................. -- (133) 36 36
-------- -------- -------- --------
Total stockholder's net
investment (deficiency)...... 65,675 34,018 26,431 (107,915)
-------- -------- -------- --------
Total liabilities and
stockholder's net
investment................. $115,359 $152,247 $247,369 $117,643
======== ======== ======== ========
</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 Six Months Ended
---------------------------- -------------------------
May 25, May 31, May 28, November 27, November 26,
1997 1998 1999 1998 1999
-------- -------- -------- ------------ ------------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues................ $114,157 $272,137 $563,525 $263,302 $435,060
Cost of revenues........ 77,685 157,749 315,616 147,287 246,342
-------- -------- -------- -------- --------
Gross profit.......... 36,472 114,388 247,909 116,015 188,718
-------- -------- -------- -------- --------
Operating expenses:
Sales and marketing... 30,305 70,765 127,726 57,862 102,686
Research and
development.......... 13,442 21,863 46,027 20,460 28,551
General and
administrative....... 6,238 15,299 23,692 11,304 16,956
Purchased in-process
technology........... -- -- 2,125 -- --
Separation costs...... -- -- -- -- 3,780
-------- -------- -------- -------- --------
Total operating
expenses........... 49,985 107,927 199,570 89,626 151,973
-------- -------- -------- -------- --------
Operating income
(loss)................. (13,513) 6,461 48,339 26,389 36,745
Interest and other
income (expense), net.. (515) (56) (223) (100) 214
-------- -------- -------- -------- --------
Income (loss) before
income taxes........... (14,028) 6,405 48,116 26,289 36,959
Income tax provision
(credit)............... (6,166) 2,234 18,488 10,102 14,439
-------- -------- -------- -------- --------
Net income (loss)....... $ (7,862) $ 4,171 $ 29,628 $ 16,187 $ 22,520
======== ======== ======== ======== ========
Basic and diluted net
income (loss) per
share.................. $ (.01) $ .01 $ .06 $ .03 $ .04
======== ======== ======== ======== ========
Shares used in computing
basic and diluted net
income (loss) per
share amounts.......... 532,000 532,000 532,000 532,000 532,000
======== ======== ======== ======== ========
Unaudited pro forma
basic and diluted net
income per share....... $ .06 $ .04
======== ========
Shares used in computing
unaudited pro forma
basic and diluted net
income per share
amounts................ 535,585 535,585
======== ========
</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....................... $ 6,466 $ -- $ 6,466
Net loss..................................... (7,862) -- (7,862)
Net transfers from 3Com Corporation.......... 32,641 -- 32,641
------- ---- -------
Balances, May 25, 1997....................... 31,245 -- 31,245
Net income................................... 4,171 -- 4,171
Net transfers from 3Com Corporation.......... 30,259 -- 30,259
------- ---- -------
Balances, May 31, 1998....................... 65,675 -- 65,675
Components of comprehensive income:
Net income................................. 29,628 -- 29,628
Accumulated translation adjustments........ -- (133) (133)
Total comprehensive income...............
Net transfers to 3Com Corporation............ (61,152) -- (61,152)
------- ---- -------
Balances, May 28, 1999....................... 34,151 (133) 34,018
Components of comprehensive income:
Net income*................................ 22,520 -- 22,520
Accumulated translation adjustments*....... -- 169 169
Total comprehensive income*..............
Net transfers to 3Com Corporation*........... (30,276) -- (30,276)
------- ---- -------
Balances, November 26, 1999*................. $26,395 $ 36 $26,431
======= ==== =======
</TABLE>
- --------
* Unaudited
See notes to consolidated financial statements.
F-5
<PAGE>
PALM, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
<TABLE>
<CAPTION>
Years Ended Six Months Ended
---------------------------- -------------------------
May 25, May 31, May 28, November 27, November 26,
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 $ 16,187 $ 22,520
Adjustments to
reconcile net income
(loss) to net cash
provided by (used in)
operating activities:
Depreciation and
amortization......... 685 2,029 4,565 1,488 4,395
Loss on disposal of
property and
equipment............ 36 145 2,567 889 872
Deferred income
taxes................ (3,344) (5,361) (8,880) (4,812) (5,449)
Purchased in-process
technology........... -- -- 2,125 -- --
Changes in assets and
liabilities:
Accounts receivable.. (18,842) (56,783) (13,307) (39,460) (33,887)
Inventories.......... (13,269) (397) 1,650 (6,281) (24,509)
Prepaids and other... (142) (176) (805) (480) (1,144)
Accounts payable..... 4,710 10,874 19,437 1,488 36,009
Payable to 3Com
Corporation......... 3,660 11,205 24,892 16,187 17,426
Other accrued
liabilities......... 3,217 12,867 22,133 19,032 50,039
-------- -------- -------- -------- --------
Net cash provided by
(used in) operating
activities......... (31,151) (21,426) 84,005 4,238 66,272
-------- -------- -------- -------- --------
Cash flows from
investing activities:
Purchases of property
and equipment......... (2,543) (8,833) (5,347) (2,922) (5,717)
Business acquired in
purchase transaction,
net of cash acquired.. -- -- (16,831) -- --
Other, net............. 27 -- 97 -- (593)
-------- -------- -------- -------- --------
Net cash used in
investing
activities......... (2,516) (8,833) (22,081) (2,922) (6,310)
-------- -------- -------- -------- --------
Cash flows from
financing activities:
Net transfers (to) from
3Com Corporation...... 32,641 30,259 (61,152) (1,316) (30,276)
Other, net............. -- -- (294) -- (596)
-------- -------- -------- -------- --------
Net cash provided by
(used in) financing
activities......... 32,641 30,259 (61,446) (1,316) (30,872)
-------- -------- -------- -------- --------
Change in cash and cash
equivalents............ (1,026) -- 478 -- 29,090
Cash and cash
equivalents, beginning
of period.............. 1,026 -- -- -- 478
-------- -------- -------- -------- --------
Cash and cash
equivalents, end of
period................. $ -- $ -- $ 478 $ -- $ 29,568
======== ======== ======== ======== ========
Other cash flow
information:
Interest paid.......... $ -- $ -- $ 10 $ -- $ 11
======== ======== ======== ======== ========
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
Six Months Ended November 27, 1998 and November 26, 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 the separation agreement, 3Com will transfer to Palm the 3Com-owned assets
and liabilities which relate to Palm prior to the date of separation from 3Com
("the separation date"), except for most of Palm's 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 financial information included herein may
not reflect the consolidated financial statements, 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.
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. Management believes that the expenses
allocated to Palm are representative of the operating expenses it would have
incurred had Palm been operated on a stand-alone basis.
2. Significant Accounting Policies
Fiscal Year
Prior to June 1, 1998, Palm's 52-53 week fiscal year ended on the Sunday
nearest to May 31. Effective June 1, 1998, Palm changed its 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
Six Months Ended November 27, 1998 and November 26, 1999
nearest to May 31. These changes did not have a significant effect on the
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 Palm 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 November 26, 1999 and for the six months
ended November 27, 1998 and November 26, 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 six months ended
November 26, 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
subsidiaries. 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
Six Months Ended November 27, 1998 and November 26, 1999
The following individual customers accounted for 10% or more of total
revenue:
<TABLE>
<CAPTION>
Years Ended Six Months Ended
----------------------- -----------------
May 25, May 31, May 28, Nov. 27, Nov. 26,
1997 1998 1999 1998 1999
------- ------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Company A............................. 28% 22% 24% 27% 34%
Company B............................. -- -- 14% 15% --
Company C............................. 11% -- -- -- --
</TABLE>
The following individual customers accounted for 10% or more of total
accounts receivable:
<TABLE>
<CAPTION>
May 31, May 28, Nov. 26,
1998 1999 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Company A........................................... 28% 24% 34%
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. Long-lived assets
include intangible assets acquired in a business combination (see Note 3 to the
consolidated financial statements). Intangible assets are being amortized as
follows: goodwill over six years, purchased technology over four years,
assembled workforce, customer list and other intangibles over two to three
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.
Palm believes its 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
Six Months Ended November 27, 1998 and November 26, 1999
3Com Corporation Equity
3Com Corporation equity represents 3Com's net investment in Palm. Payable to
3Com represents the net amount due to 3Com as the result of intercompany
transactions between 3Com and Palm that had not been settled as of each balance
sheet date. No intercompany interest income or expense has been allocated to,
or included in, the accompanying financial statements.
Revenue Recognition
Revenue from sales of handheld device products is recognized upon shipment at
which time provisions are made for estimated product returns, price protection,
warranty, royalties and post-sale telephone support. Sales of handheld device
products accounted for approximately 99% of revenues for each of the periods
presented.
Revenue from software license agreements with manufacturers of other handheld
devices is recognized on a per-unit royalty basis or as otherwise earned in
accordance with American Institute of Certified Public Accountants (AICPA)
Statement of Position SOP No. 97-2, Software Revenue Recognition, as amended.
Revenue from wireless Internet access service subscriptions is recognized over
the service period. Revenue from these sources accounted for less than 1% of
revenues for each of the periods presented.
Advertising
Advertising costs are expensed as incurred. Cooperative advertising and
marketing development obligations for channel customers are expensed in the
period the related revenue is recognized.
Separation Costs
Separation costs consist of one-time costs, such as consulting and
professional fees, associated with the process of becoming a stand-alone,
publicly held company.
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).
F-10
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 1999
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 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
Net Income (Loss) Per Share
All of the outstanding Palm common stock is owned by 3Com. Basic and diluted
net income (loss) per share amounts are computed by dividing the net income
(loss) for the period by the common shares outstanding after the
reincorporation of Palm in Delaware and the conversion of the 1,000 shares of
Palm common stock held by 3Com into 532,000,000 shares as discussed in Note 15
to the consolidated financial statements.
Net income (loss) per share amounts do not give effect to any conversion of
3Com stock options 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
at the distribution date.
Unaudited Pro Forma Net Income Per Share
As discussed in Note 15 to the consolidated financial statements, Palm
declared a dividend to 3Com in the amount of $50 million, provided that if the
aggregate estimated net proceeds of this offering and the private placements
exceed $620 million, 3Com may elect to receive an additional dividend of up to
50% of the amount of the aggregate estimated net proceeds in excess of $620
million, and intends to pay such dividend to 3Com using a portion of the
proceeds from the initial public offering. Unaudited pro forma basic and
diluted net income per share amounts include the effect of such dividend and
are calculated using common shares outstanding of 532,000,000 shares plus the
3,585,431 shares of common stock whose proceeds will be used to pay an assumed
$50 million dividend, assuming an initial public offering price of $15.00 per
share, reduced by estimated per share offering costs.
Unaudited Pro Forma Balance Sheet
The unaudited pro forma balance sheet as of November 26, 1999 gives pro forma
effect to the assumed dividend discussed in the preceding paragraph, as though
it had been declared and was payable as of that date. The unaudited pro forma
balance sheet also gives effect to the authorizations of preferred and common
stock and the conversion of Palm common stock into 532,000,000 shares as
discussed in Note 15 to the consolidated financial statements, as well as the
retention of most of Palm's accounts receivable and accounts payable by 3Com at
the time of separation, as described in Note 14 to the consolidated financial
statements, as though such retention had occurred as of November 26, 1999.
F-11
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 1999
Comprehensive Income (Loss)
On June 1, 1998, Palm 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 No. 133, Accounting for Derivative Instruments and Hedging
Activities and SFAS No. 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. Management
believes that the adoption of these statements will not have a significant
impact on Palm's 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. Palm adopted SOP 98-1 in the
first quarter of fiscal 2000. The adoption of this statement did not have a
significant impact on Palm's 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.
The purchase price of $17.4 million was allocated as follows: net tangible
assets of $0.9 million, intangible assets of $14.4 million, and purchased in-
process technology of $2.1 million. Intangible assets consisted of the
following amounts: goodwill of $6.9 million, developed technology of $5.4
million, assembled workforce of $1.0 million, customer list of $0.9 million,
and licenses of $0.2 million.
Approximately $2.1 million of 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. The in-process technology related primarily to Globalpulse, a
software GSM terminal adapter (which acts as a "software modem") for products
utilizing the Palm operating system. The value of the in-process technology was
determined using the income approach which discounted to present value the cash
flows expected to be derived from products that were still in the process of
development at the date of acquisition. The projections were based on future
expectations of the revenue and expenses to be generated in connection with the
products under development. The discount rate of 40% used reflected the risk
associated with the development of the in-process technology. The primary
project was completed in July 1999 and Palm began to derive revenue in the
second quarter of fiscal 2000.
F-12
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 1999
Unaudited pro forma results of operations, assuming the acquisition had taken
place at the beginning of fiscal 1998, are as follows (in thousands):
<TABLE>
<CAPTION>
Years ended
------------------
May 31, May 28,
1998 1999
------- -------
<S> <C> <C> <C>
Revenues.......................................... $274,892 $565,908
Net income (loss)................................. $ (1,150) $ 26,466
Net income (loss) per share....................... $ -- $ .05
</TABLE>
The above table gives unaudited pro forma effect to the revenues and expenses
of Smartcode prior to its acquisition by Palm, reflects the charge for in-
process research and development as if it had occurred in fiscal 1998 and gives
effect to the amortization of the acquired intangibles commencing at the
beginning of fiscal 1998.
4. Inventories
Inventories consist of the following (in thousands):
<TABLE>
<CAPTION>
May 31, May 28, November 26,
1998 1999 1999
------- ------- ------------
(Unaudited)
<S> <C> <C> <C>
Finished goods..................................... $ 8,809 $ 5,900 $29,857
Work in process.................................... 1,089 4,011 5,095
Purchased components............................... 3,871 2,275 1,743
------- ------- -------
Total............................................ $13,769 $12,186 $36,695
======= ======= =======
</TABLE>
5. Property and Equipment, Net
Property and equipment, net consists of the following (in thousands):
<TABLE>
<CAPTION>
May 31, May 28, November 26,
1998 1999 1999
------- ------- ------------
(Unaudited)
<S> <C> <C> <C>
Equipment........................................ $ 7,945 $11,971 $12,723
Leasehold improvements........................... 4,372 1,398 2,532
Furniture and fixtures........................... 60 685 1,039
------- ------- -------
Total.......................................... 12,377 14,054 16,294
Accumulated depreciation and amortization........ (3,256) (5,918) (6,018)
------- ------- -------
Property and equipment, net.................... $ 9,121 $ 8,136 $10,276
======= ======= =======
</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
Six Months Ended November 27, 1998 and November 26, 1999
6. Other Accrued Liabilities
Other accrued liabilities consist of the following (in thousands):
<TABLE>
<CAPTION>
May 31, May 28, November 26,
1998 1999 1999
------- ------- ------------
(Unaudited)
<S> <C> <C> <C>
Accrued payroll and related expenses............. $ 3,217 $ 4,871 $ 8,927
Accrued product warranty......................... 4,112 11,329 15,815
Accrued cooperative advertising and marketing
development expenses............................ 3,403 7,195 10,662
Accrued price protection......................... 224 6,994 11,892
Deferred revenue................................. 3,845 948 34,991
Other............................................ 3,474 9,456 8,545
------- ------- -------
Other accrued liabilities...................... $18,275 $40,793 $90,832
======= ======= =======
</TABLE>
7. Borrowing Arrangements and Commitments
Certain Palm 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%. The balance remaining is due over a four-year period
through September 2003.
F-14
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 1999
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 share of
the minimum annual purchase goal in each year, it would be required to make
payments up to a maximum of the following: $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.
F-15
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 1999
A summary of options held by Palm employees under the 3Com plans follows:
(Shares in thousands)
<TABLE>
<CAPTION>
Number
of 3Com Weighted average
shares exercise price
------- ----------------
<S> <C> <C>
Outstanding May 27, 1996.............................. 1,872 $19.61
------ ------
Granted............................................... 679 41.95
Exercised............................................. (146) 13.47
Cancelled............................................. -- --
------ ------
Outstanding May 25, 1997.............................. 2,405 26.29
Granted............................................... 1,886 38.47
Exercised............................................. (286) 19.76
Cancelled............................................. (1,130) 48.19
------ ------
Outstanding May 31, 1998.............................. 2,875 26.31
Granted............................................... 1,401 28.85
Exercised............................................. (997) 20.47
Cancelled............................................. (229) 28.71
------ ------
Outstanding May 28, 1999.............................. 3,050 29.21
Granted*.............................................. 1,144 25.68
Exercised*............................................ (447) 19.65
Cancelled*............................................ (432) 29.62
------ ------
Outstanding November 26, 1999*........................ 3,315 $29.35
====== ======
</TABLE>
- --------
*Unaudited
<TABLE>
<CAPTION>
Outstanding 3Com options as of May 28, 1999 Exercisable at May 28, 1999
------------------------------------------------ ---------------------------------
Weighted average Number
Number Weighted average remaining of Weighted average
Range of exercise prices of shares exercise price contractual life shares exercise price
- ------------------------ -------------- ---------------- ---------------- ------------- ------------------
(in thousands) (in years)
<S> <C> <C> <C> <C> <C>
$ .19 to $13.75....... 41 $ 5.87 4.5 41 $ 5.92
18.28 to 24.81....... 687 20.82 7.2 441 20.26
25.28 to 28.88....... 595 27.62 9.3 8 27.45
29.00 to 32.75....... 1,219 30.02 8.4 579 29.42
33.06 to 60.50....... 508 42.38 7.0 208 44.96
----- ------ --- ------------- --------------
Total................... 3,050 $29.21 8.0 1,277 $28.03
===== ====== === ============= ==============
</TABLE>
Options to purchase 2.1 million shares of 3Com common stock were exercisable
as of both May 25, 1997 and May 31, 1998 with weighted average exercise prices
of $25.00 and $23.93 per share, respectively.
F-16
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 1999
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. Palm employees who have 3Com restricted
stock grants will forfeit the unvested portion of their 3Com restricted stock
grants at the distribution date. To the extent that Palm grants restricted
stock in the future, compensation expense will be recognized as the granted
shares vest.
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 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>
F-17
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 1999
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.
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>
Pro forma net income (loss)........................ $(22,162) $(10,235) $15,664
Pro forma net income (loss) per share.............. $ (.04) $ (.02) $ .03
</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.
F-18
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 1999
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
November 26, 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.
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>
F-19
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 1999
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.
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 Six Months Ended
-------------------------- -----------------
May 25, May 31, May 28, Nov. 27, Nov. 26,
1997 1998 1999 1998 1999
-------- -------- -------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Revenues:
United States.................... $ 96,280 $198,630 $399,944 $197,433 $296,225
Other............................ 17,877 73,507 163,581 65,869 138,835
-------- -------- -------- -------- --------
Total.......................... $114,157 $272,137 $563,525 $263,302 $435,060
======== ======== ======== ======== ========
</TABLE>
For fiscal 1997, 1998, 1999 and the six months ended November 27, 1998 and
November 26, 1999 (unaudited) no single country outside the United States
accounted for 10% or more of total revenues.
<TABLE>
<CAPTION>
May 31, May 28, Nov. 26,
1998 1999 1999
------- ------- -----------
(Unaudited)
<S> <C> <C> <C>
Property and equipment:
United States..................................... $8,231 $7,247 $ 9,183
France............................................ 827 811 979
Other............................................. 63 78 114
------ ------ -------
Total........................................... $9,121 $8,136 $10,276
====== ====== =======
</TABLE>
At May 31, 1998, May 28, 1999 and November 26, 1999 (unaudited), no other
individual country had property and equipment of 10% or more of total property
and equipment. Long-lived assets also include goodwill, intangibles and other
assets, substantially all of which relate to the acquisition of a company in
France as discussed in Note 3 to the consolidated financial statements.
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
F-20
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 1999
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 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
Palm is a party to lawsuits in the normal course of its 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. Palm believes
that it has defenses to the cases set forth below and is vigorously contesting
these matters. An unfavorable resolution of these lawsuits could adversely
affect Palm's business, results of operations or financial condition.
On April 28, 1997, Xerox Corporation filed suit against U.S. Robotics
Corporation and U.S. Robotics Access Corp. in the United States District Court
for the Western District of New York. The case is now captioned: Xerox
Corporation v. U.S. Robotics Corporation, U.S. Robotics Access Corp, Palm
Computing, Inc. and 3Com Corporation, Civil Action No. 97-CV-6182T. The
complaint alleges willful infringement of a United States patent relating to
computerized interpretation of handwriting. The complaint further seeks
unspecified damages and injunctive relief. Xerox has asserted that Graffiti
software and certain products of Palm Computing, Inc. infringe the patent. On
June 25, 1999, the Court stayed the action pending reexamination of the patent
by the U.S. Patent and Trademark Office.
On December 15, 1999, Palm received a Notice of Intent to Issue Reexamination
Certificate from the United States Patent and Trademark Office stating that the
reexamination has been terminated and that a certificate will be issued in due
course. The notice stated that the certificate will indicate that there will be
no changes to the patent specification or drawings and that all claims of the
patent will be confirmed without any changes. On January 18, 2000, the court
held a status hearing during which it lifted the stay of the action and
established that all of the parties' briefs relating to motions for summary
judgment would be filed with the court by April 28, 2000. Palm anticipates that
oral argument on these motions will be heard thereafter. No trial date has been
set. In connection with Palm's 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.
On December 13, 1999, WaveWare Communications, Inc. filed suit against 3Com,
Palm and others in the Superior Court of California, San Mateo County. The case
is captioned WaveWare Communications, Inc. v. 3Com Corporation; Palm Computing,
Inc.; and Mark Bercow, No. 411331. The complaint alleges breach of contract,
constructive fraud, fraud and deceit, negligent misrepresentation,
misappropriation of assets and trade secrets, unfair competition, unjust
enrichment and intentional interference with economic advantage in connection
with Palm's and 3Com's discussions with WaveWare concerning WaveWare's
potential acquisition by 3Com. The complaint seeks unspecified monetary damages
and injunctive relief. Palm has not yet responded to
F-21
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 1999
the complaint. To date, no trial date has been set, and no discovery has been
exchanged. In connection with Palm's 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.
On December 27, 1999, Telxon Corporation and Penright! Corporation filed a
complaint in the U.S. District Court for the Northern District of Ohio, Eastern
Division (Case No. 1:99CV3157) against 3Com and Palm alleging copyright
infringement, unfair competition and theft of trade secrets. The plaintiffs
allege that the Palm OS operating system contains graphical user interface
software copied from the plaintiffs' software. The complaint seeks unspecified
compensatory and treble damages and to enjoin, among other things, distribution
and sales of the Palm OS operating system. Palm is in the preliminary stages of
investigating the allegations contained in the complaint. To date, no trial
date has been set, and no discovery has been exchanged. In connection with
Palm's 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.
Palm also files suits against others to protect its intellectual property,
such as the matter 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 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
For the periods presented, intercompany transactions and balances between Palm
and 3Com consisted of the following (in thousands):
<TABLE>
<CAPTION>
Years Ended Six Months Ended
--------------------------- ------------------
May 25, May 31, May 28, Nov. 27, Nov. 26,
1997 1998 1999 1998 1999
------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at beginning of
period...................... $ 752 $ 4,412 $ 15,617 $ 15,617 $ 40,509
Payroll expenses............. 10,084 24,575 40,982 19,751 25,959
Marketing expenses........... -- 710 12,800 940 2,356
Development expenses......... -- 273 6,401 542 1,863
Allocation of corporate
services.................... -- 1,466 7,447 2,563 6,721
Current income tax
provision................... (2,822) 7,594 28,112 14,919 19,889
Other........................ -- 2,724 10,661 4,170 2,349
Net cash transfers to 3Com... (3,602) (26,137) (81,511) (26,698) (41,711)
======= ======== ======== ======== ========
Balance at end of period..... $ 4,412 $ 15,617 $ 40,509 $ 31,804 $ 57,935
======= ======== ======== ======== ========
Average balance during the
period...................... $ 2,582 $ 10,015 $ 28,063 $ 23,711 $ 49,222
======= ======== ======== ======== ========
</TABLE>
F-22
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 1999
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 Six Months Ended
----------------------- -----------------
May 25, May 31, May 28, Nov. 27, Nov. 26,
1997 1998 1999 1998 1999
------- ------- ------- -------- --------
(Unaudited)
<S> <C> <C> <C> <C> <C>
Cost of revenues.................... $4,374 $3,694 $ 9,238 $3,966 $ 6,333
Sales and marketing................. 1,144 7,023 16,625 7,101 13,209
Research and development............ 1,573 845 3,437 1,182 3,746
General and administrative.......... 2,574 5,212 14,085 5,521 9,657
Other (income) and expense, net..... 523 25 218 100 (214)
</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 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 Palm's 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
F-23
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 1999
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 pursuant to a separate
agreement that the two parties will negotiate with pricing and other terms more
favorable than it would agree to in customary transactions with third parties.
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.
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.
F-24
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 1999
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. 3Com
is responsible for filing all tax returns for all periods before the
distribution and paying any taxes shown as due on those returns. Palm must
provide 3Com with sufficient information about its activities to enable 3Com to
file these returns. Palm also must pay its share of the tax liability to 3Com
within 30 days after 3Com files the return. Palm and 3Com must retain tax
returns and related materials for periods beginning before the distribution and
make these materials available to each other upon request. In general, 3Com
will be entitled to control the contest of any claim by a taxing authority
arising from the audit of a return for any period before the distribution,
unless the return covers only Palm's activities.
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.
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.
F-25
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 1999
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
In December 1999, Palm entered into agreements with America Online, Motorola
and Nokia for their purchase of Palm's common stock in private placements to
occur concurrently with the sale of shares offered in the initial public
offering. America Online and Nokia each agreed to purchase shares of common
stock equal to the lesser of $80 million or 1 1/2% of Palm's capital stock.
Motorola agreed to purchase shares of common stock equal to the lesser of $65
million or 1 1/2% of Palm's capital stock.
On January 24, 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. and the conversion of the 1,000 shares of Palm common stock
held by 3Com into 532,000,000 shares at the time of reincorporation. All
shares and per share amounts in these financial statements have been
adjusted to give effect to the reincorporation and conversion of shares.
. An increase in the authorized number of shares of common stock to
2,000,000,000 shares and creation of newly undesignated preferred stock
totaling 125,000,000 shares, contingent upon the approval of the
reincorporation of Palm in Delaware and the closing of the initial public
offering.
. The payment of a dividend to 3Com of $50 million, provided that if the
aggregate estimated net proceeds of this offering and the private
placements exceed $620 million, 3Com may elect to receive an additional
dividend of up to 50% of the amount of the aggregate estimated net
proceeds in excess of $620 million.
. The 1999 Stock Plan. The 1999 Stock Plan becomes effective upon the
closing of the initial public offering. A total of 20,000,000 shares have
been reserved for issuance under the 1999
F-26
<PAGE>
PALM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Years Ended May 25, 1997, May 31, 1998 and May 28, 1999 and
Six Months Ended November 27, 1998 and November 26, 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 Palm's fiscal year 2001, in an amount equal to the lesser of (a)
25,000,000 shares, or (b) 5% of the common stock 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 500,000 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 500,000 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.
. 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 4,000 shares in any one purchase period. A
total of 5,000,000 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 Palm's fiscal year 2001,
by an amount equal to the lesser of (a) 10,000,000 shares, or (b) 2% of
the common shares outstanding on the first day of the fiscal year, or (c)
a lesser amount as may be determined by Palm's Board of Directors.
* * * * *
F-27
<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
Special Note Regarding Forward-Looking Statements........................ 23
Our Separation From 3Com................................................. 24
Use of Proceeds.......................................................... 26
Dividend Policy.......................................................... 26
Capitalization........................................................... 27
Dilution................................................................. 28
Selected Consolidated Financial Data..................................... 30
Management's Discussion and Analysis of Financial Condition and Results
of Operations .......................................................... 31
Business................................................................. 44
Management............................................................... 57
Arrangements Between Palm and 3Com....................................... 69
Principal Stockholder.................................................... 78
Description of Capital Stock ............................................ 79
Underwriting............................................................. 81
Shares Eligible for Future Sale.......................................... 83
Validity of Common Stock................................................. 83
Experts.................................................................. 83
Where You Can Find More Information...................................... 84
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.
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
23,000,000 Shares
Palm, Inc.
Common Stock
--------------
[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.............. $ 111,725
NASD registration fee............................................ 30,500
Nasdaq Stock Market original and continued listing fees.......... 139,000
Blue Sky qualification fees and expenses......................... 12,000
Legal fees and expenses.......................................... 2,000,000
Accounting fees and expenses..................................... 1,300,000
Transfer agent and registrar fees................................ 25,000
Printing and engraving expenses.................................. 500,000
Miscellaneous expenses........................................... 301,775
----------
Total.......................................................... $4,420,000
==========
</TABLE>
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 10.8 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, as amended.
2.2 Form of General Assignment and Assumption Agreement between 3Com and
the registrant, as amended.
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 Form of Amended and Restated Certificate of Incorporation.
3.2 Bylaws.
5.1 Form of Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 1999 Stock Plan.
10.2 Form of 1999 Stock Plan Agreements.
10.3 1999 Employee Stock Purchase Plan.
10.4 Form of 1999 Employee Stock Purchase Plan Agreements.
10.5 1999 Director Option Plan.
10.6 Form of 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 (now
BellSouth Wireless Data, L.P.) 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.
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested on portions of this exhibit. Unredacted
versions of this exhibit have been filed separately with the Commission.
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 January 28, 2000.
*
_____________________________________
Carl J. Yankowski
Chief Executive Officer and
Director
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
* Chief Executive Officer and January 28, 2000
______________________________________ Director (Principal
Carl J. Yankowski Executive Officer)
/s/ Judy Bruner Senior Vice President and January 28, 2000
______________________________________ Chief Financial Officer
Judy Bruner (Principal Financial and
Accounting Officer)
* Director January 28, 2000
______________________________________
Eric A. Benhamou
* Director January 28, 2000
______________________________________
James L. Barksdale
* Director January 28, 2000
______________________________________
Gordon A. Campbell
* Director January 28, 2000
______________________________________
Susan G. Swenson
/s/ Judy Bruner
*By:__________________________________
Judy Bruner
Attorney-in-fact
</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, as amended.
2.2 Form of General Assignment and Assumption Agreement between 3Com and
the registrant, as amended.
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 Form of Amended and Restated Certificate of Incorporation.
3.2 Bylaws.
5.1 Form of Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 1999 Stock Plan.
10.2 Form of 1999 Stock Plan Agreements.
10.3 1999 Employee Stock Purchase Plan.
10.4 Form of 1999 Employee Stock Purchase Plan Agreements.
10.5 1999 Director Option Plan.
10.6 Form of 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 (now
BellSouth Wireless Data, L.P.) 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.
27.1 Financial Data Schedule.
</TABLE>
- --------
* To be filed by amendment.
** Previously filed.
+ Confidential treatment requested on portions of this exhibit. Unredacted
versions of this exhibit have been filed separately with the Commission.
<PAGE>
EXHIBIT 1.1
-----------
Draft of December 7, 1999
Palm, Inc.
Common Stock
-----------
Form of Underwriting Agreement
-------------------------------------------
................, 1999
Goldman, Sachs & Co.,
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
FleetBoston Robertson Stephens Inc.
As representatives of the several Underwriters
named in Schedule I hereto,
c/o Goldman, Sachs & Co.,
85 Broad Street,
New York, New York 10004.
Ladies and Gentlemen:
Palm, Inc., a Delaware corporation (the "Company"), proposes, subject to
the terms and conditions stated herein, to issue and sell to the Underwriters
named in Schedule I hereto (the "Underwriters") an aggregate of ........ shares
(the "Firm Shares") and, at the election of the Underwriters, up to .........
additional shares (the "Optional Shares") of Common Stock ("Stock") of the
Company (the Firm Shares and the Optional Shares that the Underwriters elect to
purchase pursuant to Section 2 hereof being collectively called the "Shares").
1. The Company represents and warrants to, and agrees with, each of the
Underwriters that:
(a) A registration statement on Form S-1 (File No. 333-....) (the
"Initial Registration Statement") in respect of the Shares has been filed
with the Securities and Exchange Commission (the "Commission"); the Initial
Registration Statement and any post-effective amendment thereto, each in
the form heretofore delivered to you, and, excluding exhibits thereto, to
you for each of the other Underwriters, have been declared effective by the
Commission in such form; other than a registration statement, if any,
increasing the size of the offering (a "Rule 462(b) Registration
Statement"), filed pursuant to Rule 462(b) under the Securities Act of
1933, as amended (the "Act"), which became effective upon filing, no other
document with respect to the Initial Registration Statement has heretofore
been filed with the Commission; and no stop order suspending the
effectiveness of the Initial Registration Statement, any post-effective
amendment thereto or the Rule 462(b) Registration Statement, if any, has
been issued
1
<PAGE>
and no proceeding for that purpose has been initiated or threatened by the
Commission (any preliminary prospectus included in the Initial Registration
Statement or filed with the Commission pursuant to Rule 424(a) of the rules
and regulations of the Commission under the Act is hereinafter called a
"Preliminary Prospectus"; the various parts of the Initial Registration
Statement and the Rule 462(b) Registration Statement, if any, including all
exhibits thereto and including the information contained in the form of
final prospectus filed with the Commission pursuant to Rule 424(b) under
the Act in accordance with Section 5(a) hereof and deemed by virtue of Rule
430A under the Act to be part of the Initial Registration Statement at the
time it was declared effective, each as amended at the time such part of
the Initial Registration Statement became effective or such part of the
Rule 462(b) Registration Statement, if any, became or hereafter becomes
effective, are hereinafter collectively called the "Registration
Statement"; and such final prospectus, in the form first filed pursuant to
Rule 424(b) under the Act, is hereinafter called the "Prospectus";
(b) No order preventing or suspending the use of any Preliminary
Prospectus has been issued by the Commission, and each Preliminary
Prospectus, at the time of filing thereof, conformed in all material
respects to the requirements of the Act and the rules and regulations of
the Commission thereunder, and did not contain an untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; provided,
however, that this representation and warranty shall not apply to any
statements or omissions made in reliance upon and in conformity with
information furnished in writing to the Company by an Underwriter through
you jointly or Goldman, Sachs & Co. expressly for use therein;
(c) The Registration Statement conforms, and the Prospectus and any
further amendments or supplements to the Registration Statement or the
Prospectus will conform, in all material respects to the requirements of
the Act and the rules and regulations of the Commission thereunder and do
not and will not, as of the applicable effective date as to the
Registration Statement and any amendment thereto and as of the applicable
filing date as to the Prospectus and any amendment or supplement thereto,
contain an untrue statement of a material fact or omit to state a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in the case of the Registration Statement or any
amendment thereto, or omit to state a material fact required to be stated
therein or necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, in the case of
the Prospectus or any amendment or supplement thereto; provided, however,
that this representation and warranty shall not apply to any statements or
omissions made in reliance upon and in conformity with information
furnished in writing to the Company by an Underwriter through you jointly
or Goldman, Sachs & Co. expressly for use therein;
(d) Neither the Company nor any of its subsidiaries has sustained
since the date of the latest audited financial statements included in the
Prospectus any material loss or interference with its business from fire,
explosion, flood or other calamity, whether or not covered by insurance, or
from any labor dispute or court or governmental action, order or decree,
otherwise than as set forth or contemplated in the Prospectus; and, since
the respective dates as of which information is given in the Registration
2
<PAGE>
Statement and the Prospectus, there has not been any change in the capital
stock or long-term debt of the Company or any of its subsidiaries or any
material adverse change, or any development involving a prospective
material adverse change, in or affecting the general affairs, management,
financial position, stockholders' equity or results of operations of the
Company and its subsidiaries, otherwise than as set forth or contemplated
in the Prospectus;
(e) The Company and its subsidiaries own no real property and have
good and marketable title to all personal property owned by them, in each
case free and clear of all liens, encumbrances and defects except such as
are described in the Prospectus or such as do not materially affect the
value of such property and do not interfere with the use made and proposed
to be made of such property by the Company and its subsidiaries; and any
real property and buildings held under lease by the Company and its
subsidiaries are held by them under valid, subsisting and enforceable
leases with such exceptions as are not material and do not interfere with
the use made and proposed to be made of such property and buildings by the
Company and its subsidiaries;
(f) The Company has been duly incorporated and is validly existing as
a corporation in good standing under the laws of the State of Delaware,
with power and authority (corporate and other) to own its properties and
conduct its business as described in the Prospectus, and has been duly
qualified as a foreign corporation for the transaction of business and is
in good standing under the laws of each other jurisdiction in which it owns
or leases properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of the failure to be so qualified in any such jurisdiction; and each
subsidiary of the Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
(g) The Company has an authorized capitalization as set forth in the
Prospectus, and all of the issued shares of capital stock of the Company
have been duly and validly authorized and issued, are fully paid and non-
assessable, conform to the description of the Stock contained in the
Prospectus and are owned by 3Com Corporation ("3Com"); and all of the
issued shares of capital stock of each subsidiary of the Company have been
duly and validly authorized and issued, are fully paid and non-assessable
and (except as set forth in the Prospectus) are owned directly or
indirectly by the Company, free and clear of all liens, encumbrances,
equities or claims;
(h) The Shares have been duly and validly authorized and, when issued
and delivered against payment therefor as provided herein, will be duly and
validly issued and fully paid and non-assessable and will conform to the
description of the Stock contained in the Prospectus;
(i) The issue and sale of the Shares by the Company hereunder and the
compliance by the Company with all of the provisions of this Agreement and
the consummation of the transactions herein contemplated will not conflict
with or result in a breach or violation of any of the terms or provisions
of, or constitute a default under, any indenture, mortgage, deed of trust,
loan agreement or other agreement or instrument to which the Company or any
3
<PAGE>
of its subsidiaries is a party or by which the Company or any of its
subsidiaries is bound or to which any of the property or assets of the
Company or any of its subsidiaries is subject, nor will such action result
in any violation of the provisions of the Certificate of Incorporation or
By-laws of the Company or any statute or any order, rule or regulation of
any court or governmental agency or body having jurisdiction over the
Company or any of its subsidiaries or any of their properties; and no
consent, approval, authorization, order, registration or qualification of
or with any such court or governmental agency or body is required for the
issue and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration under
the Act of the Shares and such consents, approvals, authorizations,
registrations or qualifications as may be required under state securities
or Blue Sky laws in connection with the purchase and distribution of the
Shares by the Underwriters;
(j) Neither the Company nor any of its subsidiaries is in violation of
its Certificate of Incorporation or By-laws or in default in the
performance or observance of any obligation, agreement, covenant or
condition contained in any indenture, mortgage, deed of trust, loan
agreement, lease or other agreement or instrument to which it is a party or
by which it or any of its properties may be bound that would have a
material adverse effect on the business, financial condition, results of
operations or prospects of the Company and its subsidiaries, taken as a
whole;
(k) The statements set forth in the Prospectus under the caption
"Description of Capital Stock", insofar as they purport to constitute a
summary of the terms of the Stock, under the caption "Arrangements Between
Palm and 3Com" and under the caption "Underwriting" (other than information
furnished in writing to the Company by an Underwriter through you jointly
or Goldman, Sachs & Co. expressly for use therein), insofar as they purport
to describe the provisions of the laws and documents referred to therein,
are accurate and complete;
(l) Other than as set forth or contemplated in the Prospectus, there
are no legal or governmental proceedings pending to which the Company or
any of its subsidiaries is a party or of which any property of the Company
or any of its subsidiaries is the subject which, if determined adversely to
the Company or any of its subsidiaries, would individually or in the
aggregate have a material adverse effect on the current or future
consolidated financial position, stockholders' equity or results of
operations of the Company and its subsidiaries; and, to the Company's
knowledge, no such proceedings are threatened or contemplated by
governmental authorities or threatened by others;
(m) The Company is not and, after giving effect to the offering and
sale of the Shares, will not be an "investment company", as such term is
defined in the Investment Company Act of 1940, as amended (the "Investment
Company Act");
(n) Neither the Company nor any of its affiliates does business with
the government of Cuba or with any person or affiliate located in Cuba
within the meaning of Section 517.075, Florida Statutes;
(o) Deloitte & Touche LLP, who have certified certain financial
statements of the Company and its subsidiaries, are independent public
accountants as required by the Act and the rules and regulations of the
Commission thereunder;
4
<PAGE>
(p) The Company has reviewed its operations and that of its
subsidiaries and any third parties with which the Company or any of its
subsidiaries has a material relationship to evaluate the extent to which
the business or operations of the Company or any of its subsidiaries will
be affected by the Year 2000 Problem. As a result of such review, the
Company has no reason to believe, and does not believe, that the Year 2000
Problem will have a material adverse effect on the general affairs,
management, the current or future consolidated financial position, business
prospects, stockholders' equity or results of operations of the Company and
its subsidiaries or result in any material loss or interference with the
Company's business or operations. The "Year 2000 Problem" as used herein
means any significant risk that computer hardware or software used in the
receipt, transmission, processing, manipulation, storage, retrieval,
retransmission or other utilization of data or in the operation of
mechanical or electrical systems of any kind will not, in the case of dates
or time periods occurring after December 31, 1999, function at least as
effectively as in the case of dates or time periods occurring prior to
January 1, 2000;
(q) To the knowledge of the Company, except as set forth under
"Arrangements Between Palm and 3Com" in the Prospectus, the Company and its
subsidiaries own or possess valid licenses or other rights to use all
patents, trademarks, service marks, trade names, copyrights, know-how,
trade secrets and other intellectual property necessary to conduct the
business of the Company and its subsidiaries in the manner in which it has
been and is being conducted, and except as set forth in the Prospectus the
Company and its subsidiaries have not received any notice of infringement
or of conflict with (and the Company knows of no such infringement or
conflict with) asserted rights of others with respect to any patents,
trademarks, service marks, trade names, copyrights, know-how, trade secrets
or other intellectual property which, if determined adversely to the
Company or its subsidiaries, would individually or in the aggregate have a
material adverse effect on the general affairs, management, the current or
future consolidated financial position, business prospects, stockholders'
equity or results of operations of the Company and its subsidiaries; and
the inventions, products or processes referred to in the Prospectus do not,
to the knowledge of the Company, infringe or conflict with any right or
patent, or any invention, product or process which is the subject of a
patent application known to the Company, which if determined adversely
would have a material adverse effect on the general affairs, management,
the current or future consolidated financial position, business prospects,
stockholders' equity or results of operations of the Company and its
subsidiaries;
(r) Each of the Master Separation and Distribution Agreement, General
Assignment and Assumption Agreement, Master Patent Ownership and License
Agreement, Master Technology Ownership and License Agreement, Master
Trademark Ownership and License Agreement, Master Confidential Disclosure
Agreement, Master Transitional Services Agreement, Employee Matters
Agreement, Tax Sharing Agreement, Real Estate Matters Agreement,
Indemnification and Insurance Matters Agreement and Non-U.S. Plan
(collectively, the "Intercompany Agreements"), has been duly authorized,
executed and delivered by the Company and 3Com, is in full force and
effect, and constitutes a valid and legally binding obligation of the
Company and 3Com, enforceable against each of the Company and 3Com in
accordance with its terms, subject to bankruptcy, insolvency,
reorganization and other laws of general applicability relating to or
affecting creditors' rights and to general equity principles; and
5
<PAGE>
(s) The Company and its subsidiaries, taken as a whole, are insured by
insurers of recognized financial responsibility against such losses and
risks and in such amounts as are prudent and customary in the business in
which they are engaged; and neither the Company nor any of its subsidiaries
has any reason to believe that it will not be able to renew its existing
insurance coverage as and when such coverage expires or to obtain similar
coverage from similar insurers as may be necessary to continue its business
at a cost that would not have a material adverse effect on the general
affairs, management, the current or future consolidated financial position,
business prospects, stockholders' equity or results of operations of the
Company and its subsidiaries.
2. Subject to the terms and conditions herein set forth, (a) the Company
agrees to issue and sell to each of the Underwriters, and each of the
Underwriters agrees, severally and not jointly, to purchase from the Company, at
a purchase price per share of $........................, the number of Firm
Shares set forth opposite the name of such Underwriter in Schedule I hereto and
(b) in the event and to the extent that the Underwriters shall exercise the
election to purchase Optional Shares as provided below, the Company agrees to
issue and sell to each of the Underwriters, and each of the Underwriters agrees,
severally and not jointly, to purchase from the Company, at the purchase price
per share set forth in clause (a) of this Section 2, that portion of the number
of Optional Shares as to which such election shall have been exercised (to be
adjusted by you so as to eliminate fractional shares) determined by multiplying
such number of Optional Shares by a fraction, the numerator of which is the
maximum number of Optional Shares which such Underwriter is entitled to purchase
as set forth opposite the name of such Underwriter in Schedule I hereto and the
denominator of which is the maximum number of Optional Shares that all of the
Underwriters are entitled to purchase hereunder.
The Company hereby grants to the Underwriters the right to purchase at
their election up to ............ Optional Shares, at the purchase price per
share set forth in the paragraph above, for the purpose of covering sales of
shares in excess of the number of Firm Shares. Any such election to purchase
Optional Shares may be exercised only by written notice from you to the Company,
given within a period of 30 calendar days after the date of this Agreement,
setting forth the aggregate number of Optional Shares to be purchased and the
date on which such Optional Shares are to be delivered, as determined by you but
in no event earlier than the First Time of Delivery (as defined in Section 4
hereof) or, unless you and the Company otherwise agree in writing, earlier than
two or later than ten business days after the date of such notice.
3. Upon the authorization by you of the release of the Firm Shares, the
several Underwriters propose to offer the Firm Shares for sale upon the terms
and conditions set forth in the Prospectus.
4. (a) The Shares to be purchased by each Underwriter hereunder, in
definitive or electronic form, and in such authorized denominations and
registered in such names as Goldman, Sachs & Co. may request upon at least
forty-eight hours' prior notice to the Company, shall be delivered by or on
behalf of the Company to Goldman, Sachs & Co., through the facilities of
the Depository Trust Company ("DTC"), for the account of such Underwriter,
against payment by or on behalf of such Underwriter of the purchase price
therefor by wire transfer of Federal (same-day) funds to the account
specified by the Company to Goldman, Sachs & Co. at least forty-eight hours
in advance. The Company will cause the certificates representing the
Shares to be made available for checking and packaging at least twenty-four
hours prior to the Time of Delivery (as defined below)
6
<PAGE>
with respect thereto at the office DTC or its designated custodian.
Goldman, Sachs & Co., 85 Broad Street, New York, New York 10004 (the
"Designated Office"). The time and date of such delivery and payment shall
be, with respect to the Firm Shares, 9:30 a.m., New York City time, on
............., 1999 or such other time and date as Goldman, Sachs & Co. and
the Company may agree upon in writing, and, with respect to the Optional
Shares, 9:30 a.m., New York time, on the date specified by Goldman, Sachs &
Co. in the written notice given by Goldman, Sachs & Co. of the
Underwriters' election to purchase such Optional Shares, or such other time
and date as Goldman, Sachs & Co. and the Company may agree upon in writing.
Such time and date for delivery of the Firm Shares is herein called the
"First Time of Delivery", such time and date for delivery of the Optional
Shares, if not the First Time of Delivery, is herein called the "Second
Time of Delivery", and each such time and date for delivery is herein
called a "Time of Delivery".
(b) The documents to be delivered at each Time of Delivery by or on
behalf of the parties hereto pursuant to Section 7 hereof, including the
cross receipt for the Shares and any additional documents requested by the
Underwriters pursuant to Section 7(i) hereof, will be delivered at the
offices of Wilson, Sonsini, Goodrich & Rosati, 650 Page Mill Road, Palo
Alto, California 94304 (the "Closing Location"), and the Shares will be
delivered at the Designated Office, all at such Time of Delivery. A
meeting will be held at the Closing Location at 1:00 p.m., California time,
on the New York Business Day next preceding such Time of Delivery, at which
meeting the final drafts of the documents to be delivered pursuant to the
preceding sentence will be available for review by the parties hereto. For
the purposes of this Section 4, "New York Business Day" shall mean each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions in New York are generally authorized or obligated by
law or executive order to close.
5. The Company agrees with each of the Underwriters:
(a) To prepare the Prospectus in a form approved by you and to file
such Prospectus pursuant to Rule 424(b) under the Act not later than the
Commission's close of business on the second business day following the
execution and delivery of this Agreement, or, if applicable, such earlier
time as may be required by Rule 430A(a)(3) under the Act; to make no
further amendment or any supplement to the Registration Statement or
Prospectus which shall be disapproved by you promptly after reasonable
notice thereof; to advise you, promptly after it receives notice thereof,
of the time when any amendment to the Registration Statement has been filed
or becomes effective or any supplement to the Prospectus or any amended
Prospectus has been filed and to furnish you with copies thereof; to advise
you, promptly after it receives notice thereof, of the issuance by the
Commission of any stop order or of any order preventing or suspending the
use of any Preliminary Prospectus or prospectus, of the suspension of the
qualification of the Shares for offering or sale in any jurisdiction, of
the initiation or threatening of any proceeding for any such purpose, or of
any request by the Commission for the amending or supplementing of the
Registration Statement or Prospectus or for additional information; and, in
the event of the issuance of any stop order or of any order preventing or
suspending the use of any Preliminary Prospectus or prospectus or
suspending any such qualification, promptly to use its best efforts to
obtain the withdrawal of such order;
7
<PAGE>
(b) Promptly from time to time to take such action as you may
reasonably request to qualify the Shares for offering and sale under the
securities laws of such jurisdictions as you may request and to comply with
such laws so as to permit the continuance of sales and dealings therein in
such jurisdictions for as long as may be necessary to complete the
distribution of the Shares, provided that in connection therewith the
Company shall not be required to qualify as a foreign corporation or to
file a general consent to service of process in any jurisdiction;
(c) Prior to 10:00 A.M. New York City time, on the New York Business
Day next succeeding the date of this Agreement and from time to time, to
furnish the Underwriters with copies of the Prospectus in New York City in
such quantities as you may reasonably request, and, if the delivery of a
prospectus is required at any time prior to the expiration of nine months
after the time of issue of the Prospectus in connection with the offering
or sale of the Shares and if at such time any event shall have occurred as
a result of which the Prospectus as then amended or supplemented would
include an untrue statement of a material fact or omit to state any
material fact necessary in order to make the statements therein, in the
light of the circumstances under which they were made when such Prospectus
is delivered, not misleading, or, if for any other reason it shall be
necessary during such period to amend or supplement the Prospectus in order
to comply with the Act, to notify you and upon your request to prepare and
furnish without charge to each Underwriter and to any dealer in securities
as many copies as you may from time to time reasonably request of an
amended Prospectus or a supplement to the Prospectus which will correct
such statement or omission or effect such compliance, and in case any
Underwriter is required to deliver a prospectus in connection with sales of
any of the Shares at any time nine months or more after the time of issue
of the Prospectus, upon your request but at the expense of such
Underwriter, to prepare and deliver to such Underwriter as many copies as
you may request of an amended or supplemented Prospectus complying with
Section 10(a)(3) of the Act;
(d) To make generally available to its securityholders as soon as
practicable, but in any event not later than eighteen months after the
effective date of the Registration Statement (as defined in Rule 158(c)
under the Act), an earnings statement of the Company and its subsidiaries
(which need not be audited) complying with Section 11(a) of the Act and the
rules and regulations thereunder (including, at the option of the Company,
Rule 158);
(e) During the period beginning from the date hereof and continuing to
and including the date 180 days after the date of the Prospectus, not to
offer, sell, contract to sell or otherwise dispose of, except as provided
hereunder, any securities of the Company that are substantially similar to
the Shares, including but not limited to any securities that are
convertible into or exchangeable for, or that represent the right to
receive, Stock or any such substantially similar securities (other than
pursuant to employee stock option or purchase plans existing on, or upon
the conversion or exchange of convertible or exchangeable securities
outstanding as of, the date of this Agreement), without your prior written
consent;
(f) To furnish to its stockholders as soon as practicable after the
end of each fiscal year an annual report (including a balance sheet and
statements of income,
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stockholders' equity and cash flows of the Company and its consolidated
subsidiaries certified by independent public accountants) and, as soon as
practicable after the end of each of the first three quarters of each
fiscal year (beginning with the fiscal quarter ending after the effective
date of the Registration Statement), to make available to its stockholders
consolidated summary financial information of the Company and its
subsidiaries for such quarter in reasonable detail;
(g) During a period of three years from the effective date of the
Registration Statement, to furnish to you copies of all reports or other
communications (financial or other) furnished to stockholders, and to
deliver to you (i) as soon as they are available, copies of any reports and
financial statements furnished to or filed with the Commission or any
national securities exchange on which any class of securities of the
Company is listed; and (ii) such additional publicly-available information
concerning the business and financial condition of the Company as you may
from time to time reasonably request (such financial statements to be on a
consolidated basis to the extent the accounts of the Company and its
subsidiaries are consolidated in reports furnished to its stockholders
generally or to the Commission);
(h) To use the net proceeds received by it from the sale of the Shares
pursuant to this Agreement in the manner specified in the Prospectus under
the caption "Use of Proceeds";
(i) To use its best efforts to list for quotation the Shares on the
National Association of Securities Dealers Automated Quotations National
Market System ("NASDAQ");
(j) To file with the Commission such information on Form 10-Q or Form
10-K as may be required by Rule 463 under the Act; and
(k) If the Company elects to rely upon Rule 462(b), the Company shall
file a Rule 462(b) Registration Statement with the Commission in compliance
with Rule 462(b) by 10:00 P.M., Washington, D.C. time, on the date of this
Agreement, and the Company shall at the time of filing either pay to the
Commission the filing fee for the Rule 462(b) Registration Statement or
give irrevocable instructions for the payment of such fee pursuant to Rule
111(b) under the Act.
6. The Company covenants and agrees with the several Underwriters that the
Company will pay or cause to be paid the following: (i) the fees, disbursements
and expenses of the Company's counsel and accountants in connection with the
registration of the Shares under the Act and all other expenses in connection
with the preparation, printing and filing of the Registration Statement, any
Preliminary Prospectus and the Prospectus and amendments and supplements thereto
and the mailing and delivering of copies thereof to the Underwriters and
dealers; (ii) the cost of printing or producing any Agreement among
Underwriters, this Agreement, the Blue Sky Memorandum, closing documents
(including compilations thereof) and any other documents in connection with the
offering, purchase, sale and delivery of the Shares; (iii) all expenses in
connection with the qualification of the Shares for offering and sale under
state securities laws as provided in Section 5(b) hereof, including the fees and
disbursements of counsel for the Underwriters in connection with such
qualification and in connection with the Blue Sky survey; (iv) all fees and
expenses in connection with listing the Shares on the NASDAQ; (v) the filing
fees incident to, and the fees and disbursements of
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<PAGE>
counsel for the Underwriters in connection with, securing any required review by
the National Association of Securities Dealers, Inc. of the terms of the sale of
the Shares]; (vi) the cost of preparing stock certificates; (vii) the cost and
charges of any transfer agent or registrar; and (viii) all other costs and
expenses incident to the performance of its obligations hereunder which are not
otherwise specifically provided for in this Section. It is understood, however,
that, except as provided in this Section, and Sections 8 and 11 hereof, the
Underwriters will pay all of their own costs and expenses, including the fees of
their counsel, stock transfer taxes on resale of any of the Shares by them, and
any advertising expenses connected with any offers they may make.
7. The obligations of the Underwriters hereunder, as to the Shares to be
delivered at each Time of Delivery, shall be subject, in their discretion, to
the condition that all representations and warranties and other statements of
the Company herein are, at and as of such Time of Delivery, true and correct,
the condition that the Company shall have performed all of its obligations
hereunder theretofore to be performed, and the following additional conditions:
(a) The Prospectus shall have been filed with the Commission pursuant
to Rule 424(b) within the applicable time period prescribed for such filing
by the rules and regulations under the Act and in accordance with Section
5(a) hereof; if the Company has elected to rely upon Rule 462(b), the Rule
462(b) Registration Statement shall have become effective by 10:00 P.M.,
Washington, D.C. time, on the date of this Agreement; no stop order
suspending the effectiveness of the Registration Statement or any part
thereof shall have been issued and no proceeding for that purpose shall
have been initiated or threatened by the Commission; and all requests for
additional information on the part of the Commission shall have been
complied with to your reasonable satisfaction;
(b) Sullivan & Cromwell, counsel for the Underwriters, shall have
furnished to you such written opinion or opinions (a draft of each such
opinion is attached as Annex II(a) hereto), dated such Time of Delivery,
with respect to such matters as you may reasonably request, and such
counsel shall have received such papers and information as they may
reasonably request to enable them to pass upon such matters;
(c) Wilson Sonsini Goodrich & Rosati, counsel for the Company, shall
have furnished to you their written opinion (a draft of such opinion is
attached as Annex II(b) hereto), dated such Time of Delivery, in form and
substance satisfactory to you, to the effect that:
(i) The Company has been duly incorporated and is validly
existing as a corporation in good standing under the laws of the State
of Delaware, with corporate power and authority to own its properties
and conduct its business as described in the Prospectus;
(ii) The Company has an authorized capitalization as set forth in
the Prospectus, and all of the issued shares of capital stock of the
Company (including the Shares being delivered at such Time of
Delivery) have been duly and validly authorized and issued and are
fully paid and nonassessable; and the Shares conform to the
description of the Stock contained in the Prospectus;
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(iii) The Company has been duly qualified as a foreign
corporation for the transaction of business and is in good standing
under the laws of each other jurisdiction in which it owns or leases
properties or conducts any business so as to require such
qualification, or is subject to no material liability or disability by
reason of failure to be so qualified in any such jurisdiction (such
counsel being entitled to rely in respect of the opinion in this
clause upon opinions of local counsel and in respect of matters of
fact upon certificates of officers of the Company, provided that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(iv) The Intercompany Agreements have been duly authorized,
executed and delivered by the Company and 3Com, and each constitutes a
valid and legally binding agreement of the Company and 3Com,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles;
(v) To such counsel's knowledge and other than as set forth in
the Prospectus, there are no legal or governmental proceedings pending
to which the Company or any of its subsidiaries is a party or of which
any property of the Company or any of its subsidiaries is the subject
which, if determined adversely to the Company or any of its
subsidiaries, would individually or in the aggregate have a material
adverse effect on the current or future consolidated financial
position, stockholders' equity or results of operations of the Company
and its subsidiaries; and, to such counsel's knowledge, no such
proceedings are threatened or contemplated by governmental authorities
or threatened by others;
(vi) This Agreement has been duly authorized, executed and
delivered by the Company;
(vii) The issue and sale of the Shares being delivered at such
Time of Delivery by the Company and the compliance by the Company with
all of the provisions of this Agreement and the consummation of the
transactions herein and therein contemplated and the performance by
the Company and 3Com of their respective obligations under the
Intercompany Agreements will not conflict with or result in a breach
or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument identified to such counsel by the
Company in a certificate of an executive officer of the Company
attached to such opinion as being the agreements that are material to
the Company, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the
Company or 3Com or any statute or any order, rule or regulation known
to such counsel of any court or governmental agency or body having
jurisdiction over the Company, 3Com or any of their subsidiaries or
any of their properties;
(viii) No consent, approval, authorization, order, registration
or qualification of or with any court or governmental agency or body
is required under any statute, rule or regulation or, to the Company's
knowledge, otherwise, for the
11
<PAGE>
issue and sale of the Shares or the consummation by the Company of the
transactions contemplated by this Agreement, except the registration
under the Act of the Shares, and such consents, approvals,
authorizations, registrations or qualifications as may be required
under state or foreign securities or Blue Sky laws in connection with
the purchase and distribution of the Shares by the Underwriters;
(ix) Neither the Company nor any of its subsidiaries is in
violation of its Certificate of Incorporation or By-laws or in default
in the performance or observance of any obligation, agreement,
covenant or condition contained in any indenture, mortgage, deed of
trust, loan agreement, lease or other agreement or instrument to which
it is a party or by which it or any of its properties may be bound,
which defaults would, individually or in the aggregate, reasonably be
expected to have a material adverse effect on the business, financial
condition, results of operations or prospects of the Company and its
subsidiaries, taken as a whole;
(x) The statements set forth in the Prospectus under the
caption "Description of Capital Stock", insofar as they purport to
constitute a summary of the terms of the Stock, under the caption
"Arrangements Between Palm and 3Com" and under the caption
"Underwriting", insofar as they purport to describe the provisions of
the laws and documents referred to therein, are accurate and complete;
(xi) The Company is not an "investment company", as such term is
defined in the Investment Company Act; and
(xii) The Registration Statement and the Prospectus and any
further amendments and supplements thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related schedules therein, as to which such counsel need express no
opinion) comply as to form in all material respects with the
requirements of the Act and the rules and regulations thereunder,
although they do not assume any responsibility for the accuracy,
completeness or fairness of the statements contained in the
Registration Statement or the Prospectus, except for those referred to
in the opinion in subsection (x) of this Section 7(c); they have no
reason to believe that, as of its effective date, the Registration
Statement or any further amendment thereto made by the Company prior
to such Time of Delivery (other than the financial statements and
related statements and related schedules therein, as to which such
counsel need express no opinion) contained an untrue statement of a
material fact or omitted to state a material fact required to be
stated therein or necessary to make the statements therein not
misleading or that, as of its date, the Prospectus or any further
amendment or supplement thereto made by the Company prior to such Time
of Delivery (other than the financial statements and related schedules
therein, as to which such counsel need express no opinion) contained
an untrue statement of a material fact or omitted to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading or that, as
of such Time of Delivery, either the Registration Statement or the
Prospectus or any further amendment or
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<PAGE>
supplement thereto made by the Company prior to such Time of Delivery
(other than the financial statements and related schedules therein, as
to which such counsel need express no opinion) contains an untrue
statement of a material fact or omits to state a material fact
necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading; and they do
not know of any amendment to the Registration Statement required to be
filed or of any contracts or other documents of a character required
to be filed as an exhibit to the Registration Statement or required to
be described in the Registration Statement or the Prospectus which are
not filed or described as required.
In rendering such opinion, such counsel may state that they
express no opinion as to the laws of any jurisdiction outside the
United States.
(d) Mark Micheal, general counsel of 3Com, shall have furnished to you
such written opinion or opinions (a draft of each such opinion is attached
as Annex II(c) hereto), dated such Time of Delivery, to the effect that:
(i) The performance by 3Com of its obligations under the
Intercompany Agreements will not conflict with or result in a breach
or violation of any of the terms or provisions of, or constitute a
default under, any indenture, mortgage, deed of trust, loan agreement
or other agreement or instrument known to such counsel to which the
Company or any of its subsidiaries is a party or by which the Company,
3Com or any of their subsidiaries is bound or to which any of the
property or assets of the Company, 3Com or any of their subsidiaries
is subject, nor will such action result in any violation of the
provisions of the Certificate of Incorporation or By-laws of the
Company or 3Com or any statute or any order, rule or regulation known
to such counsel of any court or governmental agency or body having
jurisdiction over the Company, 3Com or any of their subsidiaries or
any of their properties; and
(ii) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body
having is required for the execution and delivery by 3Com of, and
compliance by 3Com with, the provisions of each of the Intercompany
Agreements, except such as shall have been obtained or waived or that,
if not obtained or waived, would not have a material adverse effect on
the separation of the Company's businesses from those of 3Com as
described in the prospectus or on the ability of the Company and the
Underwriters to consummate the offering contemplated hereby.
In rendering such opinion, such counsel may state that he
expresses no opinion as to the laws of any jurisdiction outside the
United States.
(e) Baker & McKenzie shall have furnished to you such written opinion
or opinions (a draft of each such opinion is attached as Annex II(d)
hereto), dated such Time of Delivery, with respect to Palm Computing SARL
(France), to the effect that:
(i) Such subsidiary has been duly incorporated and is validly
existing as a corporation in good standing under the laws of its
jurisdiction of incorporation;
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<PAGE>
and all of the issued shares of capital stock of each such subsidiary
have been duly and validly authorized and issued, are fully paid and
non-assessable, and (except as otherwise set forth in the Prospectus)
are owned directly or indirectly by the Company, free and clear of all
liens, encumbrances, equities or claims (such counsel being entitled
to rely in respect of the opinion in this clause upon opinions of
local counsel and in respect to matters of fact upon certificates of
officers of the Company or its subsidiaries, provided that such
counsel shall state that they believe that both you and they are
justified in relying upon such opinions and certificates);
(ii) The agreements between international subsidiaries have been
duly authorized, executed and delivered by such subsidiary, and
constitutes a valid and legally binding agreement of such subsidiary,
enforceable in accordance with its terms, subject to bankruptcy,
insolvency, reorganization and other laws of general applicability
relating to or affecting creditors' rights and to general equity
principles;
(iii) No consent, approval, authorization, order, registration or
qualification of or with any court or governmental agency or body is
required for the execution and delivery of, and compliance with, the
provisions of the agreements between international subsidiaries by the
parties thereto, except such as shall have been obtained or waived or
that, if not obtained or waived, would not have a material adverse
effect on the separation of the business of such subsidiary of the
Company from those of 3Com as described in the prospectus or on the
ability of the Company and the Underwriters to consummate the offering
contemplated hereby; and
(iv) The performance by the parties to the agreements between
international subsidiaries of their obligations thereunder will not
result in any violation any order, rule or regulation known to such
counsel of any court or governmental agency or body having
jurisdiction over such subsidiary or any of its properties.
(f) On the date of the Prospectus at a time prior to the execution of
this Agreement, at 9:30 a.m., New York City time, on the effective date of
any post-effective amendment to the Registration Statement filed subsequent
to the date of this Agreement and also at each Time of Delivery, Deloitte &
Touche LLP shall have furnished to you a letter or letters, dated the
respective dates of delivery thereof, in form and substance satisfactory to
you, to the effect set forth in Annex I hereto (the executed copy of the
letter delivered prior to the execution of this Agreement is attached as
Annex I(a) hereto and a draft of the form of letter to be delivered on the
effective date of any post-effective amendment to the Registration
Statement and as of each Time of Delivery is attached as Annex I(b)
hereto);
(g)(i) Neither the Company nor any of its subsidiaries shall have
sustained since the date of the latest audited financial statements
included in the Prospectus any loss or interference with its business from
fire, explosion, flood or other calamity, whether or not covered by
insurance, or from any labor dispute or court or governmental action, order
or decree, otherwise than as set forth or contemplated in the Prospectus,
and (ii) since
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<PAGE>
the respective dates as of which information is given in the Prospectus
there shall not have been any change in the capital stock or long-term debt
of the Company or any of its subsidiaries or any change, or any development
involving a prospective change, in or affecting the general affairs,
management, financial position, stockholders' equity or results of
operations of the Company and its subsidiaries, otherwise than as set forth
or contemplated in the Prospectus, the effect of which, in any such case
described in clause (i) or (ii), is in the judgment of the Representatives
so material and adverse as to make it impracticable or inadvisable to
proceed with the public offering or the delivery of the Shares being
delivered at such Time of Delivery on the terms and in the manner
contemplated in the Prospectus;
(h) On or after the date hereof there shall not have occurred any of
the following: (i) a suspension or material limitation in trading in
securities generally on the New York Stock Exchange or on the NASDAQ; (ii)
a suspension or material limitation in trading in the Company's securities
on the NASDAQ; (iii) a general moratorium on commercial banking activities
declared by either Federal or New York or California State authorities; or
(iv) the outbreak or escalation of hostilities involving the United States
or the declaration by the United States of a national emergency or war, if
the effect of any such event specified in this clause (iv) in the judgment
of the Representatives makes it impracticable or inadvisable to proceed
with the public offering or the delivery of the Shares being delivered at
such Time of Delivery on the terms and in the manner contemplated in the
Prospectus;
(i) The Shares to be sold at such Time of Delivery shall have been
duly listed for quotation on NASDAQ;
(j) The Company has obtained and delivered to the Underwriters
executed copies of an agreement from 3Com and each executive officer and
director of the Company, substantially to the effect set forth in
Subsection 5(e) hereof in form and substance satisfactory to you;
(k) The Company shall have complied with the provisions of Section
5(c) hereof with respect to the furnishing of prospectuses on the New York
Business Day next succeeding the date of this Agreement; and
(l) The Company shall have furnished or caused to be furnished to you
at such Time of Delivery certificates of officers of the Company
satisfactory to you as to the accuracy of the representations and
warranties of the Company herein at and as of such Time of Delivery, as to
the performance by the Company of all of its obligations hereunder to be
performed at or prior to such Time of Delivery, as to the matters set forth
in subsections (a) and (e) of this Section and as to such other matters as
you may reasonably request.
8. (a) The Company will indemnify and hold harmless each Underwriter
against any losses, claims, damages or liabilities, joint or several, to
which such Underwriter may become subject, under the Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon an untrue statement or
alleged untrue statement of a material fact contained in any Preliminary
Prospectus, the Registration Statement or the Prospectus, or any
15
<PAGE>
amendment or supplement thereto, or arise out of or are based upon the
omission or alleged omission to state therein a material fact required to
be stated therein or necessary to make the statements therein not
misleading, and will reimburse each Underwriter for any legal or other
expenses reasonably incurred by such Underwriter in connection with
investigating or defending any such action or claim as such expenses are
incurred; provided, however, that the Company shall not be liable in any
such case to the extent that any such loss, claim, damage or liability
arises out of or is based upon an untrue statement or alleged untrue
statement or omission or alleged omission made in any Preliminary
Prospectus, the Registration Statement or the Prospectus or any such
amendment or supplement in reliance upon and in conformity with written
information furnished to the Company by any Underwriter through Goldman,
Sachs & Co. expressly for use therein.
(b) Each Underwriter will indemnify and hold harmless the Company
against any losses, claims, damages or liabilities to which the Company may
become subject, under the Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon an untrue statement or alleged untrue statement of a material
fact contained in any Preliminary Prospectus, the Registration Statement or
the Prospectus, or any amendment or supplement thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements
therein not misleading, in each case to the extent, but only to the extent,
that such untrue statement or alleged untrue statement or omission or
alleged omission was made in any Preliminary Prospectus, the Registration
Statement or the Prospectus or any such amendment or supplement in reliance
upon and in conformity with written information furnished to the Company by
such Underwriter through Goldman, Sachs & Co. expressly for use therein;
and will reimburse the Company for any legal or other expenses reasonably
incurred by the Company in connection with investigating or defending any
such action or claim as such expenses are incurred.
(c) Promptly after receipt by an indemnified party under subsection
(a) or (b) above of notice of the commencement of any action, such
indemnified party shall, if a claim in respect thereof is to be made
against the indemnifying party under such subsection, notify the
indemnifying party in writing of the commencement thereof; but the omission
so to notify the indemnifying party shall not relieve it from any liability
which it may have to any indemnified party otherwise than under such
subsection. In case any such action shall be brought against any
indemnified party and it shall notify the indemnifying party of the
commencement thereof, the indemnifying party shall be entitled to
participate therein and, to the extent that it shall wish, jointly with any
other indemnifying party similarly notified, to assume the defense thereof,
with counsel satisfactory to such indemnified party (who shall not, except
with the consent of the indemnified party, be counsel to the indemnifying
party), and, after notice from the indemnifying party to such indemnified
party of its election so to assume the defense thereof, the indemnifying
party shall not be liable to such indemnified party under such subsection
for any legal expenses of other counsel or any other expenses, in each case
subsequently incurred by such indemnified party, in connection with the
defense thereof other than reasonable costs of investigation. No
indemnifying party shall, without the written consent of the indemnified
party, effect the settlement or compromise of, or consent to the entry of
any judgment with respect to, any pending or threatened action
16
<PAGE>
or claim in respect of which indemnification or contribution may be sought
hereunder (whether or not the indemnified party is an actual or potential
party to such action or claim) unless such settlement, compromise or
judgment (i) includes an unconditional release of the indemnified party
from all liability arising out of such action or claim and (ii) does not
include a statement as to or an admission of fault, culpability or a
failure to act, by or on behalf of any indemnified party.
(d) If the indemnification provided for in this Section 8 is
unavailable to or insufficient to hold harmless an indemnified party under
subsection (a) or (b) above in respect of any losses, claims, damages or
liabilities (or actions in respect thereof) referred to therein, then each
indemnifying party shall contribute to the amount paid or payable by such
indemnified party as a result of such losses, claims, damages or
liabilities (or actions in respect thereof) in such proportion as is
appropriate to reflect the relative benefits received by the Company on the
one hand and the Underwriters on the other from the offering of the Shares.
If, however, the allocation provided by the immediately preceding sentence
is not permitted by applicable law or if the indemnified party failed to
give the notice required under subsection (c) above, then each indemnifying
party shall contribute to such amount paid or payable by such indemnified
party in such proportion as is appropriate to reflect not only such
relative benefits but also the relative fault of the Company on the one
hand and the Underwriters on the other in connection with the statements or
omissions which resulted in such losses, claims, damages or liabilities (or
actions in respect thereof), as well as any other relevant equitable
considerations. The relative benefits received by the Company on the one
hand and the Underwriters on the other shall be deemed to be in the same
proportion as the total net proceeds from the offering of the Shares
purchased under this Agreement (before deducting expenses) received by the
Company bear to the total underwriting discounts and commissions received
by the Underwriters with respect to the Shares purchased under this
Agreement, in each case as set forth in the table on the cover page of the
Prospectus. The relative fault shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material
fact or the omission or alleged omission to state a material fact relates
to information supplied by the Company on the one hand or the Underwriters
on the other and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or
omission. The Company and the Underwriters agree that it would not be just
and equitable if contributions pursuant to this subsection (d) were
determined by pro rata allocation (even if the Underwriters were treated as
one entity for such purpose) or by any other method of allocation which
does not take account of the equitable considerations referred to above in
this subsection (d). The amount paid or payable by an indemnified party as
a result of the losses, claims, damages or liabilities (or actions in
respect thereof) referred to above in this subsection (d) shall be deemed
to include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such
action or claim. Notwithstanding the provisions of this subsection (d), no
Underwriter shall be required to contribute any amount in excess of the
amount by which the total price at which the Shares underwritten by it and
distributed to the public were offered to the public exceeds the amount of
any damages which such Underwriter has otherwise been required to pay by
reason of such untrue or alleged untrue statement or omission or alleged
omission. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Act) shall be entitled to contribution from
any person who was not guilty of such fraudulent
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misrepresentation. The Underwriters' obligations in this subsection (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
(e) The obligations of the Company under this Section 8 shall be in
addition to any liability which the Company may otherwise have and shall
extend, upon the same terms and conditions, to each person, if any, who
controls any Underwriter within the meaning of the Act; and the obligations
of the Underwriters under this Section 8 shall be in addition to any
liability which the respective Underwriters may otherwise have and shall
extend, upon the same terms and conditions, to each officer and director of
the Company (including any person who, with his or her consent, is named in
the Registration Statement as about to become a director of the Company)
and to each person, if any, who controls the Company within the meaning of
the Act.
9. (a) If any Underwriter shall default in its obligation to
purchase the Shares which it has agreed to purchase hereunder at a Time of
Delivery, you may in your discretion arrange for you or another party or
other parties to purchase such Shares on the terms contained herein. If
within thirty-six hours after such default by any Underwriter you do not
arrange for the purchase of such Shares, then the Company shall be entitled
to a further period of thirty-six hours within which to procure another
party or other parties satisfactory to you to purchase such Shares on such
terms. In the event that, within the respective prescribed periods, you
notify the Company that you have so arranged for the purchase of such
Shares, or the Company notifies you that it has so arranged for the
purchase of such Shares, you or the Company shall have the right to
postpone such Time of Delivery for a period of not more than seven days, in
order to effect whatever changes may thereby be made necessary in the
Registration Statement or the Prospectus, or in any other documents or
arrangements, and the Company agrees to file promptly any amendments to the
Registration Statement or the Prospectus which in your opinion may thereby
be made necessary. The term "Underwriter" as used in this Agreement shall
include any person substituted under this Section with like effect as if
such person had originally been a party to this Agreement with respect to
such Shares.
(b) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased does not exceed one-eleventh of the
aggregate number of all the Shares to be purchased at such Time of
Delivery, then the Company shall have the right to require each non-
defaulting Underwriter to purchase the number of Shares which such
Underwriter agreed to purchase hereunder at such Time of Delivery and, in
addition, to require each non-defaulting Underwriter to purchase its pro
rata share (based on the number of Shares which such Underwriter agreed to
purchase hereunder) of the Shares of such defaulting Underwriter or
Underwriters for which such arrangements have not been made; but nothing
herein shall relieve a defaulting Underwriter from liability for its
default.
(c) If, after giving effect to any arrangements for the purchase of
the Shares of a defaulting Underwriter or Underwriters by you and the
Company as provided in subsection (a) above, the aggregate number of such
Shares which remains unpurchased exceeds one-eleventh of the aggregate
number of all the Shares to be
18
<PAGE>
purchased at such Time of Delivery, or if the Company shall not exercise
the right described in subsection (b) above to require non-defaulting
Underwriters to purchase Shares of a defaulting Underwriter or
Underwriters, then this Agreement (or, with respect to the Second Time of
Delivery, the obligations of the Underwriters to purchase and of the
Company to sell the Optional Shares) shall thereupon terminate, without
liability on the part of any non-defaulting Underwriter or the Company,
except for the expenses to be borne by the Company and the Underwriters as
provided in Section 6 hereof and the indemnity and contribution agreements
in Section 8 hereof; but nothing herein shall relieve a defaulting
Underwriter from liability for its default.
10. The respective indemnities, agreements, representations, warranties
and other statements of the Company and the several Underwriters, as set forth
in this Agreement or made by or on behalf of them, respectively, pursuant to
this Agreement, shall remain in full force and effect, regardless of any
investigation (or any statement as to the results thereof) made by or on behalf
of any Underwriter or any controlling person of any Underwriter, or the Company,
or any officer or director or controlling person of the Company, and shall
survive delivery of and payment for the Shares.
11. If this Agreement shall be terminated pursuant to Section 9 hereof,
the Company shall not then be under any liability to any Underwriter except as
provided in Sections 6 and 8 hereof; but, if for any other reason, any Shares
are not delivered by or on behalf of the Company as provided herein, the Company
will reimburse the Underwriters through you for all out-of-pocket expenses
approved in writing by you, including fees and disbursements of counsel,
reasonably incurred by the Underwriters in making preparations for the purchase,
sale and delivery of the Shares not so delivered, but the Company shall then be
under no further liability to any Underwriter in respect of the Shares not so
delivered except as provided in Sections 6 and 8 hereof.
12. In all dealings hereunder, you shall act on behalf of each of the
Underwriters, and the parties hereto shall be entitled to act and rely upon any
statement, request, notice or agreement on behalf of any Underwriter made or
given by you jointly or by Goldman, Sachs & Co. on behalf of you as the
representatives.
All statements, requests, notices and agreements hereunder shall be in
writing, and if to the Underwriters shall be delivered or sent by mail, telex or
facsimile transmission to you as the representatives in care of Goldman, Sachs &
Co., 32 Old Slip, 21st Floor, New York, New York 10005, Attention: Registration
Department; and if to the Company shall be delivered or sent by mail, telex or
facsimile transmission to the address of the Company set forth in the
Registration Statement, Attention: Secretary; provided, however, that any notice
to an Underwriter pursuant to Section 8(c) hereof shall be delivered or sent by
mail, telex or facsimile transmission to such Underwriter at its address set
forth in its Underwriters' Questionnaire, or telex constituting such
Questionnaire, which address will be supplied to the Company by you upon
request. Any such statements, requests, notices or agreements shall take effect
at the time of receipt thereof.
13. This Agreement shall be binding upon, and inure solely to the benefit
of, the Underwriters, the Company and, to the extent provided in Sections 8 and
10 hereof, the officers and directors of the Company and each person who
controls the Company or any Underwriter, and their respective heirs, executors,
administrators, successors and assigns, and no other person shall acquire or
have any right under or by virtue of this Agreement. No purchaser of any of the
Shares from any Underwriter shall be deemed a successor or assign by reason
merely of such purchase.
19
<PAGE>
14. Time shall be of the essence of this Agreement. As used herein, the
term "business day" shall mean any day when the Commission's office in
Washington, D.C. is open for business.
15. This Agreement shall be governed by and construed in accordance with
the laws of the State of New York.
16. This Agreement may be executed by any one or more of the parties
hereto in any number of counterparts, each of which shall be deemed to be an
original, but all such counterparts shall together constitute one and the same
instrument.
20
<PAGE>
If the foregoing is in accordance with your understanding, please sign and
return to us 4 counterparts hereof, and upon the acceptance hereof by you, on
behalf of each of the Underwriters, this letter and such acceptance hereof shall
constitute a binding agreement between each of the Underwriters and the Company.
It is understood that your acceptance of this letter on behalf of each of the
Underwriters is pursuant to the authority set forth in a form of Agreement among
Underwriters, the form of which shall be submitted to the Company for
examination upon request, but without warranty on your part as to the authority
of the signers thereof.
Very truly yours,
Palm, Inc.
By:....................................
Name:
Title:
Accepted as of the date hereof:
Goldman, Sachs & Co.
Morgan Stanley & Co. Incorporated
Merrill Lynch, Pierce, Fenner & Smith Incorporated
FleetBoston Robertson Stephens Inc.
By:..........................................
Goldman, Sachs & Co.
On behalf of each of the Underwriters
21
<PAGE>
<TABLE>
<CAPTION>
SCHEDULE I
Number of Optional
Shares to be
Total Number of Purchased if
Firm Shares Maximum Option
Underwriter to be Purchased Exercised
----------- ----------------- ------------------
<S> <C> <C>
Goldman, Sachs & Co.........................................................
Morgan Stanley & Co. Incorporated...........................................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........................
FleetBoston Robertson Stephens Inc..........................................
----------------- ------------------
Total............................................................. ================= ==================
</TABLE>
22
<PAGE>
ANNEX I
FORM OF COMFORT LETTER
Pursuant to Section 7(f) of the Underwriting Agreement, the accountants
shall furnish letters to the Underwriters to the effect that:
(i) They are independent certified public accountants with respect
to the Company and its subsidiaries within the meaning of the Act and the
applicable published rules and regulations thereunder;
(ii) In their opinion, the financial statements and schedules
examined by them and included in the Prospectus or the Registration
Statement comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations thereunder; and, if applicable, they have made a review in
accordance with standards established by the American Institute of
Certified Public Accountants of the unaudited consolidated interim
financial statements and selected financial data derived from audited
financial statements of the Company for the periods specified in such
letter, as indicated in their reports thereon, copies of which have been
furnished separately to the representatives of the Underwriters (the
"Representatives");
(iii) They have made a review in accordance with standards
established by the American Institute of Certified Public Accountants of
the unaudited condensed consolidated statements of operations, consolidated
balance sheets and consolidated statements of cash flows included in the
Prospectus as indicated in their reports thereon copies of which have been
separately furnished to the Representatives and on the basis of specified
procedures including inquiries of officials of the Company who have
responsibility for financial and accounting matters regarding whether the
unaudited condensed consolidated financial statements referred to in
paragraph (vi)(A)(i) below comply as to form in all material respects with
the applicable accounting requirements of the Act and the related published
rules and regulations, nothing came to their attention that caused them to
believe that the unaudited condensed consolidated financial statements do
not comply as to form in all material respects with the applicable
accounting requirements of the Act and the related published rules and
regulations;
(iv) The unaudited selected financial information with respect to the
consolidated results of operations and financial position of the Company
for the five most recent fiscal years included in the Prospectus agrees
with the corresponding amounts in the audited or unaudited consolidated
financial statements for such five fiscal years;
(v) They have compared the information in the Prospectus under
selected captions with the disclosure requirements of Regulation S-K and on
the basis of limited procedures specified in such letter nothing came to
their attention as a result of the foregoing procedures that caused them to
believe that this information does not conform in all material respects
with the disclosure requirements of Items 301, 302, 402 and 503(d),
respectively, of Regulation S-K;
I-1
<PAGE>
(vi) On the basis of limited procedures, not constituting an
examination in accordance with generally accepted auditing standards,
consisting of a reading of the unaudited financial statements and other
information referred to below, a reading of the latest available interim
financial statements of the Company and its subsidiaries, inspection of the
minute books of the Company and its subsidiaries since the date of the
latest audited financial statements included in the Prospectus, inquiries
of officials of the Company and its subsidiaries responsible for financial
and accounting matters and such other inquiries and procedures as may be
specified in such letter, nothing came to their attention that caused them
to believe that:
(A) (i) the unaudited consolidated statements of operations,
consolidated balance sheets and consolidated statements of cash flows
included in the Prospectus do not comply as to form in all material
respects with the applicable accounting requirements of the Act and
the related published rules and regulations, or (ii) any material
modifications should be made to the unaudited condensed consolidated
statements of operations, consolidated balance sheets and consolidated
statements of cash flows included in the Prospectus for them to be in
conformity with generally accepted accounting principles;
(B) any other unaudited statement of operations data and balance
sheet items included in the Prospectus do not agree with the
corresponding items in the unaudited consolidated financial statements
from which such data and items were derived, and any such unaudited
data and items were not determined on a basis substantially consistent
with the basis for the corresponding amounts in the audited
consolidated financial statements included in the Prospectus;
(C) the unaudited financial statements which were not included in
the Prospectus but from which were derived any unaudited condensed
financial statements referred to in clause (A) and any unaudited
statement of operations data and balance sheet items included in the
Prospectus and referred to in clause (B) were not determined on a
basis substantially consistent with the basis for the audited
consolidated financial statements included in the Prospectus;
(D) any unaudited pro forma consolidated condensed financial
statements included in the Prospectus do not comply as to form in all
material respects with the applicable accounting requirements of the
Act and the published rules and regulations thereunder or the pro
forma adjustments have not been properly applied to the historical
amounts in the compilation of those statements;
(E) as of a specified date not more than five days prior to the
date of such letter, there have been any changes in the consolidated
capital stock (other than issuances of capital stock upon exercise of
options and stock appreciation rights, upon earn-outs of performance
shares and upon conversions of convertible securities, in each case
which were outstanding on the date of the latest financial statements
included in the Prospectus) or any increase in the consolidated long-
term debt of the Company and its subsidiaries, or any decreases in
consolidated net current assets or stockholders' equity or other items
specified by the Representatives, or any increases in any items
specified by the
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<PAGE>
Representatives, in each case as compared with amounts shown in the
latest balance sheet included in the Prospectus, except in each case
for changes, increases or decreases which the Prospectus discloses
have occurred or may occur or which are described in such letter; and
(F) for the period from the date of the latest financial
statements included in the Prospectus to the specified date referred
to in clause (E) there were any decreases in consolidated revenues or
operating profit or the total or per share amounts of consolidated
income or other items specified by the Representatives, or any
increases in any items specified by the Representatives, in each case
as compared with the comparable period of the preceding year and with
any other period of corresponding length specified by the
Representatives, except in each case for decreases or increases which
the Prospectus discloses have occurred or may occur or which are
described in such letter; and
(vii) In addition to the examination referred to in their report(s)
included in the Prospectus and the limited procedures, inspection of minute
books, inquiries and other procedures referred to in paragraphs (iii) and
(vi) above, they have carried out certain specified procedures, not
constituting an examination in accordance with generally accepted auditing
standards, with respect to certain amounts, percentages and financial
information specified by the Representatives, which are derived from the
general accounting records of the Company and its subsidiaries, which
appear in the Prospectus, or in Part II of, or in exhibits and schedules
to, the Registration Statement specified by the Representatives, and have
compared certain of such amounts, percentages and financial information
with the accounting records of the Company and its subsidiaries and have
found them to be in agreement.
I-3
<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 after the IPO and any private placements of securities of Palm concluded
prior to or concurrent with the IPO 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:
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<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;
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<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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<PAGE>
(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 and any private placements of securities of Palm
concluded prior to or concurrent with 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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<PAGE>
(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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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
Form of 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,
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<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
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<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)(viii) or any other Schedule hereto or thereto) as Assets to be
transferred to Palm or any other member of the Palm Group.
(b) Excluded Assets. For the purposes of this Agreement, "Excluded
Assets" shall mean:
(i) the Assets listed or described on Schedule 1.2(b)(i);
(ii) the Retained Receivables; and
(iii) any Assets that are expressly contemplated by the Separation
Agreement, this Agreement or any other Ancillary Agreement (or the Schedules
hereto or thereto) as Assets to be retained by 3Com or any other member of the
3Com Group.
Section 1.3 Palm Liabilities.
(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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<PAGE>
(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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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)(viii) Specific Palm Assets to be Transferred
Schedule 1.2(b)(i) Excluded Assets
Schedule 1.3(a)(vi) Divested Businesses Which Contain Liabilities to be
Transferred to Palm
Schedule 1.3(a)(vii) Specific Palm Liabilities
Schedule 1.3(b)(i) Excluded Liabilities
<PAGE>
Schedule 1.1(c) Delayed Transfer Assets and Liabilities
None.
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<PAGE>
Schedule 1.2(a)(viii) Specific Palm Assets to be Transferred
Inventories.
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<PAGE>
Schedule 1.2(b)(i) Excluded Assets
None.
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<PAGE>
Schedule 1.3(a)(vi) Divested Businesses Which Contain Liabilities to be
Transferred to Palm
None.
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<PAGE>
Schedule 1.3(a)(vii) Specific Palm Liabilities
None.
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<PAGE>
Schedule 1.3(b)(i) Excluded Liabilities
None.
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<PAGE>
EXHIBIT 3.1
FORM OF AMENDED AND RESTATED CERTIFICATE OF INCORPORATION
OF
PALM, INC.
Palm, Inc., a corporation organized and existing under the laws of the
State of Delaware, does hereby certify:
1. The name of the corporation is Palm, Inc. Palm, Inc. was originally
incorporated under the same name, and the original Certificate of Incorporation
was filed with the Secretary of State of the State of Delaware on December 21,
1999.
2. Pursuant to Sections 242 and 228 of the General Corporation Law of the
State of Delaware, the amendments and restatement herein set forth have been
duly approved by the Board of Directors and stockholders of Palm, Inc.
3. Pursuant to Section 245 of the General Corporation Law of the State of
Delaware, this Amended and Restated Certificate of Incorporation restates and
integrates and amends the provisions of the Amended and Restated Certificate of
Incorporation of this corporation.
4. The text of the Restated Certificate of Incorporation is hereby
restated and amended to read in its entirety as follows:
ARTICLE I
The name of the Corporation is Palm, Inc. (the "Corporation").
ARTICLE II
The address of the Corporation's registered office in the State of Delaware
is 1209 Orange Street, Wilmington, Delaware 19801, County of New Castle. The
name of its registered agent at such address is The Corporation Trust Company.
ARTICLE III
The nature of the business or purposes to be conducted or promoted by the
Corporation is to engage in any lawful act or activity for which corporations
may be organized under the General Corporation Law of the State of Delaware, as
the same exists or may hereafter be amended.
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<PAGE>
ARTICLE IV
The Corporation is authorized to issue two classes of stock to be
designated, respectively, Common Stock, par value $0.001 per share ("Common
Stock"), and Preferred Stock, par value $0.001 per share ("Preferred Stock").
The total number of shares of Common Stock that the Corporation shall have
authority to issue is 2,000,000,000. The total number of shares of Preferred
Stock that the Corporation shall have authority to issue is 125,000,000. The
Preferred Stock may be issued from time to time in one or more series.
The Corporation shall from time to time in accordance with the laws of the
State of Delaware increase the authorized amount of its Common Stock if at any
time the number of shares of Common Stock remaining unissued and available for
issuance shall not be sufficient to permit conversion of all outstanding
Preferred Stock.
The Board of Directors is hereby authorized, subject to limitations
prescribed by law and the provisions of this Article IV, by resolution to
provide for the issuance of the shares of Preferred Stock in one or more series,
and to establish from time to time the number of shares to be included in each
such series, and to fix the designation, powers, privileges, preferences, and
relative participating, optional or other rights, if any, of the shares of each
such series and the qualifications, limitations or restrictions thereof.
The authority of the Board of Directors with respect to each series shall
include, but not be limited to, determination of the following:
A. The number of shares constituting that series (including an increase
or decrease in the number of shares of any such series (but not below the
number of shares in any such series then outstanding)) and the distinctive
designation of that series;
B. The dividend rate on the shares of that series, whether dividends
shall be cumulative, and, if so, from which date or dates, and the relative
rights of priority, if any, of payment of dividends on shares of that
series;
C. Whether that series shall have the voting rights (including multiple
or fractional votes per share) in addition to the voting rights provided by
law, and, if so, the terms of such voting rights;
D. Whether that series shall have conversion privileges, and, if so,
the terms and conditions of such privileges, including provision for
adjustment of the conversion rate in such events as the Board of Directors
shall determine;
E. Whether or not the shares of that series shall be redeemable, and,
if so, the terms and conditions of such redemption, including the date or
dates upon or after which they shall
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<PAGE>
be redeemable, and the amount per share payable in case of redemption,
which amount may vary under different conditions and at different
redemption rates;
F. Whether that series shall have a sinking fund for the redemption or
purchase of shares of that series, and, if so, the terms and the amount of
such sinking funds;
G. The rights of the shares of that series in the event of voluntary or
involuntary liquidation, dissolution or winding up of the Corporation, and
the relative rights of priority, if any, of payment of shares of that
series; and
H. Any other relative rights, preferences and limitations of that
series.
No holders of shares of the Corporation of any class, now or hereafter
authorized, shall have any preferential or preemptive rights to subscribe for,
purchase or receive any shares of the Corporation of any class, now or hereafter
authorized, or any options or warrants for such shares, or any rights to
subscribe for, purchase or receive any securities convertible to or exchangeable
for such shares, which may at any time be issued, sold or offered for sale by
the Corporation, except in the case of any shares of Preferred Stock to which
such rights are specifically granted by any resolution or resolutions of the
Board of Directors adopted pursuant to this Article IV.
ARTICLE V
Effective as of the time at which 3 Com Corporation, a Delaware
corporation, and its affiliates shall cease to be the beneficial owner of an
aggregate of at least a majority of the then outstanding shares of Common Stock
(the "Trigger Date"), any action required or permitted to be taken by the
stockholders of the Corporation must be effected at a duly called annual or
special meeting of such holders and may not be effected by any consent in
writing by such holders. Effective as of the Trigger Date, except as otherwise
required by law and subject to the rights of the holders of any class or series
of stock having a preference over the Common Stock as to dividends or upon
liquidation, special meetings of stockholders of the Corporation for any purpose
or purposes may be called only by the Board of Directors or by the Chairman of
the Board of Directors of the Corporation and, effective as of the Trigger Date,
any power of stockholders to call a special meeting is specifically denied. No
business other than that stated in the notice shall be transacted at any special
meeting.
ARTICLE VI
The Corporation is to have perpetual existence.
ARTICLE VII
For the management of the business and for the conduct of affairs of the
Corporation, and in further definition, limitation and regulation of powers of
the Corporation, of its directors and of its stockholders or any class thereof,
as the case may be, it is further provided that:
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<PAGE>
A. The management of the business and the conduct of the affairs of
the Corporation shall be vested in its Board of Directors. The number of
directors of this Corporation shall be fixed and may be changed from time to
time by resolution of the Board of Directors.
B. The Directors, other than those who may be elected by the
holders of any class or series of stock having a preference over the Common
Stock as to dividends or upon liquidation, shall be classified, with respect to
the time for which they severally hold office, into three classes, as nearly
equal in number as possible, one class to be originally elected for a term
expiring at the annual meeting of stockholders to be held in 2000, another class
to be originally elected for a term expiring at the annual meeting of
stockholders to be held in 2001, and another class to be originally elected for
a term expiring at the annual meeting of stockholders to be held in 2002, with
each class to hold office until its successor is duly elected and qualified. At
each succeeding annual meeting of stockholders, directors elected to succeed
those directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election.
C. Notwithstanding the foregoing provisions of this Article VII,
each director shall serve until his or her successor is duly elected and
qualified or until his or her death, resignation or removal. No decrease in the
number of directors constituting the Board of Directors shall shorten the term
of any incumbent director.
D. Any vacancies on the Board of Directors resulting from death,
resignation, disqualification, removal, or other causes unless the Board of
Directors determines by resolution that any such vacancies or newly created
directorships shall be filled by stockholders, and except as otherwise provided
by law, shall be filled only by the affirmative vote of a majority of the
remaining directors then in office, even though less than a quorum of the Board
of Directors and not by the stockholders.
E. In furtherance and not in limitation of the powers conferred by
the laws of the State of Delaware, the Board of Directors is expressly
authorized to make, alter, amend or repeal the Bylaws of the Corporation.
F. The directors of the Corporation need not be elected by written
ballot unless the Bylaws of the Corporation so provide.
G. Advance notice of stockholder nomination for the election of
directors and of any other business to be brought by stockholders before any
meeting of the stockholders of the Corporation shall be given in the manner
provided in the Bylaws of the Corporation.
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<PAGE>
ARTICLE VIII
A. To the fullest extent permitted by the Delaware General Corporation Law
as the same exists or as may hereafter be amended, no director of the
Corporation shall be personally liable to the Corporation or its stockholders
for monetary damages for breach of fiduciary duty as a director.
B. The Corporation may indemnify to the fullest extent permitted by law
any person made or threatened to be made a party to an action or proceeding,
whether criminal, civil, administrative or investigative, by reason of the fact
that he, his testator or intestate is or was a director, officer or employee of
the Corporation or any predecessor of the Corporation or serves or served at any
other enterprise as a director, officer or employee at the request of the
Corporation or any predecessor to the Corporation.
C. Neither any amendment nor repeal of this Article VIII, nor the adoption
of any provision of this Corporation's Certificate of Incorporation inconsistent
with this Article VIII, shall eliminate or reduce the effect of this Article
VIII, in respect of any matter occurring, or any action or proceeding accruing
or arising or that, but for this Article VIII, would accrue or arise, prior to
such amendment, repeal or adoption of an inconsistent provision.
ARTICLE IX
Meetings of stockholders may be held within or without the State of
Delaware, as the Bylaws may provide. The books of the Corporation may be kept
(subject to any provision contained in the laws of the State of Delaware)
outside of the State of Delaware at such place or places as may be designated
from time to time by the Board of Directors or in the Bylaws of the Corporation.
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<PAGE>
ARTICLE X
Except as provided in Article VIII above, the Corporation reserves the
right to amend, alter, change or repeal any provision contained in this
Certificate of Incorporation, in the manner now or hereafter prescribed by the
laws of the state of Delaware, and all rights conferred upon stockholders herein
are granted subject to this reservation. Notwithstanding anything contained in
this Certificate of Incorporation to the contrary, the affirmative vote of the
holders of at least 80% of the voting power of all shares of the Corporation
entitled to vote generally in the election of directors (the "Voting Stock")
then outstanding, voting together as a single class shall be required to alter,
amend, adopt any provision inconsistent with or repeal Article V or VII or this
sentence.
IN WITNESS WHEREOF, Palm, Inc. has caused this Amended and Restated
Certificate of Incorporation to be executed by Stephen Yu, its Secretary this
______ day of _________________, 2000.
--------------------------------
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<PAGE>
EXHIBIT 3.2
BYLAWS
OF
PALM, INC.
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
ARTICLE I - CORPORATE OFFICES..................................................... 1
1.1 Registered Office................................................. 1
1.2 Other Offices..................................................... 1
ARTICLE II - MEETINGS OF STOCKHOLDERS............................................. 1
2.1 Place of Meetings................................................. 1
2.2 Annual Meeting.................................................... 1
2.3 Special Meeting................................................... 3
2.4 Organization...................................................... 3
2.5 Notice of Stockholders' Meetings.................................. 4
2.6 Manner of Giving Notice; Affidavit of Notice...................... 4
2.7 Quorum............................................................ 4
2.8 Adjourned Meeting; Notice......................................... 4
2.9 Voting............................................................ 5
2.10 Validation of Meetings; Waiver of Notice; Consent................. 5
2.11 No Stockholder Action by Written Consent.......................... 5
2.12 Record Date for Stockholder Notice; Voting; Giving Consents....... 6
2.13 Proxies........................................................... 6
2.14 Inspectors of Election............................................ 6
ARTICLE III - DIRECTORS........................................................... 7
3.1 Powers............................................................ 7
3.2 Number............................................................ 7
3.3 Election and Term of Office of Directors.......................... 7
3.4 Resignation and Vacancies......................................... 8
3.5 Removal........................................................... 9
3.6 Place of Meetings; Meetings by Telephone.......................... 9
3.7 Regular Meetings.................................................. 9
3.8 Special Meetings; Notice.......................................... 9
3.9 Quorum............................................................ 10
3.10 Waiver of Notice.................................................. 10
3.11 Adjournment....................................................... 10
3.12 Notice of Adjournment............................................. 10
3.13 Board Action by Written Consent Without a Meeting................. 10
3.14 Organization...................................................... 10
3.15 Fees and Compensation of Directors................................ 11
ARTICLE IV - COMMITTEES........................................................... 11
4.1 Committees of Directors........................................... 11
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
4.2 Meetings and Action of Committees................................. 11
4.3 Committee Minutes................................................. 11
4.4 Executive Committee............................................... 11
ARTICLE V - OFFICERS.............................................................. 2
5.1 Officers.......................................................... 12
5.2 Election of Officers.............................................. 12
5.3 Terms of Office and Compensation.................................. 12
5.4 Removal; Resignation of Officers and Vacancies.................... 2
5.5 Chairman of the Board............................................. 13
5.6 Vice Chairman of the Board........................................ 13
5.7 Chairman of Executive Committee................................... 13
5.8 President......................................................... 13
5.9 Vice Presidents................................................... 13
5.10 Secretary......................................................... 13
5.11 Chief Financial Officer........................................... 14
ARTICLE VI - INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND OTHER AGENTS. 15
6.1 Indemnification of Directors and Officers......................... 15
6.2 Indemnification of Others......................................... 15
6.3 Insurance......................................................... 16
6.4 Expenses.......................................................... 16
6.5 Non-Exclusivity of Rights......................................... 16
6.6 Survival of Rights................................................ 17
6.7 Amendments........................................................ 17
ARTICLE VII - RECORDS AND REPORTS................................................. 17
7.1 Maintenance and Inspection of Records............................. 17
7.2 Inspection by Director............................................ 17
7.3 Representation of Shares of Other Corporations.................... 17
ARTICLE VIII - GENERAL MATTERS.................................................... 18
8.1 Record Date for Purposes Other than Notice and Voting............. 18
8.2 Checks; Drafts; Evidences of Indebtedness......................... 18
8.3 Corporate Contracts and Instruments; How Executed................. 18
8.4 Fiscal Year....................................................... 18
8.5 Stock Certificates................................................ 18
8.6 Special Designation on Certificates............................... 19
8.7 Lost Certificates................................................. 19
</TABLE>
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<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<C> <S> <C>
8.8 Construction; Definitions......................................... 19
8.9 Provisions Additional to Provisions of Law........................ 19
8.10 Provisions Contrary to Provisions of Law.......................... 19
8.11 Notices........................................................... 20
ARTICLE IX - AMENDMENTS........................................................... 20
</TABLE>
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<PAGE>
BYLAWS
OF
PALM, INC.
ARTICLE I
CORPORATE OFFICES
1.1 Registered Office. The registered office of the corporation shall be
fixed in the Certificate of Incorporation of the corporation.
1.2 Other Offices. The board of directors may at any time establish branch
or subordinate offices at any place or places where the corporation is qualified
to do business.
ARTICLE II
MEETINGS OF STOCKHOLDERS
2.1 Place of Meetings. Meetings of stockholders shall be held at any place
within or outside the State of Delaware designated by the board of directors. In
the absence of any such designation, stockholders' meetings shall be held at the
registered office of the corporation.
2.2 Annual Meeting.
(a) The annual meeting of stockholders shall be held each year on a date
and at a time designated by the board of directors. At the meeting,
directors shall be elected, and any other proper business may be
transacted.
(b) At an annual meeting of the stockholders, only such business shall be
conducted as shall have been properly brought before the meeting. To
be properly brought before an annual meeting, business must be: (A)
specified in the notice of meeting (or any supplement thereto) given
by or at the direction of the board of directors, (B) otherwise
properly brought before the meeting by or at the direction of the
board of directors, or (C) otherwise properly brought before the
meeting by a stockholder. For nominations or other business to be
properly brought before a stockholders meeting by a stockholder
pursuant to clause (C) of the preceding sentence, the stockholder must
have given timely notice thereof in writing to the Secretary of the
corporation and such other business must otherwise be a proper matter
for stockholder action. To be timely, a stockholder's notice shall be
delivered to the Secretary at the principal executive offices of the
corporation not less than ninety (90) calendar days in advance of the
first anniversary of the preceding year's annual meeting; provided,
however, that in the event that (i) no annual meeting was held in
1
<PAGE>
the previous year or (ii) the date of the annual meeting has been
changed by more than thirty (30) days from the date of the previous
year's meeting, notice by the stockholder to be timely must be so
delivered not earlier than the close of business on the later of: (i)
the day ninety (90) calendar days in advance of such meeting or (ii)
the day ten (10) calendar days following the day on which public
announcement of the date of the meeting is first made. For purposes of
determining whether a stockholder's notice shall have been delivered
in a timely manner for the annual meeting of stockholders in 2000, the
first anniversary of the previous year's meeting shall be deemed to be
____________, 2000. In no event shall the public announcement of an
adjournment of a stockholders meeting commence a new time period for
the giving of a stockholder's notice as described above. A
stockholder's notice to the secretary shall set forth as to each
matter the stockholder proposes to bring before the annual meeting:
(a) a brief description of the business desired to be brought before
the meeting, (b) the name and address, as they appear on the
corporation's books, of the stockholder proposing such business, (c)
the class number of shares of the corporation which are owned
beneficially by such stockholder, (d) any material interest of the
stockholder in such business, and (e) any other information that is
required to be provided by the stockholder pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended (the "1934 Act")
(or any successor thereto) in such stockholder's capacity as a
proponent of a stockholder proposal. Notwithstanding anything in these
Bylaws to the contrary, no business shall be conducted at any annual
meeting except in accordance with the procedures set forth in this
paragraph (b). The chairman of the annual meeting shall, if the facts
warrant, determine and declare at the meeting that business was not
properly brought before the meeting and in accordance with the
provisions of this paragraph (b), and, if he should so determine, he
shall so declare at the meeting that any such business not properly
brought before the meeting shall not be transacted.
(c) Only persons who are nominated in accordance with the procedures set
forth in this paragraph (c) shall be eligible for election as
directors. Nominations of persons for election to the board of
directors of the corporation may be made at a meeting of stockholders
by or at the direction of the board of directors or by any stockholder
of the corporation entitled to vote in the election of directors at
the meeting who complies with the notice procedures set forth in this
paragraph (c). Such nominations, other than those made by or at the
direction of the board of directors, shall be made pursuant to timely
notice in writing to the secretary of the corporation in accordance
with the provisions of paragraph (b) of this Section 2.2. Such
stockholder's notice shall set forth (i) as to each person, if any,
whom the stockholder proposes to nominate for election or re-election
as a director: (A) the name, age, business address and residence
address of such person, (B) the principal occupation or employment of
such person, (C) the class and number of shares of the corporation
which are beneficially owned by such person, (D) a description of all
arrangements or understandings between the stockholder and each
nominee and any other person or persons (naming such person or
persons) pursuant to which the nominations are to be made by the
stockholder, and (E) any other information relating to such person
that is required to be disclosed in solicitations of proxies for
elections of directors, or is
2
<PAGE>
otherwise required, in each case pursuant to Regulation 14A under the
1934 Act (or any successor thereto) (including without limitation such
person's written consent to being named in the proxy statement, if
any, as a nominee and to serving as a director if elected); and (ii)
as to such stockholder giving notice, the information required to be
provided pursuant to paragraph (b) of this Section 2.2. At the request
of the board of directors, any person nominated by a stockholder for
election as a director shall furnish to the secretary of the
corporation that information required to be set forth in the
stockholder's notice of nomination which pertains to the nominee. No
person shall be eligible for election as a director of the corporation
unless nominated in accordance with the procedures set forth in this
paragraph (c). The chairman of the meeting shall, if the facts
warrant, determine and declare at the meeting that a nomination was
not made in accordance with the procedures prescribed by these Bylaws,
and if he should so determine, he shall so declare at the meeting, and
the defective nomination shall be disregarded.
2.3 Special Meeting. A special meeting of the stockholders may be called
at any time by the board of directors or the chairman of the board. In addition,
prior to the Trigger Date (as defined in the Certificate of Incorporation), the
corporation will call a special meeting of stockholders promptly upon request by
3Com Corporation, a Delaware corporation, so long as such entity is a
stockholder of the corporation. Special meetings of the stockholders may not be
called by any other person or persons. Only such business shall be considered at
a special meeting of stockholders as shall have been stated in the notice for
such meeting.
2.4 Organization. Meetings of stockholders shall be presided over by the
chairman of the board, if any, or in his or her absence by the vice chairman of
the board, if any, or in his or her absence, or in the absence of the foregoing
persons by a chairman of the meeting, which chairman must be an officer or
director of the Company, designated by the board of directors. The secretary or
in his or her absence an assistant secretary or in the absence of the secretary
and all assistant secretaries a person whom the chairman of the meeting shall
appoint shall act as secretary of the meeting and keep a record of the
proceedings thereof.
The board of directors of the corporation shall be entitled to make such
rules or regulations for the conduct of meetings of stockholders as it shall
deem necessary, appropriate or convenient. Subject to such rules and regulations
of the board of directors, if any, the chairman of the meeting shall have the
right and authority to prescribe such rules, regulations and procedures and to
do all such acts as, in the judgment of such chairman, are necessary,
appropriate or convenient for the proper conduct of the meeting, including,
without limitation, establishing an agenda or order of business for the meeting,
rules and procedures for maintaining order at the meeting and the safety of
those present, limitations on participation in such meeting to stockholders of
record of the corporation and their duly authorized and constituted proxies, and
such other persons as the chairman shall permit, restrictions on entry to the
meeting after the time fixed for the commencement thereof, limitations on the
time allotted to questions or comments by participants and regulation of the
opening and closing of the polls for balloting and matters which are to be voted
on by ballot. Unless and to the extent determined by the board of directors or
the chairman of the meeting, meetings of stockholders shall not be required to
be held in accordance with rules of parliamentary procedure.
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2.5 Notice of Stockholders' Meetings. All notices of meetings of
stockholders shall be sent or otherwise given in accordance with Section 2.6 of
these Bylaws not less than ten (10) nor more than sixty (60) days before the
date of the meeting. The notice shall specify the place, date, and hour of the
meeting and (i) in the case of a special meeting, the purpose or purposes for
which the meeting is called (no business other than that specified in the notice
may be transacted) or (ii) in the case of the annual meeting, those matters
which the board of directors, at the time of giving the notice, intends to
present for action by the stockholders (but any proper matter may be presented
at the meeting for such action). The notice of any meeting at which directors
are to be elected shall include the name of any nominee or nominees who, at the
time of the notice, the board intends to present for election.
2.6 Manner of Giving Notice; Affidavit of Notice. Notice of any meeting of
stockholders shall be given either personally or by mail, telecopy, telegram or
other electronic or wireless means. Notices not personally delivered shall be
sent charges prepaid and shall be addressed to the stockholder at the address of
that stockholder appearing on the books of the corporation or given by the
stockholder to the corporation for the purpose of notice. Notice shall be deemed
to have been given at the time when delivered personally or deposited in the
mail or at the time of transmission when sent by telecopy, telegram or other
electronic or wireless means.
An affidavit of the mailing or other means of giving any notice of any
stockholders' meeting, executed by the secretary, assistant secretary or any
transfer agent of the corporation giving the notice, shall be prima facie
evidence of the giving of such notice or report.
2.7 Quorum. The holders of a majority in voting power of the stock issued
and outstanding and entitled to vote thereat, present in person or represented
by proxy, shall constitute a quorum at all meetings of the stockholders for the
transaction of business except as otherwise provided by statute or by the
Certificate of Incorporation. If, however, such quorum is not present or
represented at any meeting of the stockholders, then either (i) the chairman of
the meeting or (ii) the stockholders by the vote of the holders of a majority of
the stock, present in person or represented by proxy shall have power to adjourn
the meeting in accordance with Section 2.8 of these Bylaws.
When a quorum is present at any meeting, the vote of the holders of a
majority of the stock having voting power present in person or represented by
proxy shall decide any question brought before such meeting, unless the question
is one upon which, by express provision of the laws of the State of Delaware or
of the Certificate of Incorporation or these Bylaws, a vote of a greater number
or voting by classes is required, in which case such express provision shall
govern and control the decision of the question.
If a quorum be initially present, the stockholders may continue to transact
business until adjournment, notwithstanding the withdrawal of enough
stockholders to leave less than a quorum, if any action taken is approved by a
majority of the stockholders initially constituting the quorum.
2.8 Adjourned Meeting; Notice. Any stockholders' meeting, annual or
special, whether or not a quorum is present, may be adjourned from time to time
by the vote of the majority of the voting power of the shares represented at
that meeting, either in person or by proxy. In the absence
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of a quorum, no other business may be transacted at that meeting except as
provided in Section 2.7 of these Bylaws.
When any meeting of stockholders, either annual or special, is adjourned to
another time or place, notice need not be given of the adjourned meeting if the
time and place are announced at the meeting at which the adjournment is taken.
However, if a new record date for the adjourned meeting is fixed or if the
adjournment is for more than thirty (30) days from the date set for the original
meeting, then notice of the adjourned meeting shall be given. Notice of any such
adjourned meeting shall be given to each stockholder of record entitled to vote
at the adjourned meeting in accordance with the provisions of Sections 2.5 and
2.6 of these Bylaws. At any adjourned meeting the corporation may transact any
business which might have been transacted at the original meeting.
2.9 Voting. The stockholders entitled to vote at any meeting of
stockholders shall be determined in accordance with the provisions of Section
2.12 of these Bylaws, subject to the provisions of Sections 217 and 218 of the
General Corporation Law of Delaware (relating to voting rights of fiduciaries,
pledgers and joint owners, and to voting trusts and other voting agreements).
Except as may be otherwise provided in the Certificate of Incorporation, by
these Bylaws or required by law, each stockholder shall be entitled to one vote
for each share of capital stock held by such stockholder.
Any stockholder entitled to vote on any matter may vote part of the shares
in favor of the proposal and refrain from voting the remaining shares or, except
when the matter is the election of directors, may vote them against the
proposal; but if the stockholder fails to specify the number of shares which the
stockholder is voting affirmatively, it will be conclusively presumed that the
stockholder's approving vote is with respect to all shares which the stockholder
is entitled to vote.
2.10 Validation of Meetings; Waiver of Notice; Consent. The transactions
of any meeting of stockholders, either annual or special, however called and
noticed, and wherever held, shall be as valid as though they had been taken at a
meeting duly held after regular call and notice, if a quorum be present either
in person or by proxy.
Whenever notice is required to be given under any provision of the General
Corporation Law of Delaware or of the Certificate of Incorporation or these
Bylaws, a written waiver thereto, signed by the person entitled to notice,
whether before or after the time stated therein, will be deemed equivalent to
notice. Attendance by a person at a meeting shall also constitute a waiver of
notice of and presence at that meeting, except when the person objects at the
beginning of the meeting to the transaction of any business because the meeting
is not lawfully called or convened. Attendance at a meeting is not a waiver of
any right to object to the consideration of matters required by law to be
included in the notice of the meeting but not so included, if that objection is
expressly made at the meeting. Neither the business to be transacted at, nor
the purpose of, any regular or special meeting of the stockholders need be
specified in any written waiver of notice unless so required by the Certificate
of Incorporation or these Bylaws.
2.11 No Stockholder Action by Written Consent. Effective as of the Trigger
Date, any action required or permitted to be taken by the stockholders of the
corporation must be effected at a
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duly called annual or special meeting of such holders and may not be effected by
any consent in writing by such holders.
2.12 Record Date for Stockholder Notice; Voting; Giving Consents. For
purposes of determining the stockholders entitled to notice of any meeting or to
vote thereat, the board of directors may fix, in advance, a record date, which
shall not be more than sixty (60) days nor less than ten (10) days before the
date of any such meeting, and in such event only stockholders of record on the
date so fixed are entitled to notice and to vote, notwithstanding any transfer
of any shares on the books of the corporation after the record date, except as
otherwise provided in the Certificate of Incorporation, by these Bylaws, by
agreement or by applicable law.
If the board of directors does not so fix a record date, the record date
for determining stockholders entitled to notice of or to vote at a meeting of
stockholders shall be at the close of business on the business day next
preceding the day on which notice is given, or, if notice is waived, at the
close of business on the business day next preceding the day on which the
meeting is held.
A determination of stockholders of record entitled to notice of or to vote
at a meeting of stockholders shall apply to any adjournment of the meeting
unless the board of directors fixes a new record date for the adjourned meeting,
but the board of directors shall fix a new record date if the meeting is
adjourned for more than thirty (30) days from the date set for the original
meeting.
The record date for any other purpose shall be as provided in Section 8.1
of these Bylaws.
2.13 Proxies. Every person entitled to vote for directors, or on any other
matter, shall have the right to do so either in person or by one or more agents
authorized by a written proxy filed with the secretary of the corporation. A
written proxy may be in the form of a telegram, cablegram, or other means of
electronic transmission which sets forth or is submitted with information from
which it can be determined that the telegram, cablegram, or other means of
electronic transmission was authorized by the person. No such proxy shall be
voted or acted upon after three (3) years from its date, unless the proxy
provides for a longer period. A duly executed proxy shall be irrevocable if it
states that it is irrevocable and if, and only as long as, it is coupled with an
interest sufficient in law to support an irrevocable power. The revocability of
a proxy that states on its face that it is irrevocable shall be governed by the
provisions of Section 212(e) of the General Corporation Law of Delaware. A
stockholder may revoke any proxy which is not irrevocable by attending the
meeting and voting in person or by filing an instrument in writing revoking the
proxy or by filing another duly executed proxy bearing a later date with the
secretary of the corporation.
A proxy is not revoked by the death or incapacity of the maker unless,
before the vote is counted, written notice of such death or incapacity is
received by the corporation.
2.14 Inspectors of Election. Before any meeting of stockholders, the board
of directors shall appoint an inspector or inspectors of election to act at the
meeting or its adjournment. The number of inspectors shall be either one (1) or
three (3). If any person appointed as inspector fails to appear or fails or
refuses to act, then the chairman of the meeting may, and upon the request of
any stockholder or a stockholder's proxy shall, appoint a person to fill that
vacancy.
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Such inspectors shall:
(a) determine the number of shares outstanding and the voting power of
each, the number of shares represented at the meeting, the existence
of a quorum, and the authenticity, validity, and effect of proxies;
(b) receive votes, ballots or consents;
(c) hear and determine all challenges and questions in any way arising in
connection with the right to vote;
(d) count and tabulate all votes or consents;
(e) determine when the polls shall close;
(f) determine the result; and
(g) do any other acts that may be proper to conduct the election or vote
with fairness to all stockholders.
The inspectors of election shall perform their duties impartially, in good
faith, to the best of their ability and as expeditiously as is practical. If
there are three (3) inspectors of election, the decision, act or certificate of
a majority is effective in all respects as the decision, act or certificate of
all. Any report or certificate made by the inspectors of election is prima facie
evidence of the facts stated therein.
ARTICLE III
DIRECTORS
3.1 Powers. Subject to the provisions of the General Corporation Law of
Delaware and to any limitations in the Certificate of Incorporation or these
Bylaws relating to action required to be approved by the stockholders or by the
outstanding shares, the business and affairs of the corporation shall be managed
and all corporate powers shall be exercised by or under the direction of the
board of directors.
3.2 Number. The authorized number of directors shall be fixed and may be
changed from time to time by resolution of the Board of Directors.
No reduction of the authorized number of directors shall have the effect of
removing any director before that director's term of office expires. If for any
cause, the directors shall not have been elected at an annual meeting, they may
be elected as soon thereafter as convenient at a special meeting of the
stockholders called for that purpose in the manner provided in these Bylaws.
3.3 Election and Term of Office of Directors. Except as provided in the
Certificate of Incorporation or Section 3.4 of these Bylaws, directors shall be
classified, with respect to the time
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for which they severally hold office, into three classes, as nearly equal in
number as possible, one class to be originally elected for a term expiring at
the annual meeting of stockholders to be held in 2000, another class to be
originally elected for a term expiring at the annual meeting of stockholders to
be held in 2001, and another class to be originally elected for a term expiring
at the annual meeting of stockholders to be held in 2002, with each class to
hold office until its successor is duly elected and qualified. At each
succeeding annual meeting of stockholders, directors elected to succeed those
directors whose terms then expire shall be elected for a term of office to
expire at the third succeeding annual meeting of stockholders after their
election, with each director to hold office until such person's successor shall
have been elected and qualified or until such person's earlier resignation or
removal. Each director, including a director elected or appointed to fill a
vacancy, shall hold office until his successor is elected and qualified or until
his earlier resignation or removal.
Directors need not be stockholders unless so required by the Certificate of
Incorporation or by these Bylaws; wherein other qualifications for directors may
be prescribed.
Election of directors need not be by written ballot unless so required by
the Certificate of Incorporation or by these Bylaws; wherein other
qualifications for directors may be prescribed.
3.4 Resignation and Vacancies. Any director may resign effective on giving
written notice to the chairman of the board, the president, the secretary or the
board of directors, unless the notice specifies a later time for that
resignation to become effective. If the resignation of a director is effective
at a future time, the board of directors may elect a successor to take office
when the resignation becomes effective.
Unless otherwise provided in the Certificate of Incorporation or these
Bylaws:
(i) Vacancies and newly created directorships resulting from any increase
in the authorized number of directors elected by all of the
stockholders having the right to vote as a single class may be filled
by a majority of the directors then in office, even if less than a
quorum, or by a sole remaining director. Each director so elected
shall hold office for the remainder of the full term of the class of
directors in which the new directorship was created or the vacancy
occurred and until a successor has been elected and qualified.
(ii) Whenever the holders of any class or classes of stock or series
thereof are entitled to elect one or more directors by the provisions
of the Certificate of Incorporation, vacancies and newly created
directorships of such class or classes or series may be filled by a
majority of the directors elected by such class or classes or series
thereof then in office, or by a sole remaining director so elected.
If at any time, by reason of death or resignation or other cause, the
corporation should have no directors in office, then any officer or any
stockholder or an executor, administrator, trustee or guardian of a stockholder,
or other fiduciary entrusted with like responsibility for the person or estate
of a stockholder, may call a special meeting of stockholders solely for he
purpose of electing directors in accordance with the provisions of the
Certificate of Incorporation or these Bylaws, or
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may apply to the Court of Chancery for a decree summarily ordering an election
as provided in Section 211 of the General Corporation Law of Delaware.
If, at the time of filling any vacancy or any newly created directorship,
the directors then in office constitute less than a majority of the whole board
(as constituted immediately prior to any such increase), then the Court of
Chancery may, upon application of any stockholder or stockholders holding at
least ten percent (10%) of the total number of the then outstanding shares
having the right to vote for such directors, summarily order an election to be
held to fill any such vacancies or newly created directorships, or to replace
the directors chosen by the directors then in office as aforesaid, which
election shall be governed by the provisions of Section 211 of the General
Corporation Law of Delaware as far as applicable.
3.5 Removal. Unless otherwise restricted by statute, by the Certificate of
Incorporation or by these Bylaws, any director or the entire board of directors
may be removed from office only for cause by the holders of a majority of the
shares then entitled to vote at an election of directors.
3.6 Place of Meetings; Meetings by Telephone. Regular meetings of the
board of directors may be held at any place within or outside the State of
Delaware that has been designated from time to time by resolution of the board
of directors. In the absence of such a designation, regular meetings shall be
held at the principal executive office of the corporation. Special meetings of
the board of directors may be held at any place within or outside the State of
Delaware that has been designated in the notice of the meeting or, if not stated
in the notice or if there is no notice, at the principal executive office of the
corporation.
Any meeting, regular or special, may be held by conference telephone or
similar communication equipment, so long as all directors participating in the
meeting can hear one another; and all such directors shall be deemed to be
present in person at the meeting.
3.7 Regular Meetings. Regular meetings of the board of directors may be
held without notice if the times of such meetings are fixed by the board of
directors.
3.8 Special Meetings; Notice. Special meetings of the board of directors
for any purpose or purposes may be called at any time by the chairman of the
board, the vice chairman of the board, the president, the chairman of the
executive committee, any vice president or the secretary or by any two (2) or
more of the directors.
Notice of the time and place of special meetings shall be delivered
personally or by telephone to each director or sent by mail, telecopy, telegram
or other electronic or wireless means, charges prepaid, addressed to each
director at that director's address as it is shown on the records of the
corporation or if the address is not readily ascertainable, notice shall be
addressed to the director at the city or place in which the meetings of
directors are regularly held. If the notice is mailed, it shall be deposited in
the United States mail at least four (4) days before the time of the holding of
the meeting. If the notice is delivered personally or by telephone, telecopy,
telegram or other electronic or wireless means, it shall be delivered personally
or by telephone or other electronic or wireless means or to the telegraph
company at least twenty-four (24) hours before the time of the holding of the
meeting. Any oral notice given personally or by telephone may be communicated
either to the
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director or to a person at the office of the director who the person giving the
notice has reason to believe will promptly communicate it to the director. If
the meeting is to be held at the principal executive office of the corporation,
the notice need not specify the place of the meeting. Moreover, a notice of
special meeting need not state the purpose of such meeting, and, unless
indicated in the notice thereof, any and all business may be transacted at a
special meeting.
3.9 Quorum. A majority of the authorized number of directors shall
constitute a quorum for the transaction of business, except to fill vacancies in
the board of directors as provided in Section 3.4 and to adjourn as provided in
Section 3.11 of these Bylaws. Every act or decision done or made by a majority
of the directors present at a duly held meeting at which a quorum is present
shall be regarded as the act of the board of directors, subject to the
provisions of the Certificate of Incorporation and applicable law.
A meeting at which a quorum is initially present may continue to transact
business notwithstanding the withdrawal of directors, if any action taken is
approved by at least a majority of the required quorum for that meeting.
3.10 Waiver of Notice. Notice of a meeting need not be given to any
director (i) who signs a waiver of notice or a consent to holding the meeting or
an approval of the minutes thereof, whether before or after the meeting, or (ii)
who attends the meeting without protesting, prior thereto or at its
commencement, the lack of notice to such directors. The transactions of any
meeting of the board, however called and noticed or wherever held, are as valid
as though had at a meeting duly held after regular call and notice if a quorum
is present and if, either before or after the meeting, each of the directors not
present signs a written waiver of notice. All such waivers shall be filed with
the corporate records or made part of the minutes of the meeting. A waiver of
notice need not specify the purpose of any regular or special meeting of the
board of directors.
3.11 Adjournment. A majority of the directors present, whether or not
constituting a quorum, may adjourn any meeting to another time and place.
3.12 Notice of Adjournment. Notice of the time and place of holding an
adjourned meeting need not be given if announced unless the meeting is adjourned
for more than twenty-four (24) hours. If the meeting is adjourned for more than
twenty-four (24) hours, then notice of the time and place of the adjourned
meeting shall be given before the adjourned meeting takes place, in the manner
specified in Section 3.8 of these Bylaws, to the directors who were not present
at the time of the adjournment.
3.13 Board Action by Written Consent Without a Meeting. Any action
required or permitted to be taken by the board of directors may be taken without
a meeting, provided that all members of the board of directors individually or
collectively consent in writing to that action. Such action by written consent
shall have the same force and effect as a unanimous vote of the board of
directors. Such written consent and any counterparts thereof shall be filed with
the minutes of the proceedings of the board.
3.14 Organization. Meetings of the board of directors be presided over by
the chairman of the board, if any, or in his or her absence by the vice chairman
of the board, if any, or in
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his or her absence by the chairman of the executive committee, if any, or in his
or her absence by the president, if any, or in his or her absence by the
executive vice president. In the absence of all such directors, a president pro
tem chosen by a majority of the directors present shall preside at the meeting.
The secretary shall act as secretary of the meeting, but in his or her absence
the chairman of the meeting may appoint any person to act as secretary of the
meeting.
3.15 Fees and Compensation of Directors. Directors and members of
committees may receive such compensation, if any, for their services and such
reimbursement of expenses as may be fixed or determined by resolution of the
board of directors. This Section 3.15 shall not be construed to preclude any
director from serving the corporation in any other capacity as an officer,
agent, employee or otherwise and receiving compensation for those services.
ARTICLE IV
COMMITTEES
4.1 Committees of Directors. The board of directors may designate one (1)
or more committees, each consisting of one or more directors, to serve at the
pleasure of the board of directors. The board of directors may designate one (1)
or more directors as alternate members of any committee, who may replace any
absent member at any meeting of the committee. Any committee, to the extent
provided in the resolution of the board, shall have all the authority of the
board, but no such committee shall have the power or authority to (i) approve or
adopt or recommend to the stockholders any action or matter that requires the
approval of the stockholders or (ii) adopt, amend or repeal any Bylaw of the
corporation.
4.2 Meetings and Action of Committees. Meetings and actions of committees
shall be governed by, and held and taken in accordance with, the provisions of
Article III of these Bylaws, Section 3.6 (place of meetings), Section 3.7
(regular meetings), Section 3.8 (special meetings and notice), Section 3.9
(quorum), Section 3.10 (waiver of notice), Section 3.11 (adjournment), Section
3.12 (notice of adjournment), and Section 3.13 (action without meeting), with
such changes in the context of those Bylaws as are necessary to substitute the
committee and its members for the board of directors and its members; provided,
however, that the time of regular meetings of committees may be determined
either by resolution of the board of directors or by resolution of the
committee, that special meetings of committees may also be called by resolution
of the board of directors, and that notice of special meetings of committees
shall also be given to all alternate members, who shall have the right to attend
all meetings of the committee. The board of directors may adopt rules for the
government of any committee not inconsistent with the provisions of these
Bylaws.
4.3 Committee Minutes. Each committee shall keep regular minutes of its
meetings and report the same to the board of directors when required.
4.4 Executive Committee. In the event that the board of directors appoints
an executive committee, such executive committee, in all cases in which specific
directions to the contrary shall not have been given by the board of directors,
shall have and may exercise, during the intervals
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between the meetings of the board of directors, all the powers and authority of
the board of directors in the management of the business and affairs of the
corporation (except as provided in Section 4.1 hereof) in such manner as the
executive committee may deem in the best interests of the corporation.
ARTICLE V
OFFICERS
5.1 Officers. The officers of this corporation shall consist of a
president, one or more vice presidents, a secretary and a chief financial
officer who shall be chosen by the Board of Directors and such other officers,
including but not limited to a chairman of the board, a vice chairman of the
board, a chairman of the executive committee and a treasurer as the board of
directors shall deem expedient, who shall be chosen in such manner and hold
their offices for such terms as the board of directors may prescribe. Any two or
more of such offices may be held by the same person. The board of directors may
designate one or more vice presidents as executive vice presidents or senior
vice presidents. Either the chairman of the board, the vice chairman of the
board, the chairman of the executive committee, or the president, as the board
of directors may designate from time to time, shall be the chief executive
officer of the corporation. The board of directors may from time to time
designate the president or any executive vice president as the chief operating
officer of the corporation. Any vice president, treasurer or assistant
treasurer, or assistant secretary respectively may exercise any of the powers of
the president, the chief financial officer, or the secretary, respectively, as
directed by the board of directors and shall perform such other duties as are
imposed upon such officer by the Bylaws or the board of directors.
5.2 Election of Officers. In addition to officers elected by the board of
directors in accordance with Sections 5.1 and 5.3, the corporation may have one
or more appointed vice presidents. Such vice presidents may be appointed by the
chairman of the board or the president and shall have such duties as may be
established by the chairman or president. Vice presidents appointed pursuant to
this Section 5.2 may be removed in accordance with Section 5.4.
5.3 Terms of Office and Compensation. The term of office and salary of
each of said officers and the manner and time of the payment of such salaries
shall be fixed and determined by the board of directors and may be altered by
said board from time to time at its pleasure, subject to the rights, if any, of
said officers under any contract of employment.
5.4 Removal; Resignation of Officers and Vacancies. Any officer of the
corporation may be removed at the pleasure of the board of directors at any
meeting or, except in the case of an officer chosen by the board of directors,
at the pleasure of any officer who may be granted such power by a resolution of
the board of directors. Any officer may resign at any time upon written notice
to the corporation without prejudice to the rights, if any, of the corporation
under any contract to which the officer is a party. If any vacancy occurs in any
office of the corporation, the board of directors may elect a successor to fill
such vacancy for the remainder of the unexpired term and until a successor is
duly chosen and qualified.
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5.5 Chairman of the Board. The chairman of the board, if such an officer be
elected, shall have general supervision, direction and control of the
corporation's business and its officers, and, if present, preside at meetings of
the stockholders and the board of directors and exercise and perform such other
powers and duties as may from time to time be assigned to him by the board of
directors or as may be prescribed by these Bylaws. The chairman of the board
shall report to the board of directors.
5.6 Vice Chairman of the Board. The vice chairman of the board of
directors, if there shall be one, shall, in the case of the absence, disability
or death of the chairman, exercise all the powers and perform all the duties of
the chairman of the board. The vice chairman shall have such other powers and
perform such other duties as may be granted or prescribed by the board of
directors.
5.7 Chairman of Executive Committee. The chairman of the executive
committee, if there be one, shall have the power to call meetings of the board
of directors to be held subject to the limitations prescribed by law or by these
Bylaws, at such times and at such places as the chairman of the executive
committee shall deem proper. The chairman of the executive committee shall have
such other powers and be subject to such other duties as the board of directors
may from time to time prescribe.
5.8 President. The powers and duties of the president are:
(a) To call meetings of the board of directors to be held, subject to the
limitations prescribed by law or by these Bylaws, at such times and at
such places as the president shall deem proper.
(b) To affix the signature of the corporation to all deeds, conveyances,
mortgages, leases, obligations, bonds, certificates and other papers
and instruments in writing which have been authorized by the board of
directors or which, in the judgment of the president, should be
executed on behalf of the corporation, and to sign certificates for
shares of stock of the corporation.
(c) To have such other powers and be subject to such other duties as the
board of directors may from time to time prescribe.
5.9 Vice Presidents. In case of the absence, disability or death of the
president, the elected vice president, or one of the elected vice presidents,
shall exercise all the powers and perform all the duties of the president. If
there is more than one elected vice president, the order in which the elected
vice presidents shall succeed to the powers and duties of the president shall be
as fixed by the board of directors. The elected vice president or elected vice
presidents shall have such other powers and perform such other duties as may be
granted or prescribed by the board of directors.
Vice presidents appointed pursuant to Section 5.2 shall have such powers
and duties as may be fixed by the chairman or president, except that such
appointed vice presidents may not exercise the powers and duties of the
president.
5.10 Secretary. The powers and duties of the secretary are:
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(a) To keep a book of minutes at the principal office of the corporation,
or such other place as the board of directors may order, of all
meetings of its directors and stockholders with the time and place of
holding, whether regular or special, and, if special, how authorized,
the notice thereof given, the names of those present at directors'
meetings, the number of shares present or represented at stockholders'
meetings and the proceedings thereof.
(b) To keep the seal of the corporation and affix the same to all
instruments which may require it.
(c) To keep or cause to be kept at the principal office of the
corporation, or at the office of the transfer agent or agents, a share
register, or duplicate share registers, showing the names of the
stockholders and their addresses, the number of and classes of shares,
and the number and date of cancellation of every certificate
surrendered for cancellation.
(d) To keep a supply of certificates for shares of the corporation, to
fill in all certificates issued, and to make a proper record of each
such issuance; provided, that so long as the corporation shall have
one or more duly appointed and acting transfer agents of the shares,
or any class or series of shares, of the corporation, such duties with
respect to such shares shall be performed by such transfer agent or
transfer agents.
(e) To transfer upon the share books of the corporation any and all shares
of the corporation; provided, that so long as the corporation shall
have one or more duly appointed and acting transfer agents of the
shares, or any class or series of shares, of the corporation, such
duties with respect to such shares shall be performed by such transfer
agent or transfer agents, and the method of transfer of each
certificate shall be subject to the reasonable regulations of the
transfer agent to which the certificate is presented for transfer, and
also, if the corporation then has one or more duly appointed and
acting registrars, to the reasonable regulations of the registrar to
which the new certificate is presented for registration; and provided,
further that no certificate for shares of stock shall be issued or
delivered or, if issued or delivered, shall have any validity
whatsoever until and unless it has been signed or authenticated in the
manner provided in Section 8.5 hereof.
(f) To make service and publication of all notices that may be necessary
or proper, and without command or direction from anyone. In case of
the absence, disability, refusal, or neglect of the secretary to make
service or publication of any notices, then such notices may be served
and/or published by the president or a vice president, or by any
person thereunto authorized by either of them or by the board of
directors or by the holders of a majority of the outstanding shares of
the corporation.
(g) Generally to do and perform all such duties as pertain to the office
of secretary and as may be required by the board of directors.
5.11 Chief Financial Officer. The powers and duties of the chief financial
officer are:
14
<PAGE>
(a) To supervise the corporate-wide treasury functions and financial
reporting to external bodies.
(b) To have the custody of all funds, securities, evidence of indebtedness
and other valuable documents of the corporation and, at the chief
financial officer's discretion, to cause any or all thereof to be
deposited for account of the corporation at such depositary as may be
designated from time to time by the board of directors.
(c) To receive or cause to be received, and to give or cause to be given,
receipts and acquittances for monies paid in for the account of the
corporation.
(d) To disburse, or cause to be disbursed, all funds of the corporation as
may be directed by the board of directors, taking proper vouchers for
such disbursements.
(e) To render to the president and to the board of directors, whenever
they may require, accounts of all transactions and of the financial
condition of the corporation.
(f) Generally to do and perform all such duties as pertain to the office
of chief financial officer and as may be required by the board of
directors.
ARTICLE VI
INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES
AND OTHER AGENTS
6.1 Indemnification of Directors and Officers. The corporation shall, to
the maximum extent and in the manner permitted by the General Corporation Law of
Delaware, indemnify each of its directors and officers against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation;
provided, however, that the corporation may modify the extent of such
indemnification by individual contracts with its directors and executive
officers and, provided, further, that the corporation shall not be required to
indemnify any director or officer in connection with any proceeding (or part
thereof) initiated by such person unless (i) such indemnification is expressly
required to be made by law, (ii) the proceeding was authorized in advance by the
board of directors of the corporation, (iii) such indemnification is provided by
the corporation, in its sole discretion, pursuant to the powers vested in the
corporation under the General Corporation Law of Delaware or (iv) such
indemnification is required to be made pursuant to an individual contract. For
purposes of this Section 6.1, a "director" or "officer" of the corporation
includes any person (i) who is or was a director or officer of the corporation,
(ii) who is or was serving at the request of the corporation as a director or
officer of another corporation, partnership, joint venture, trust or other
enterprise, or (iii) who was a director or officer of a corporation which was a
predecessor corporation of the corporation or of another enterprise at the
request of such predecessor corporation.
6.2 Indemnification of Others. The corporation shall have the power, to
the maximum extent and in the manner permitted by the General Corporation Law of
Delaware, to indemnify each
15
<PAGE>
of its employees and agents (other than directors and officers) against expenses
(including attorneys' fees), judgments, fines, settlements and other amounts
actually and reasonably incurred in connection with any proceeding, arising by
reason of the fact that such person is or was an agent of the corporation. For
purposes of this Section 6.2, an "employee" or "agent" of the corporation (other
than a director or officer) includes any person (i) who is or was an employee or
agent of the corporation, (ii) who is or was serving at the request of the
corporation as an employee or agent of another corporation, partnership, joint
venture, trust or other enterprise, or (iii) who was an employee or agent of a
corporation which was a predecessor corporation of the corporation or of another
enterprise at the request of such predecessor corporation.
6.3 Insurance. The corporation may 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, partnership, joint
venture, trust or other enterprise against any liability asserted against him or
her and incurred by him or her in any such capacity, or arising out of his or
her status as such, whether or not the corporation would have the power to
indemnify him or her against such liability under the provisions of the General
Corporation Law of Delaware.
6.4 Expenses. The corporation shall advance to any person who was or is a
party or is threatened to be made a party to any threatened, pending or
completed action, suit or proceeding, whether civil, criminal, administrative or
investigative, by reason of the fact that he or she is or was a director or
officer of the corporation, or is or was serving at the request of the
corporation as a director or officer of another corporation, partnership, joint
venture, trust or other enterprise, prior to the final disposition of the
proceeding, promptly following request therefor, all expenses incurred by any
director or officer in connection with such proceeding, upon receipt of an
undertaking by or on behalf of such person to repay said amounts if it should be
determined ultimately that such person is not entitled to be indemnified under
this Bylaw or otherwise; provided, however, that the corporation shall not be
required to advance expenses to any director or officer in connection with any
proceeding (or part thereof) initiated by such person unless the proceeding was
authorized in advance by the board of directors of the corporation.
Notwithstanding the foregoing, unless otherwise determined pursuant to
Section 6.5, no advance shall be made by the corporation to an officer of the
corporation (except by reason of the fact that such officer is or was a director
of the corporation in which event this paragraph shall not apply) in any action,
suit or proceeding, whether civil, criminal, administrative or investigative, if
a determination is reasonably and promptly made (i) by the board of directors by
a majority vote of a quorum consisting of directors who were not parties to the
proceeding, or (ii) if such quorum is not obtainable, or, even if obtainable, a
quorum of disinterested directors so directs, by independent legal counsel in a
written opinion, that the facts known to the decision-making party at the time
such determination is made demonstrate clearly and convincingly that such person
acted in bad faith or in a manner that such person did not believe to be in or
not opposed to the best interests of the corporation.
6.5 Non-Exclusivity of Rights. The rights conferred on any person by this
Bylaw shall not be exclusive of any other right which such person may have or
hereafter acquire under any statute, provision of the Certificate of
Incorporation, Bylaws, agreement, vote of stockholders or
16
<PAGE>
disinterested directors or otherwise, both as to action in his official capacity
and as to action in another capacity while holding office. The corporation is
specifically authorized to enter into individual contracts with any or all of
its directors, officers, employees or agents respecting indemnification and
advances, to the fullest extent not prohibited by the General Corporation Law of
Delaware.
6.6 Survival of Rights. The rights conferred on any person by this Bylaw
shall continue as to a person who has ceased to be a director, officer, employee
or other agent and shall inure to the benefit of the heirs, executors and
administrators of such a person.
6.7 Amendments. Any repeal or modification of this Bylaw shall only be
prospective and shall not affect the rights under this Bylaw in effect at the
time of the alleged occurrence of any action or omission to act that is the
cause of any proceeding against any agent of the corporation.
ARTICLE VII
RECORDS AND REPORTS
7.1 Maintenance and Inspection of Records. The corporation shall, either at
its principal executive office or at such place or places as designated by the
board of directors, keep a record of its stockholders listing their names and
addresses and the number and class of shares held by each stockholder, a copy of
these Bylaws as amended to date, accounting books and other records.
Any stockholder of record, in person or by attorney or other agent, shall,
upon written demand under oath stating the purpose thereof, have the right
during the usual hours for business to inspect for any proper purpose the
corporation's stock ledger, a list of its stockholders, and its other books and
records and to make copies or extracts therefrom. A proper purpose shall mean a
purpose reasonably related to such person's interest as a stockholder. In every
instance where an attorney or other agent is the person who seeks the right to
inspection, the demand under oath shall be accompanied by a power of attorney or
such other writing that authorizes the attorney or other agent to so act on
behalf of the stockholder. The demand under oath shall be directed to the
corporation at its registered office in Delaware or at its principal place of
business.
7.2 Inspection by Director. Any director shall have the right to examine
the corporation's stock ledger, a list of its stockholders and its other books
and records for a purpose reasonably related to his or her position as a
director. The Court of Chancery is hereby vested with the exclusive jurisdiction
to determine whether a director is entitled to the inspection sought. The Court
may summarily order the corporation to permit the director to inspect any and
all books and records, the stock ledger, and the stock list and to make copies
or extracts therefrom. The Court may, in its discretion, prescribe any
limitations or conditions with reference to the inspection, or award such other
and further relief as the Court may deem just and proper.
7.3 Representation of Shares of Other Corporations. The president or any
other officer of this corporation authorized by the board of directors is
authorized to vote, represent, and exercise
17
<PAGE>
on behalf of this corporation all rights incident to any and all shares of any
other corporation or corporations standing in the name of this corporation. The
authority herein granted may be exercised either by such person directly or by
any other person authorized to do so by proxy or power of attorney duly executed
by such person having the authority.
ARTICLE VIII
GENERAL MATTERS
8.1 Record Date for Purposes Other than Notice and Voting. For purposes of
determining the stockholders entitled to receive payment of any dividend or
other distribution or allotment of any rights or the stockholders entitled to
exercise any rights in respect of any other lawful action, the board of
directors may fix, in advance, a record date, which shall not be more than sixty
(60) days before any such action. In that case, only stockholders of record at
the close of business on the date so fixed are entitled to receive the dividend,
distribution or allotment of rights, or to exercise such rights, as the case may
be, notwithstanding any transfer of any shares on the books of the corporation
after the record date so fixed, except as otherwise provided in the Certificate
of Incorporation, by these Bylaws, by agreement or by law.
If the board of directors does not so fix a record date, then the record
date for determining stockholders for any such purpose shall be at the close of
business on the day on which the board adopts the applicable resolution or the
sixtieth (60th) day before the date of that action, whichever is later.
8.2 Checks; Drafts; Evidences of Indebtedness. From time to time, the
board of directors shall determine by resolution which person or persons may
sign or endorse all checks, drafts, other orders for payment of money, notes or
other evidences of indebtedness that are issued in the name of or payable to the
corporation, and only the persons so authorized shall sign or endorse those
instruments.
8.3 Corporate Contracts and Instruments; How Executed. The board of
directors, except as otherwise provided in these Bylaws, may authorize any
officer or officers, or agent or agents, to enter into any contract or execute
any instrument in the name of and on behalf of the corporation; such authority
may be general or confined to specific instances. Unless so authorized or
ratified by the board of directors or within the agency power of an officer, no
officer, agent or employee shall have any power or authority to bind the
corporation by any contract or engagement or to pledge its credit or to render
it liable for any purpose or for any amount.
8.4 Fiscal Year. The fiscal year of this corporation shall begin on the
first day of November of each year and end on the last day of October of the
following year.
8.5 Stock Certificates. There shall be issued to each holder of fully paid
shares of the capital stock of the corporation a certificate or certificates for
such shares. Every holder of shares of the corporation shall be entitled to have
a certificate signed by, or in the name of the corporation by, the chairman or
vice chairman of the board of directors, or the president or a vice president,
and by
18
<PAGE>
the treasurer or an assistant treasurer, or the secretary or an assistant
secretary of such corporation representing the number of shares registered in
certificate form. Any or all of the signatures on the certificate may be a
facsimile. In case any officer, transfer agent or registrar who has signed or
whose facsimile signature has been placed upon a certificate has ceased to be
such officer, transfer agent or registrar before such certificate is issued, it
may be issued by the corporation with the same effect as if he or she were such
officer, transfer agent or registrar at the date of issue.
8.6 Special Designation on Certificates. If the corporation is authorized
to issue more than one class of stock or more than one series of any class, then
the powers, the designations, the preferences, and the relative, participating,
optional or other special rights of each class of stock or series thereof and
the qualifications, limitations or restrictions of such preferences and/or
rights shall be set forth in full or summarized on the face or back of the
certificate that the corporation shall issue to represent such class or series
of stock; provided, however, that, except as otherwise provided in Section 202
of the General Corporation Law of Delaware, in lieu of the foregoing
requirements there may be set forth on the face or back of the certificate that
the corporation shall issue to represent such class or series of stock a
statement that the corporation will furnish without charge to each stockholder
who so requests the powers, the designations, the preferences, and the relative,
participating, optional or other special rights of each class of stock or series
thereof and the qualifications, limitations or restrictions of such preferences
and/or rights.
8.7 Lost Certificates. The corporation may issue a new share certificate or
new certificate for any other security in the place of any certificate
theretofore issued by it, alleged to have been lost, stolen or destroyed, and
the corporation may require the owner of the lost, stolen or destroyed
certificate or the owner's legal representative to give the corporation a bond
(or other adequate security) sufficient to indemnify it against any claim that
may be made against it (including any expense or liability) on account of the
alleged loss, theft or destruction of any such certificate or the issuance of
such new certificate. The board of directors may adopt such other provisions and
restrictions with reference to lost certificates, not inconsistent with
applicable law, as it shall in its discretion deem appropriate.
8.8 Construction; Definitions. Unless the context requires otherwise, the
general provisions, rules of construction, and definitions in the General
Corporation Law of Delaware shall govern the construction of these Bylaws.
Without limiting the generality of this provision, the singular number includes
the plural, the plural number includes the singular, and the term "person"
includes both a corporation and a natural person.
8.9 Provisions Additional to Provisions of Law. All restrictions,
limitations, requirements and other provisions of these Bylaws shall be
construed, insofar as possible, as supplemental and additional to all provisions
of law applicable to the subject matter thereof and shall be fully complied with
in addition to the said provisions of law unless such compliance shall be
illegal.
8.10 Provisions Contrary to Provisions of Law. Any article, section,
subsection, subdivision, sentence, clause or phrase of these Bylaws which upon
being construed in the manner provided in Section 8.9 hereof, shall be contrary
to or inconsistent with any applicable provisions of law, shall not apply so
long as said provisions of law shall remain in effect, but such result shall not
19
<PAGE>
affect the validity or applicability of any other portions of these Bylaws, it
being hereby declared that these Bylaws would have been adopted and each
article, section, subsection, subdivision, sentence, clause or phrase thereof,
irrespective of the fact that any one or more articles, sections, subsections,
subdivisions, sentences, clauses or phrases is or are illegal.
8.11 Notices. Any reference in these Bylaws to the time a notice is given
or sent means, unless otherwise expressly provided, the time a written notice by
mail is deposited in the United States mails, postage prepaid; or the time any
other written notice is personally delivered to the recipient or is delivered to
a common carrier for transmission, or actually transmitted by the person giving
the notice by electronic means, to the recipient; or the time any oral notice is
communicated, in person or by telephone or wireless, to the recipient or to a
person at the office of the recipient who the person giving the notice has
reason to believe will promptly communicate it to the recipient.
ARTICLE IX
AMENDMENTS
Subject to Section 6.7 hereof, the original or other bylaws of the
corporation may be adopted, amended or repealed (1) at any annual or special
meeting of stockholders, by the affirmative vote of the holders of a majority of
the voting power of the stock issued and outstanding and entitled to vote
thereat, provided, however, that any proposed alteration or repeal of, or the
adoption of any By-Law inconsistent with, Section 2.2, 2.3, 2.5 or 2.11 of
Article II of the By-Laws or with Section 3.2, 3.3, 3.4 or 3.5 of Article III of
the By-Laws or this sentence, by the stockholders shall require the affirmative
vote of the holders of at least 80% of the voting power of all Voting Stock then
outstanding, voting together as a single class; and, provided, further, however,
that in the case of any such stockholder action at a special meeting of
stockholders, notice of the proposed alteration, repeal or adoption of the new
By-Law or By-Laws must be contained in the notice of such special meeting, or
(2) by the affirmative vote of a majority of the Board of Directors. The fact
that the power to amend these By-Laws has been so conferred upon the directors
shall not divest the stockholders of the power, nor limit their power to adopt,
amend or repeal bylaws.
Whenever an amendment or new bylaw is adopted, it shall be copied in the
book of bylaws with the original bylaws, in the appropriate place. If any bylaw
is repealed, the fact of repeal with the date of the meeting at which the repeal
was enacted or the filing of the operative written consent(s) shall be stated in
said book.
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EXHIBIT 5.1
___________ ___, 2000
Palm, Inc.
5400 Bayfront Plaza
Santa Clara, CA 95052-8145
Re: Registration Statement on Form S-1
Ladies and Gentlemen:
We have examined the Registration Statement on Form S-1 filed by Palm,
Inc., a Delaware corporation (the "Company") with the Securities and Exchange
Commission on December 13, 1999 (as such may thereafter be amended or
supplemented, the "Registration Statement") in connection with the registration
under the Securities Act of 1933, as amended, of 26,450,000 shares of the
Company's Common Stock, $.001 par value (the "Stock"). The Stock includes
23,000,000 shares to be issued and sold by the Company and an over-allotment
option granted by the Company to the Underwriters to purchase 3,450,000
additional shares. We understand that the Stock is to be sold to the
Underwriters for resale to the public as described in the Registration
Statement.
As the Company's legal counsel, we have examined the proceedings taken by
the Company in connection with the issuance and sale by the Company of the
Stock.
It is our opinion that the Stock, when issued and sold in the manner
referred to in the Registration Statement and in accordance with the resolutions
adopted by the Board of Directors of the Company, will be duly authorized,
legally and validly issued, fully paid and nonassessable.
We consent to the use of this opinion as an exhibit to the Registration
Statement and further consent to the use of our name wherever appearing in the
Registration Statement, including the prospectus constituting a part thereof,
and any amendments thereto.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
Professional Corporation
<PAGE>
EXHIBIT 10.1
PALM, INC.
1999 STOCK PLAN
1. Purposes of the Plan. The purposes of this 1999 Stock Plan are:
--------------------
. to attract and retain the best available personnel for positions of
substantial responsibility,
. to provide additional incentive to Employees, Directors and
Consultants, and
. to promote the success of the Company's business.
Options granted under the Plan may be Incentive Stock Options or
Nonstatutory Stock Options, as determined by the Administrator at the time of
grant. Stock Purchase Rights may also be granted under the Plan.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Administrator" means the Board or any of its Committees as shall
-------------
be administering the Plan, in accordance with Section 4 of the Plan.
(b) "Applicable Laws" means the requirements relating to the
---------------
administration of stock option plans under U.S. state corporate laws, U.S.
federal and state securities laws, the Code, any stock exchange or quotation
system on which the Common Stock is listed or quoted and the applicable laws of
any foreign country or jurisdiction where Options or Stock Purchase Rights are,
or will be, granted under the Plan.
(c) "Board" means the Board of Directors of the Company.
-----
(d) "Cause" shall mean (i) an act of personal dishonesty taken by the
-----
Optionee in connection with his or her responsibilities as a Service Provider
and intended to result in substantial personal enrichment of the Optionee, (ii)
Optionee being convicted of a felony, (iii) a willful act by the Optionee which
constitutes gross misconduct and which is injurious to the Company, (iv)
following delivery to the Optionee of a written demand for performance from the
Company which describes the basis for the Company's reasonable belief that the
Optionee has not substantially performed his duties, continued violations by
the Optionee of the Optionee's obligations to the Company which are
demonstrably willful and deliberate on the Optionee's part.
(e) "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 Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange Act), directly or indirectly, of securities of the
Company representing fifty percent (50%) or more of the
1
<PAGE>
total voting power represented by the Company's then outstanding voting
securities who is not already such as of the Effective Date; 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 out-standing or by being
converted into voting securities of the surviving entity or its parent) at least
fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity or its parent 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 Effective Date, 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.
Notwithstanding the foregoing, in no event shall either or both of the
following events constitute a Change of Control: (i) the initial public offering
of the Company's securities pursuant to a registration statement filed under
Section 12 of the Exchange Act or (ii) the spin-off of the Company from 3Com
pursuant to one or more transactions in which 3Com distributes eighty percent
(80%) or more of its securities ownership of the Company to the shareholders of
3Com.
(f) "Code" means the Internal Revenue Code of 1986, as amended.
----
(g) "Committee" means a committee of Directors appointed by the
---------
Board in accordance with Section 4 of the Plan.
(h) "Common Stock" means the common stock of the Company.
------------
(i) "Company" means Palm, Inc., a Delaware corporation.
-------
(j) "Consultant" means any person, including an advisor, engaged by
----------
the Company or a Parent or Subsidiary to render services to such entity.
(k) "Director" means a member of the Board.
--------
(l) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(m) "Effective Date" means the effective date of this Plan as
--------------
determined in accordance with Section 7.
-2-
<PAGE>
(n) "Employee" means any person, including Officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. A Service
Provider shall not cease to be an Employee in the case of (i) any leave of
absence approved by the Company or (ii) transfers between locations of the
Company or between the Company, its Parent, any Subsidiary, or any successor.
For purposes of Incentive Stock Options, no such leave may exceed ninety days,
unless reemployment upon expiration of such leave is guaranteed by statute or
contract. If reemployment upon expiration of a leave of absence approved by the
Company is not so guaranteed, then three (3) months following the 91st day of
such leave any Incentive Stock Option held by the Optionee shall cease to be
treated as an Incentive Stock Option and shall be treated for tax purposes as a
Nonstatutory Stock Option. Neither service as a Director nor payment of a
director's fee by the Company shall be sufficient to constitute "employment" by
the Company.
(o) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(p) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination, as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock on the last market trading day prior to the day of
determination, as reported in The Wall Street Journal or such other source as
the Administrator deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value shall be determined in good faith by the
Administrator; or
(iv) For purposes of Option grants made on the effective date of
the Company's initial public offering of Common Stock, the Fair Market Value
shall be the initial price to the public as set forth in the final prospectus
included with the registration on Form S-1 filed with the Securities and
Exchange Commission for such offering.
(q) "Incentive Stock Option" means an Option intended to qualify as
----------------------
an incentive stock option within the meaning of Section 422 of the Code and the
regulations promulgated thereunder.
(r) "Nonstatutory Stock Option" means an Option not intended to
-------------------------
qualify as an Incentive Stock Option.
-3-
<PAGE>
(s) "Notice of Grant" means a written or electronic notice
---------------
evidencing certain terms and conditions of an individual Option or Stock
Purchase Right grant. The Notice of Grant is part of the Option Agreement.
(t) "Officer" means a person who is an officer of the Company within
-------
the meaning of Section 16 of the Exchange Act and the rules and regulations
promulgated thereunder.
(u) "Option" means a stock option granted pursuant to the Plan.
------
(v) "Option Agreement" means an agreement between the Company and
----------------
an Optionee evidencing the terms and conditions of an individual Option grant.
The Option Agreement is subject to the terms and conditions of the Plan.
(w) "Option Exchange Program" means a program whereby outstanding
-----------------------
Options are surrendered in exchange for Options with a lower exercise price.
(x) "Optioned Stock" means the Common Stock subject to an Option or
--------------
Stock Purchase Right.
(y) "Optionee" means the holder of an outstanding Option or Stock
--------
Purchase Right granted under the Plan.
(z) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(aa) "Plan" means this 1999 Stock Plan.
----
(bb) "Restricted Stock" means shares of Common Stock acquired
----------------
pursuant to a grant of Stock Purchase Rights under Section 11 of the Plan.
(cc) "Restricted Stock Purchase Agreement" means a written agreement
-----------------------------------
between the Company and the Optionee evidencing the terms and restrictions
applying to stock purchased under a Stock Purchase Right. The Restricted Stock
Purchase Agreement is subject to the terms and conditions of the Plan and the
Notice of Grant.
(dd) "Rule 16b-3" means Rule 16b-3 of the Exchange Act or any
----------
successor to Rule 16b-3, as in effect when discretion is being exercised with
respect to the Plan.
(ee) "Section 16(b) " means Section 16(b) of the Exchange Act.
-------------
(ff) "Service Provider" means an Employee, Director or Consultant. In
----------------
addition, an individual who receives an award under this Plan while an Employee,
Director or Consultant, and who ceases to be an Employee, Director or
Consultant, but who remains an employee, director or consultant to 3Com shall be
deemed Service Provider for purposes of this Plan.
(gg) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 13 of the Plan.
-4-
<PAGE>
(hh) "Stock Purchase Right" means the right to purchase Common Stock
--------------------
pursuant to Section 11 of the Plan, as evidenced by a Notice of Grant.
(ii) "Subsidiary" means a "subsidiary corporation", whether now or
----------
hereafter existing, as defined in Section 424(f) of the Code.
(jj) "3Com" means 3Com Corporation, a Delaware corporation.
----
3. Stock Subject to the Plan. Subject to the provisions of Section 13
-------------------------
of the Plan, the maximum aggregate number of Shares that may be optioned and
sold under the Plan is 20,000,000 Shares, plus an annual increase to be added
the first day of the Company's fiscal year, beginning in fiscal 2001, equal to
the lesser of (i) 25,000,000 shares, (ii) 5% of the outstanding shares of
Common Stock on such date, or (iii) a lesser amount determined by the Board.
The Shares may be authorized, but unissued, or reacquired Common Stock.
If an Option or Stock Purchase Right expires or becomes unexercisable
without having been exercised in full, or is surrendered pursuant to an Option
Exchange Program, the unpurchased Shares which were subject thereto shall become
available for future grant or sale under the Plan (unless the Plan has
terminated); provided, however, that Shares that have actually been issued under
--------
the Plan, whether upon exercise of an Option or Right, shall not be returned to
the Plan and shall not become available for future distribution under the Plan,
except that if Shares of Restricted Stock are repurchased by the Company at
their original purchase price, such Shares shall become available for future
grant under the Plan.
4. Administration of the Plan.
--------------------------
(a) Procedure.
---------
(i) Multiple Administrative Bodies. Different Committees with
------------------------------
respect to different groups of Service Providers may administer the Plan.
(ii) Section 162(m). To the extent that the Administrator
--------------
determines it to be desirable to qualify Options granted hereunder as
"performance-based compensation" within the meaning of Section 162(m) of the
Code, the Plan shall be administered by a Committee of two or more "outside
directors" within the meaning of Section 162(m) of the Code.
(iii) Rule 16b-3. To the extent desirable to qualify
----------
transactions hereunder as exempt under Rule 16b-3, the transactions contemplated
hereunder shall be structured to satisfy the requirements for exemption under
Rule 16b-3.
(iv) Other Administration. Other than as provided above, the
--------------------
Plan shall be administered by (A) the Board or (B) a Committee, which committee
shall be constituted to satisfy Applicable Laws.
(b) Powers of the Administrator. Subject to the provisions of the
---------------------------
Plan, and in the case of a Committee, subject to the specific duties delegated
by the Board to such Committee, the Administrator shall have the authority, in
its discretion:
-5-
<PAGE>
(i) to determine the Fair Market Value;
(ii) to select the Employees, Directors and Consultants to
whom Options and Stock Purchase Rights may be granted hereunder;
(iii) to determine the number of shares of Common Stock to
be covered by each Option and Stock Purchase Right granted hereunder;
(iv) to approve forms of agreement for use under the Plan;
(v) to determine the terms and conditions, not
inconsistent with the terms of the Plan, of any Option or Stock Purchase Right
granted hereunder. Such terms and conditions include, but are not limited to,
the exercise price, the time or times when Options or Stock Purchase Rights may
be exercised (which may be based on performance criteria), any vesting
acceleration or waiver of forfeiture restrictions, and any restriction or
limitation regarding any Option or Stock Purchase Right or the shares of Common
Stock relating thereto, based in each case on such factors as the Administrator,
in its sole discretion, shall determine;
(vi) to reduce the exercise price of any Option or Stock
Purchase Right to the then current Fair Market Value if the Fair Market Value of
the Common Stock covered by such Option or Stock Purchase Right shall have
declined since the date the Option or Stock Purchase Right was granted;
(vii) to institute an Option Exchange Program;
(viii) to construe and interpret the terms of the Plan and
awards granted pursuant to the Plan;
(ix) to prescribe, amend and rescind rules and regulations
relating to the Plan, including rules and regulations relating to sub-plans
established for the purpose of qualifying for preferred treatment under foreign
laws;
(x) to modify or amend each Option or Stock Purchase
Right (subject to Section 15(c) of the Plan), including the discretionary
authority to extend the post-termination exercisability period of Options longer
than is otherwise provided for in the Plan;
(xi) to allow Optionees to satisfy withholding tax
obligations by electing to have the Company withhold from the Shares to be
issued upon exercise of an Option or Stock Purchase Right that number of Shares
having a Fair Market Value equal to (or less than) the minimum amount required
to be withheld. The Fair Market Value of the Shares to be withheld shall be
determined on the date that the amount of tax to be withheld is to be
determined. All elections by an Optionee to have Shares withheld for this
purpose shall be made in such form and under such conditions as the
Administrator may deem necessary or advisable;
(xii) to authorize any person to execute on behalf of the
Company any instrument required to effect the grant of an Option or Stock
Purchase Right previously granted by the Administrator;
-6-
<PAGE>
(xiii) to make all other determinations deemed necessary or
advisable for administering the Plan.
(c) Effect of Administrator's Decision. The Administrator's
----------------------------------
decisions, determinations and interpretations shall be final and binding on all
Optionees and any other holders of Options or Stock Purchase Rights.
5. Eligibility. Nonstatutory Stock Options and Stock Purchase Rights
-----------
may be granted to Employees, Directors or Consultants. Incentive Stock Options
may be granted only to Employees.
6. Limitations.
-----------
(a) Each Option shall be designated in the Option Agreement as
either an Incentive Stock Option or a Nonstatutory Stock Option. However,
notwithstanding such designation, to the extent that the aggregate Fair Market
Value of the Shares with respect to which Incentive Stock Options are
exercisable for the first time by the Optionee during any calendar year (under
all plans of the Company and any Parent or Subsidiary) exceeds $100,000, such
Options shall be treated as Nonstatutory Stock Options. For purposes of this
Section 6(a), Incentive Stock Options shall be taken into account in the order
in which they were granted. The Fair Market Value of the Shares shall be
determined as of the time the Option with respect to such Shares is granted.
(b) Neither the Plan nor any Option or Stock Purchase Right
shall confer upon an Optionee any right with respect to continuing the
Optionee's relationship as a Service Provider, nor shall they interfere in any
way with the Optionee's right or the Company's or 3Com's right, as applicable,
to terminate such relationship at any time, with or without cause.
(c) The following limitations shall apply to grants of Options:
(i) No Service Provider shall be granted, in any fiscal
year of the Company, Options to purchase more than 3,000,000 Shares.
(ii) In connection with his or her initial service, a
Service Provider may be granted Options to purchase up to an additional
6,000,000 Shares, which shall not count against the limit set forth in
subsection (i) above.
(iii) The foregoing limitations shall be adjusted
proportionately in connection with any change in the Company's capitalization as
described in Section 13.
(iv) If an Option is cancelled in the same fiscal year of
the Company in which it was granted (other than in connection with a transaction
described in Section 13), the cancelled Option will be counted against the
limits set forth in subsections (i) and (ii) above. For this purpose, if the
exercise price of an Option is reduced, the transaction will be treated as a
cancellation of the Option and the grant of a new Option.
7. Term of Plan. Subject to Section 19 of the Plan, the Plan shall
------------
become effective upon its adoption by the Board. It shall continue in effect for
a term of ten (10) years unless terminated earlier under Section 15 of the Plan.
-7-
<PAGE>
8. Term of Option. The term of each Option shall be stated in the
--------------
Option Agreement. In the case of an Incentive Stock Option, the term shall be
ten (10) years from the date of grant or such shorter term as may be provided in
the Option Agreement. Moreover, in the case of an Incentive Stock Option granted
to an Optionee who, at the time the Incentive Stock Option is granted, owns
stock representing more than ten percent (10%) of the total combined voting
power of all classes of stock of the Company or any Parent or Subsidiary, the
term of the Incentive Stock Option shall be five (5) years from the date of
grant or such shorter term as may be provided in the Option Agreement.
9. Option Exercise Price and Consideration.
---------------------------------------
(a) Exercise Price. The per share exercise price for the Shares
--------------
to be issued pursuant to exercise of an Option shall be determined by the
Administrator, subject to the following:
(i) In the case of an Incentive Stock Option
(A) granted to an Employee who, at the time the
Incentive Stock Option is granted, owns stock representing more than ten percent
(10%) of the voting power of all classes of stock of the Company or any Parent
or Subsidiary, the per Share exercise price shall be no less than 110% of the
Fair Market Value per Share on the date of grant.
(B) granted to any Employee other than an Employee
described in paragraph (A) immediately above, the per Share exercise price shall
be no less than 100% of the Fair Market Value per Share on the date of grant.
(ii) In the case of a Nonstatutory Stock Option, the per
Share exercise price shall be determined by the Administrator. In the case of a
Nonstatutory Stock Option intended to qualify as "performance-based
compensation" within the meaning of Section 162(m) of the Code, the per Share
exercise price shall be no less than 100% of the Fair Market Value per Share on
the date of grant.
(iii) Notwithstanding the foregoing, Options may be granted
with a per Share exercise price of less than 100% of the Fair Market Value per
Share on the date of grant pursuant to a merger or other corporate transaction.
(b) Waiting Period and Exercise Dates. At the time an Option
---------------------------------
is granted, the Administrator shall fix the period within which the Option may
be exercised and shall determine any conditions that must be satisfied before
the Option may be exercised.
(c) Form of Consideration. The Administrator shall determine
---------------------
the acceptable form of consideration for exercising an Option, including the
method of payment. In the case of an Incentive Stock Option, the Administrator
shall determine the acceptable form of consideration at the time of grant. Such
consideration may consist entirely of:
(i) cash;
(ii) check;
-8-
<PAGE>
(iii) promissory note;
(iv) other Shares which (A) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
months on the date of surrender, and (B) have a Fair Market Value on the date of
surrender equal to the aggregate exercise price of the Shares as to which said
Option shall be exercised;
(v) consideration received by the Company under a
cashless exercise program implemented by the Company in connection with the
Plan;
(vi) a reduction in the amount of any Company liability to
the Optionee, including any liability attributable to the Optionee's
participation in any Company-sponsored deferred compensation program or
arrangement;
(vii) any combination of the foregoing methods of payment;
or
(viii) such other consideration and method of payment for
the issuance of Shares to the extent permitted by Applicable Laws.
10. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any
-----------------------------------------------
Option granted hereunder shall be exercisable according to the terms of the Plan
and at such times and under such conditions as determined by the Administrator
and set forth in the Option Agreement. Unless the Administrator provides
otherwise, vesting of Options granted hereunder shall be tolled during any
unpaid leave of absence. An Option may not be exercised for a fraction of a
Share.
An Option shall be deemed exercised when the Company
receives: (i) written or electronic notice of exercise (in accordance with the
Option Agreement) from the person entitled to exercise the Option, and (ii) full
payment for the Shares with respect to which the Option is exercised. Full
payment may consist of any consideration and method of payment authorized by the
Administrator and permitted by the Option Agreement and the Plan. Shares issued
upon exercise of an Option shall be issued in the name of the Optionee or, if
requested by the Optionee, in the name of the Optionee and his or her spouse.
Until the Shares are issued (as evidenced by the appropriate entry on the books
of the Company or of a duly authorized transfer agent of the Company), no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
The Company shall issue (or cause to be issued) such Shares promptly after the
Option is exercised. No adjustment will be made for a dividend or other right
for which the record date is prior to the date the Shares are issued, except as
provided in Section 13 of the Plan.
Exercising an Option in any manner shall decrease the number
of Shares thereafter available, both for purposes of the Plan and for sale under
the Option, by the number of Shares as to which the Option is exercised.
(b) Termination of Relationship as a Service Provider. If an
-------------------------------------------------
Optionee ceases to be a Service Provider, other than upon the Optionee's death
or Disability, the Optionee may exercise
-9-
<PAGE>
his or her Option within such period of time as is specified in the Option
Agreement to the extent that the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for three (3) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified by the
Administrator, the Option shall terminate, and the Shares covered by such Option
shall revert to the Plan.
(c) Disability of Optionee. If an Optionee ceases to be a
----------------------
Service Provider as a result of the Optionee's Disability, the Optionee may
exercise his or her Option within such period of time as is specified in the
Option Agreement to the extent the Option is vested on the date of termination
(but in no event later than the expiration of the term of such Option as set
forth in the Option Agreement). In the absence of a specified time in the Option
Agreement, the Option shall remain exercisable for twelve (12) months following
the Optionee's termination. If, on the date of termination, the Optionee is not
vested as to his or her entire Option, the Shares covered by the unvested
portion of the Option shall revert to the Plan. If, after termination, the
Optionee does not exercise his or her Option within the time specified herein,
the Option shall terminate, and the Shares covered by such Option shall revert
to the Plan.
(d) Death of Optionee. If an Optionee dies while a Service
-----------------
Provider, the Option may be exercised within such period of time as is specified
in the Option Agreement (but in no event later than the expiration of the term
of such Option as set forth in the Notice of Grant) but only to the extent that
the Option is vested on the date of death. In the absence of a specified time in
the Option Agreement, the Option shall remain exercisable for twelve (12) months
following the Optionee's death. The Option may be exercised by the Optionee's
designated beneficiary, provided such beneficiary has been designated prior to
Optionee's death in a form acceptable by the Administrator. If no such
beneficiary has been designated by the Optionee, then such Option may be
exercised within the applicable time period by the personal representative of
the Optionee's estate or by the person or persons to whom the Option is
transferred pursuant to the Optionee's will or in accordance with the laws of
descent and distribution. If, at the time of death, the Optionee is not vested
as to his or her entire Option, the Shares covered by the unvested portion of
the Option shall immediately revert to the Plan. If the Option is not so
exercised within the time specified herein, the Option shall terminate, and the
Shares covered by such Option shall revert to the Plan.
(e) Buyout Provisions. The Administrator may at any time offer
-----------------
to buy out for a payment in cash or Shares an Option previously granted based on
such terms and conditions as the Administrator shall establish and communicate
to the Optionee at the time that such offer is made.
11. Stock Purchase Rights.
---------------------
(a) Rights to Purchase. Stock Purchase Rights may be issued
------------------
either alone, in addition to, or in tandem with other awards granted under the
Plan and/or cash awards made outside of the Plan; provided, however that in no
event may Stock Purchase Rights be issued in any fiscal year of the Company for
more than ten percent (10%) of the total Shares available for issuance
-10-
<PAGE>
hereunder, in the aggregate, on the first day of such fiscal year. After the
Administrator determines that it will offer Stock Purchase Rights under the
Plan, it shall advise the offeree in writing or electronically, by means of a
Notice of Grant, of the terms, conditions and restrictions related to the offer,
including the number of Shares that the offeree shall be entitled to purchase,
the price to be paid, and the time within which the offeree must accept such
offer. The offer shall be accepted by execution of a Restricted Stock Purchase
Agreement in the form determined by the Administrator.
(b) Repurchase Option. Unless the Administrator determines
-----------------
otherwise, the Restricted Stock Purchase Agreement shall grant the Company a
repurchase option exercisable upon the voluntary or involuntary termination of
the purchaser's service with the Company for any reason (including death or
Disability). The purchase price for Shares repurchased pursuant to the
Restricted Stock Purchase Agreement shall be the original price paid by the
purchaser and may be paid by cancellation of any indebtedness of the purchaser
to the Company. The repurchase option shall lapse at a rate determined by the
Administrator.
(c) Other Provisions. The Restricted Stock Purchase Agreement
----------------
shall contain such other terms, provisions and conditions not inconsistent with
the Plan as may be determined by the Administrator in its sole discretion.
(d) Rights as a Shareholder. Once the Stock Purchase Right is
-----------------------
exercised, the purchaser shall have the rights equivalent to those of a
shareholder, and shall be a shareholder when his or her purchase is entered upon
the records of the duly authorized transfer agent of the Company. No adjustment
will be made for a dividend or other right for which the record date is prior to
the date the Stock Purchase Right is exercised, except as provided in Section 13
of the Plan.
12. Transferability of Options and Stock Purchase Rights. Unless
----------------------------------------------------
determined otherwise by the Administrator, an Option or Stock Purchase Right may
not be sold, pledged, assigned, hypothecated, transferred, or disposed of in any
manner other than by will or by the laws of descent or distribution and may be
exercised, during the lifetime of the Optionee, only by the Optionee. If the
Administrator makes an Option or Stock Purchase Right transferable, such Option
or Stock Purchase Right shall contain such additional terms and conditions as
the Administrator deems appropriate.
13. Adjustments Upon Changes in Capitalization, Dissolution, Merger
---------------------------------------------------------------
or Asset Sale.
- -------------
(a) Changes in Capitalization. Subject to any required action
-------------------------
by the shareholders of the Company, the number of shares of Common Stock which
have been authorized for issuance under the Plan, including Shares as to which
no Options or Stock Purchase Rights have yet been granted or which have been
returned to the Plan upon cancellation or expiration of an Option or Stock
Purchase Right, the number of Shares that may be added annually to the Shares
reserved under the Plan (pursuant to Section 3(i)), and the number of shares of
Common Stock covered by each outstanding Option and Stock Purchase Right, as
well as the price per share of Common Stock covered by each such outstanding
Option or Stock Purchase Right, shall be proportionately adjusted for any
increase or decrease in the number of issued shares of Common Stock resulting
from a stock split, reverse stock split, stock dividend, combination or
reclassification of the Common Stock, or any other increase or decrease in the
number of issued shares of Common Stock effected without
-11-
<PAGE>
receipt of consideration by the Company; provided, however, that conversion of
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an Option
or Stock Purchase Right.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Administrator shall notify each
Optionee as soon as practicable prior to the effective date of such proposed
transaction. The Administrator in its discretion may provide for an Optionee to
have the right to exercise his or her Option until ten (10) days prior to such
transaction as to all of the Optioned Stock covered thereby, including Shares as
to which the Option would not otherwise be exercisable. In addition, the
Administrator may provide that any Company repurchase option applicable to any
Shares purchased upon exercise of an Option or Stock Purchase Right shall lapse
as to all such Shares, provided the proposed dissolution or liquidation takes
place at the time and in the manner contemplated. To the extent it has not been
previously exercised, an Option or Stock Purchase Right will terminate
immediately prior to the consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the
--------------------
Company with or into another corporation, or the sale of substantially all of
the assets of the Company, each outstanding Option and Stock Purchase Right
shall be assumed or an equivalent option or right substituted by the successor
corporation or a Parent or Subsidiary of the successor corporation. In the event
that the successor corporation refuses to assume or substitute for the Option or
Stock Purchase Right, the Optionee shall fully vest in and have the right to
exercise the Option or Stock Purchase Right as to all of the Optioned Stock,
including Shares as to which it would not otherwise be vested or exercisable. If
an Option or Stock Purchase Right becomes fully vested and exercisable in lieu
of assumption or substitution in the event of a merger or sale of assets, the
Administrator shall notify the Optionee in writing or electronically that the
Option or Stock Purchase Right shall be fully vested and exercisable for a
period of fifteen (15) days from the date of such notice, and the Option or
Stock Purchase Right shall terminate upon the expiration of such period. For the
purposes of this paragraph, the Option or Stock Purchase Right shall be
considered assumed if, following the merger or sale of assets, the option or
right confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option or Stock Purchase Right immediately prior to the merger or
sale of assets, the consideration (whether stock, cash, or other securities or
property) received in the merger or sale of assets by holders of Common Stock
for each Share held on the effective date of the transaction (and if holders
were offered a choice of consideration, the type of consideration chosen by the
holders of a majority of the outstanding Shares); provided, however, that if
such consideration received in the merger or sale of assets is not solely common
stock of the successor corporation or its Parent, the Administrator may, with
the consent of the successor corporation, provide for the consideration to be
received upon the exercise of the Option or Stock Purchase Right, for each Share
of Optioned Stock subject to the Option or Stock Purchase Right, to be solely
common stock of the successor corporation or its Parent equal in fair market
value to the per share consideration received by holders of Common Stock in the
merger or sale of assets.
-12-
<PAGE>
Notwithstanding the foregoing, if an Optionee's status as a Service
Provider is terminated for reasons other than Cause within twelve (12) months
following a Change of Control, then the vesting and exercisability of each of
the Optionee's outstanding Options and Stock Purchase Rights shall partially
accelerate upon such termination with respect to fifty percent (50%) of the then
unvested Shares subject to or acquired under each such Option or Stock Purchase
Right.
14. Date of Grant. The date of grant of an Option or Stock Purchase
-------------
Right shall be, for all purposes, the date on which the Administrator makes the
determination granting such Option or Stock Purchase Right, or such other later
date as is determined by the Administrator. Notice of the determination shall
be provided to each Optionee within a reasonable time after the date of such
grant.
15. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend or terminate the Plan.
(b) Shareholder Approval. The Company shall obtain shareholder
--------------------
approval of any Plan amendment to the extent necessary and desirable to comply
with Applicable Laws.
(c) Effect of Amendment or Termination. No amendment,
----------------------------------
alteration, suspension or termination of the Plan shall impair the rights of any
Optionee, unless mutually agreed otherwise between the Optionee and the
Administrator, which agreement must be in writing and signed by the Optionee and
the Company. Termination of the Plan shall not affect the Administrator's
ability to exercise the powers granted to it hereunder with respect to Options
granted under the Plan prior to the date of such termination.
16. Conditions Upon Issuance of Shares.
----------------------------------
(a) Legal Compliance. Shares shall not be issued pursuant to
----------------
the exercise of an Option or Stock Purchase Right unless the exercise of such
Option or Stock Purchase Right and the issuance and delivery of such Shares
shall comply with Applicable Laws and shall be further subject to the approval
of counsel for the Company with respect to such compliance.
(b) Investment Representations. As a condition to the exercise
--------------------------
of an Option or Stock Purchase Right, the Company may require the person
exercising such Option or Stock Purchase Right to represent and warrant at the
time of any such exercise that the Shares are being purchased only for
investment and without any present intention to sell or distribute such Shares
if, in the opinion of counsel for the Company, such a representation is
required.
17. Inability to Obtain Authority. The inability of the Company to
-----------------------------
obtain authority from any regulatory body having jurisdiction, which authority
is deemed by the Company's counsel to be necessary to the lawful issuance and
sale of any Shares hereunder, shall relieve the Company of any liability in
respect of the failure to issue or sell such Shares as to which such requisite
authority shall not have been obtained.
-13-
<PAGE>
18. Reservation of Shares. The Company, during the term of this
---------------------
Plan, will at all times reserve and keep available such number of Shares as
shall be sufficient to satisfy the requirements of the Plan.
19. Shareholder Approval. The Plan shall be subject to approval by
--------------------
the shareholders of the Company within twelve (12) months after the date the
Plan is adopted. Such shareholder approval shall be obtained in the manner and
to the degree required under Applicable Laws.
-14-
<PAGE>
EXHIBIT 10.2
PALM, INC.
1999 STOCK PLAN
FORM OF STOCK OPTION AGREEMENT
Unless otherwise defined herein, the terms defined in the Plan shall have
the same defined meanings in this Option Agreement.
I. NOTICE OF STOCK OPTION GRANT
----------------------------
[Optionee's Name and Address]
You have been granted an option to purchase Common Stock of the Company,
subject to the terms and conditions of the Plan and this Option Agreement, as
follows:
Grant Number _________________________________
Date of Grant _________________________________
Vesting Commencement Date _________________________________
Exercise Price per Share $________________________________
Total Number of Shares Granted _________________________________
Total Exercise Price $________________________________
Type of Option: ___ Incentive Stock Option
___ Nonstatutory Stock Option
Term/Expiration Date: _________________________________
Vesting Schedule:
----------------
Subject to accelerated vesting as set forth below, this Option may be
exercised, in whole or in part, in accordance with the following schedule:
[25% of the Shares subject to the Option shall vest twelve months after the
Vesting Commencement Date, and 1/48 of the Shares subject to the Option shall
vest each month thereafter, subject to the Optionee continuing to be a Service
Provider on such dates].
-1-
<PAGE>
Termination Period:
------------------
This Option may be exercised for [three months] after Optionee ceases to be
a Service Provider. Upon the death or Disability of the Optionee, this Option
may be exercised for [twelve months] after Optionee ceases to be a Service
Provider. In no event shall this Option be exercised later than the
Term/Expiration Date as provided above.
II. AGREEMENT
---------
A. Grant of Option.
---------------
The Plan Administrator of the Company hereby grants to the Optionee
named in the Notice of Grant attached as Part I of this Agreement (the
"Optionee") an option (the "Option") to purchase the number of Shares, as set
forth in the Notice of Grant, at the exercise price per share set forth in the
Notice of Grant (the "Exercise Price"), subject to the terms and conditions of
the Plan, which is incorporated herein by reference. Subject to Section 15(c) of
the Plan, in the event of a conflict between the terms and conditions of the
Plan and the terms and conditions of this Option Agreement, the terms and
conditions of the Plan shall prevail.
If designated in the Notice of Grant as an Incentive Stock Option
("ISO"), this Option is intended to qualify as an Incentive Stock Option under
Section 422 of the Code. However, if this Option is intended to be an Incentive
Stock Option, to the extent that it exceeds the $100,000 rule of Code Section
422(d) it shall be treated as a Nonstatutory Stock Option ("NSO").
B. Exercise of Option.
------------------
(a) Right to Exercise. This Option is exercisable during its term in
-----------------
accordance with the Vesting Schedule set out in the Notice of Grant and the
applicable provisions of the Plan and this Option Agreement.
(b) Method of Exercise. This Option is exercisable by delivery of
------------------
an exercise notice, in the form attached as Exhibit A (the "Exercise Notice"),
which shall state the election to exercise the Option, the number of Shares in
respect of which the Option is being exercised (the "Exercised Shares"), and
such other representations and agreements as may be required by the Company
pursuant to the provisions of the Plan. The Exercise Notice shall be completed
by the Optionee and delivered to the Company. The Exercise Notice shall be
accompanied by payment of the aggregate Exercise Price as to all Exercised
Shares. This Option shall be deemed to be exercised upon receipt by the Company
of such fully executed Exercise Notice accompanied by such aggregate Exercise
Price.
No Shares shall be issued pursuant to the exercise of this Option
unless such issuance and exercise complies with Applicable Laws. Assuming such
compliance, for income tax purposes the Exercised Shares shall be considered
transferred to the Optionee on the date the Option is exercised with respect to
such Exercised Shares.
-2-
<PAGE>
C. Method of Payment.
-----------------
Payment of the aggregate Exercise Price shall be by any of the
following, or a combination thereof, at the election of the Optionee:
1. cash; or
2. check; or
3. consideration received by the Company under a cashless exercise
program implemented by the Company in connection with the Plan; or
4. surrender of other Shares which (i) in the case of Shares acquired
upon exercise of an option, have been owned by the Optionee for more than six
(6) months on the date of surrender, and (ii) have a Fair Market Value on the
date of surrender equal to the aggregate Exercise Price of the Exercised Shares.
D. Non-Transferability of Option.
-----------------------------
This Option may not be transferred in any manner otherwise than by will
or by the laws of descent or distribution and may be exercised during the
lifetime of Optionee only by the Optionee. The terms of the Plan and this Option
Agreement shall be binding upon the executors, administrators, heirs, successors
and assigns of the Optionee.
E. Term of Option.
--------------
This Option may be exercised only within the term set out in the
Notice of Grant, and may be exercised during such term only in accordance with
the Plan and the terms of this Option Agreement.
F. Tax Consequences.
----------------
Some of the federal tax consequences relating to this Option, as of the
date of this Option, are set forth below. THIS SUMMARY IS NECESSARILY
INCOMPLETE, AND THE TAX LAWS AND REGULATIONS ARE SUBJECT TO CHANGE. THE OPTIONEE
SHOULD CONSULT A TAX ADVISER BEFORE EXERCISING THIS OPTION OR DISPOSING OF THE
SHARES.
1. Exercising the Option.
---------------------
(a) Nonstatutory Stock Option. The Optionee may incur regular
-------------------------
federal income tax liability upon exercise of a NSO. The Optionee will be
treated as having received compensation income (taxable at ordinary income tax
rates) equal to the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price. If the
Optionee is an Employee or a former Employee, the Company will be required to
withhold from his or her compensation or collect from Optionee and pay to the
applicable taxing authorities an amount in cash equal to a percentage of this
compensation income at the time of exercise, and may refuse to honor the
exercise and refuse to deliver Shares if such withholding amounts are not
delivered at the time of exercise.
-3-
<PAGE>
(b) Incentive Stock Option. If this Option qualifies as an ISO,
----------------------
the Optionee will have no regular federal income tax liability upon its
exercise, although the excess, if any, of the Fair Market Value of the Exercised
Shares on the date of exercise over their aggregate Exercise Price will be
treated as an adjustment to alternative minimum taxable income for federal tax
purposes and may subject the Optionee to alternative minimum tax in the year of
exercise. In the event that the Optionee ceases to be an Employee but remains a
Service Provider, any Incentive Stock Option of the Optionee that remains
unexercised shall cease to qualify as an Incentive Stock Option and will be
treated for tax purposes as a Nonstatutory Stock Option on the date three (3)
months and one (1) day following such change of status.
2. Disposition of Shares.
---------------------
(a) NSO. If the Optionee holds NSO Shares for at least one year,
---
any gain realized on disposition of the Shares will be treated as long-term
capital gain for federal income tax purposes.
(b) ISO. If the Optionee holds ISO Shares for at least one year
---
after exercise and two years after the grant date, any gain realized on
disposition of the Shares will be treated as long-term capital gain for federal
income tax purposes. If the Optionee disposes of ISO Shares within one year
after exercise or two years after the grant date, any gain realized on such
disposition will be treated as compensation income (taxable at ordinary income
rates) to the extent of the excess, if any, of the lesser of (A) the difference
between the Fair Market Value of the Shares acquired on the date of exercise and
the aggregate Exercise Price, or (B) the difference between the sale price of
such Shares and the aggregate Exercise Price. Any additional gain will be taxed
as capital gain, short-term or long-term depending on the period that the ISO
Shares were held.
(c) Notice of Disqualifying Disposition of ISO Shares. If the
-------------------------------------------------
Optionee sells or otherwise disposes of any of the Shares acquired pursuant to
an ISO on or before the later of (i) two years after the grant date, or (ii) one
year after the exercise date, the Optionee shall immediately notify the Company
in writing of such disposition. The Optionee agrees that he or she may be
subject to income tax withholding by the Company on the compensation income
recognized from such early disposition of ISO Shares by payment in cash or out
of the current earnings paid to the Optionee.
G. Entire Agreement; Governing Law.
-------------------------------
The Plan is incorporated herein by reference. The Plan and this
Option Agreement constitute the entire agreement of the parties with respect to
the subject matter hereof and supersede in their entirety all prior undertakings
and agreements of the Company and Optionee with respect to the subject matter
hereof, and may not be modified adversely to the Optionee's interest except by
means of a writing signed by the Company and Optionee. The internal substantive
laws, but not the choice of law rules, of Delaware govern this agreement.
H. NO GUARANTEE OF CONTINUED SERVICE.
---------------------------------
OPTIONEE ACKNOWLEDGES AND AGREES THAT THE VESTING OF SHARES
PURSUANT TO THE VESTING SCHEDULE HEREOF IS EARNED ONLY BY CONTINUING AS A
SERVICE PROVIDER AT THE WILL OF THE COMPANY (AND NOT THROUGH THE ACT OF BEING
HIRED, BEING GRANTED AN OPTION OR PURCHASING
-4-
<PAGE>
SHARES HEREUNDER). OPTIONEE FURTHER ACKNOWLEDGES AND AGREES THAT THIS AGREEMENT,
THE TRANSACTIONS CONTEMPLATED HEREUNDER AND THE VESTING SCHEDULE SET FORTH
HEREIN DO NOT CONSTITUTE AN EXPRESS OR IMPLIED PROMISE OF CONTINUED ENGAGEMENT
AS A SERVICE PROVIDER FOR THE VESTING PERIOD, FOR ANY PERIOD, OR AT ALL, AND
SHALL NOT INTERFERE WITH OPTIONEE'S RIGHT OR THE COMPANY'S RIGHT TO TERMINATE
OPTIONEE'S RELATIONSHIP AS A SERVICE PROVIDER AT ANY TIME, WITH OR WITHOUT
CAUSE.
By your signature and the signature of the Company's representative
below, you and the Company agree that this Option is granted under and governed
by the terms and conditions of the Plan and this Option Agreement. Optionee has
reviewed the Plan and this Option Agreement in their entirety, has had an
opportunity to obtain the advice of counsel prior to executing this Option
Agreement and fully understands all provisions of the Plan and Option Agreement.
Optionee hereby agrees to accept as binding, conclusive and final all decisions
or interpretations of the Administrator upon any questions relating to the Plan
and Option Agreement. Optionee further agrees to notify the Company upon any
change in the residence address indicated below.
OPTIONEE: PALM, INC.
____________________________ _______________________________
Signature By
____________________________ _______________________________
Print Name Title
____________________________
Residence Address
____________________________
-5-
<PAGE>
EXHIBIT A
---------
PALM, INC.
1999 STOCK PLAN
EXERCISE NOTICE
Palm, Inc.
[address]
Attention: [Title]
1. Exercise of Option. Effective as of today, ________________, _____,
------------------
the undersigned ("Purchaser") hereby elects to purchase ______________ shares
(the "Shares") of the Common Stock of Palm, Inc. (the "Company") under and
pursuant to the 1999 Stock Plan (the "Plan") and the Stock Option Agreement
dated, _____ (the "Option Agreement"). The purchase price for the Shares shall
be $_____, as required by the Option Agreement.
2. Delivery of Payment. Purchaser herewith delivers to the Company the
-------------------
full purchase price for the Shares.
3. Representations of Purchaser. Purchaser acknowledges that Purchaser
----------------------------
has received, read and understood the Plan and the Option Agreement and agrees
to abide by and be bound by their terms and conditions.
4. Rights as Shareholder. Until the issuance (as evidenced by the
---------------------
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the Shares, no right to vote or receive dividends or
any other rights as a shareholder shall exist with respect to the Optioned
Stock, notwithstanding the exercise of the Option. The Shares so acquired shall
be issued to the Optionee as soon as practicable after exercise of the Option.
No adjustment will be made for a dividend or other right for which the record
date is prior to the date of issuance, except as provided in Section 13 of the
Plan.
5. Tax Consultation. Purchaser understands that Purchaser may suffer
----------------
adverse tax consequences as a result of Purchaser's purchase or disposition of
the Shares. Purchaser represents that Purchaser has consulted with any tax
consultants Purchaser deems advisable in connection with the purchase or
disposition of the Shares and that Purchaser is not relying on the Company for
any tax advice.
6. Entire Agreement; Governing Law. The Plan and Option Agreement are
-------------------------------
incorporated herein by reference. This Agreement, the Plan and the Option
Agreement constitute the entire
<PAGE>
agreement of the parties with respect to the subject matter hereof and supersede
in their entirety all prior undertakings and agreements of the Company and
Purchaser with respect to the subject matter hereof, and may not be modified
adversely to the Purchaser's interest except by means of a writing signed by the
Company and Purchaser. The internal substantive laws, but not the choice of law
rules, of [Delaware] govern this agreement.
Submitted by: Accepted by:
PURCHASER: PALM, INC.
______________________________ ________________________________
Signature By
______________________________ ________________________________
Print Name Its
Address: Address:
- ------- -------
______________________________ PALM, INC.
______________________________ [address]
________________________________
Date Received
<PAGE>
EXHIBIT 10.3
PALM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 1999 Employee Stock Purchase
Plan of Palm, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the
-------
Company and its Designated Subsidiaries with an opportunity to purchase Common
Stock of the Company through accumulated payroll deductions. It is the intention
of the Company to have the Plan qualify as an "Employee Stock Purchase Plan"
under Section 423 of the Internal Revenue Code of 1986, as amended. The
provisions of the Plan, accordingly, shall be construed so as to extend and
limit participation in a manner consistent with the requirements of that section
of the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company or any
-----
committee thereof designated by the Board of Directors of the Company in
accordance with Section 14 of the Plan.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean Palm, Inc. and any Designated Subsidiary of
-------
the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
-------------
Period.
-1-
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock prior
to the date of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included with the registration
statement on Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately
----------------
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after April 1 and
October 1 of each year and terminating on the last Trading Day in the periods
ending twenty-four months later; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
March 31, 2002. If a new Offering Period is established in accordance with
Section 24, the new Offering Period shall commence on the last Exercise Date of
the immediately preceding Offering Period following the exercise of options on
such Exercise Date. The duration and timing of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(l) "Parent" shall mean a "parent corporation," whether now or
------
hereafter existing, as defined in Section 424(e) of the Code.
(m) "Plan" shall mean this 1999 Employee Stock Purchase Plan.
----
(n) "Purchase Period" shall mean the approximately six month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(o) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
-2-
<PAGE>
(p) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
(q) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(r) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company or any Parent or Subsidiary and/or hold
outstanding options to purchase such stock possessing five percent (5%) or more
of the total combined voting power or value of all classes of the capital stock
of the Company or any Parent or Subsidiary, or (ii) to the extent that his or
her rights to purchase stock under all employee stock purchase plans of the
Company, any Parent and Subsidiary accrues at a rate which exceeds Twenty-Five
Thousand Dollars ($25,000) worth of stock (determined at the fair market value
of the shares at the time such option is granted) for each calendar year in
which such option is outstanding at any time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after April 1 and October 1 each year, or on such other date
as the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
March 31, 2002. If a new Offering Period is established in accordance with
Section 24, the new Offering Period shall commence on the last Exercise Date of
the immediately preceding Offering Period following the exercise of options on
such Exercise Date. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
-3-
<PAGE>
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription agreement,
he or she shall elect to have payroll deductions made on each pay day during the
Offering Period in an amount not exceeding ten percent (10%) of the Compensation
which he or she receives on each pay day during the Offering Period. However, if
the percentage of a participant's Compensation deducted for purposes of this
Plan and all other plans of the Company, any Parent and Subsidiary, that are
intended to qualify as an "employee stock purchase plans" under Section 423 of
the Code exceeds ten percent (10%), then the percentage of Compensation deducted
for purposes of this Plan shall be reduced such that the participant's
percentage of Compensation deducted under all such plans that qualify under
Section 423 of the Code does not exceed ten percent (10%) of the Compensation
which the participant receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited to
his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the Plan
as provided in Section 10 hereof, or may increase or decrease the rate of his or
her payroll deductions during the Offering Period by completing or filing with
the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any,
-4-
<PAGE>
which arise upon the exercise of the option or the disposition of the Common
Stock. At any time, the Company may, but shall not be obligated to, withhold
from the participant's compensation the amount necessary for the Company to meet
applicable withholding obligations, including any withholding required to make
available to the Company any tax deductions or benefits attributable to sale or
early disposition of Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 4,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Sections 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of the Company's Common Stock an Employee may purchase during
each Purchase Period of such Offering Period. Exercise of the option shall
occur as provided in Section 8 hereof, unless the participant has withdrawn
pursuant to Section 10 hereof. The option shall expire on the last day of the
Offering Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the number
of shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common
-5-
<PAGE>
Stock on such Exercise Date, and terminate any or all Offering Periods then in
effect pursuant to Section 20 hereof. The Company may make pro rata allocation
of the shares available on the Enrollment Date of any applicable Offering Period
pursuant to the preceding sentence, notwithstanding any authorization of
additional shares for issuance under the Plan by the Company's shareholders
subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on
--------
which a purchase of shares occurs, the Company shall arrange the delivery to
each participant, as appropriate, of a certificate representing the shares
purchased upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant promptly after
receipt of notice of withdrawal and such participant's option for the Offering
Period shall be automatically terminated, and no further payroll deductions for
the purchase of shares shall be made for such Offering Period. If a participant
withdraws from an Offering Period, payroll deductions shall not resume at the
beginning of the succeeding Offering Period unless the participant delivers to
the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 5,000,000 shares plus an annual increase to be added on the first
day of the Company's fiscal year, beginning in 2001, equal to the
-6-
<PAGE>
lesser of (i) 10,000,000 shares, (ii) 2% of the outstanding shares of Common
Stock on such date or (iii) a lesser amount determined by the Board.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
-7-
<PAGE>
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
---------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the number of shares that may be
added annually to the Shares reserved under the Plan (pursuant to Section
13(a)(i)), the maximum number of shares each participant may purchase each
Purchase Period (pursuant to Section 7), as well as the price per share and the
number of shares of Common Stock covered by each option under the Plan which has
not yet been exercised, shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Such
adjustment shall be made by the Board, whose determination in that respect shall
be final, binding and conclusive. Except as expressly provided herein, no
issuance by the Company of shares of stock of any class, or securities
convertible into shares of stock of any class, shall affect, and no adjustment
by reason thereof shall be made with respect to, the number or price of shares
of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
-8-
<PAGE>
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount withheld during an Offering
Period, establish the exchange ratio applicable to amounts withheld in a
currency other than U.S. dollars, permit payroll withholding in excess of the
amount designated by a participant in order to adjust for delays or mistakes in
the Company's processing of properly completed withholding elections, establish
reasonable waiting and adjustment periods and/or accounting and crediting
procedures to ensure that amounts applied toward the purchase of Common Stock
for each participant properly correspond with amounts withheld from the
participant's Compensation, and establish such other limitations or procedures
as the Board (or its committee) determines in its sole discretion advisable
which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant
-9-
<PAGE>
thereto shall comply with all applicable provisions of law, domestic or foreign,
including, without limitation, the Securities Act of 1933, as amended, the
Securities Exchange Act of 1934, as amended, the rules and regulations
promulgated thereunder, and the requirements of any stock exchange upon which
the shares may then be listed, and shall be further subject to the approval of
counsel for the Company with respect to such compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period. The new Offering Period shall commence on
the last Exercise Date of the immediately preceding Offering Period after all
options have been exercised on such Exercise Date.
-10-
<PAGE>
EXHIBIT 10.4
EXHIBIT A
---------
PALM, INC.
1999 EMPLOYEE STOCK PURCHASE PLAN
FORM OF SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date: ___________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. ____________ hereby elects to participate in the Palm, Inc. Employee Stock
Purchase Plan (the "Palm ESPP") and subscribes to purchase shares of the
Company's Common Stock in accordance with this Subscription Agreement and
the Palm ESPP.
2. I hereby authorize payroll deductions from each paycheck in the amount of
____% of my Compensation on each payday (from 0 to 10%) during the Offering
Period in accordance with the Palm ESPP. I understand that if the
percentage of my Compensation deducted for purposes of the Palm ESPP and
all other employee stock purchase plans in which I participate, including
the 3Com Corporation 1984 Employee Stock Purchase Plan, exceeds 10% of my
Compensation, then the percentage of my Compensation that is deducted under
the Palm ESPP will be reduced so that my percentage deduction of
Compensation under all such employee stock purchase plans does not exceed
10% of my Compensation. (Please note that no fractional percentages are
permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Palm ESPP. I understand that if I do not
withdraw from an Offering Period, any accumulated payroll deductions will
be used to automatically exercise my option.
4. I have received a copy of the complete Palm ESPP. I understand that my
participation in the Palm ESPP is in all respects subject to the terms of
the Plan. I understand that my ability to exercise the option under this
Subscription Agreement is subject to shareholder approval of the Palm ESPP.
5. Shares purchased for me under the Palm ESPP should be issued in the name(s)
of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me
-1-
<PAGE>
over the price which I paid for the shares. I hereby agree to notify the
----------------------------
Company in writing within 30 days after the date of any disposition of my
-------------------------------------------------------------------------
shares and I will make adequate provision for Federal, state or other tax
-------------------------------------------------------------------------
withholding obligations, if any, which arise upon the disposition of the
------------------------------------------------------------------------
Common Stock. The Company may, but will not be obligated to, withhold from
------------
my compensation the amount necessary to meet any applicable withholding
obligation including any withholding necessary to make available to the
Company any tax deductions or benefits attributable to sale or early
disposition of Common Stock by me. If I dispose of such shares at any time
after the expiration of the 2-year and 1-year holding periods, I understand
that I will be treated for federal income tax purposes as having received
income only at the time of such disposition, and that such income will be
taxed as ordinary income only to the extent of an amount equal to the
lesser of (1) the excess of the fair market value of the shares at the time
of such disposition over the purchase price which I paid for the shares, or
(2) 15% of the fair market value of the shares on the first day of the
Offering Period. The remainder of the gain, if any, recognized on such
disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Palm ESPP. The
effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Palm ESPP.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the Palm
ESPP:
NAME: (Please print) _________________________________________________
(First) (Middle) (Last)
________________________ _________________________________________________
Relationship
_________________________________________________
(Address)
Employee's Social
Security Number: _________________________________________________
Employee's Address: _________________________________________________
_________________________________________________
_________________________________________________
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<PAGE>
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_____________ _____________________________________________________
Signature of Employee
_____________________________________________________
Spouse's Signature (If beneficiary other than spouse)
-3-
<PAGE>
EXHIBIT B
---------
PALM, INC.
FORM OF 1999 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Palm, Inc.
Employee Stock Purchase Plan which began on ____________, ______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
____________________________________________
____________________________________________
____________________________________________
Signature:
____________________________________________
Date: ______________________________________
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<PAGE>
EXHIBIT 10.5
PALM, INC.
1999 DIRECTOR OPTION PLAN
1. Purposes of the Plan. The purposes of this 1999 Director Option Plan
--------------------
are to attract and retain the best available personnel for service as Outside
Directors (as defined herein) of the Company, to provide additional incentive to
the Outside Directors of the Company to serve as Directors, and to encourage
their continued service on the Board.
All options granted hereunder shall be nonstatutory stock options.
2. Definitions. As used herein, the following definitions shall apply:
-----------
(a) "Board" means the Board of Directors of the Company.
-----
(b) "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 Exchange Act) becomes the "beneficial owner" (as defined in Rule
13d-3 under the Exchange 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 who is not
already such as of the Effective Date; 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 out-standing or by
being converted into voting securities of the surviving entity or its parent) at
least fifty percent (50%) of the total voting power represented by the voting
securities of the Company or such surviving entity or its parent 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 Effective Date, 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.
Notwithstanding the foregoing, in no event shall either or both of the
following events constitute a Change of Control: (i) the initial public offering
of the Company's securities pursuant to
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<PAGE>
a registration statement filed under Section 12 of the Exchange Act or (ii) the
spin-off of the Company from 3Com pursuant to one or more transactions in which
3Com distributes eighty percent (80%) or more of its securities ownership of the
Company to the shareholders of 3Com.
(c) "Code" means the Internal Revenue Code of 1986, as amended.
----
(d) "Common Stock" means the common stock of the Company.
------------
(e) "Company" means Palm, Inc., a Delaware corporation.
-------
(f) "Director" means a member of the Board.
--------
(g) "Disability" means total and permanent disability as defined in
----------
Section 22(e)(3) of the Code.
(h) "Effective Date" means the effective date of this Plan as
--------------
determined in accordance with Section 6.
(i) "Employee" means any person, including officers and Directors,
--------
employed by the Company or any Parent or Subsidiary of the Company. The payment
of a Director's fee by the Company shall not be sufficient in and of itself to
constitute "employment" by the Company.
(j) "Exchange Act" means the Securities Exchange Act of 1934, as
------------
amended.
(k) "Fair Market Value" means, as of any date, the value of Common
-----------------
Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the time of determination as reported in
The Wall Street Journal or such other source as the Administrator deems
reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, the Fair Market Value of
a Share of Common Stock shall be the mean between the high bid and low asked
prices for the Common Stock for the last market trading day prior to the time of
determination, as reported in The Wall Street Journal or such other source as
the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of Option grants made on the effective date of
the Company's initial public offering of Common Stock (the "IPO"), the Fair
Market Value shall be the initial price to the public as set forth in the final
prospectus included with the registration on Form S-1 filed with the Securities
and Exchange Commission for such offering.
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<PAGE>
(l) "Inside Director" means a Director who is an Employee.
---------------
(m) "Option" means a stock option granted pursuant to the Plan.
------
(n) "Optioned Stock" means the Common Stock subject to an Option.
--------------
(o) "Optionee" means a Director who holds an Option.
--------
(p) "Outside Director" means a Director who is not an Employee.
----------------
(q) "Parent" means a "parent corporation," whether now or hereafter
------
existing, as defined in Section 424(e) of the Code.
(r) "Plan" means this 1999 Director Option Plan.
----
(s) "Share" means a share of the Common Stock, as adjusted in
-----
accordance with Section 10 of the Plan.
(t) "Subsidiary" means a "subsidiary corporation," whether now or
----------
hereafter existing, as defined in Section 424(f) of the Internal Revenue Code of
1986.
(u) "3Com" means 3Com Corporation, a Delaware corporation.
----
3. Stock Subject to the Plan. Subject to the provisions of Section 10 of
-------------------------
the Plan, the maximum aggregate number of Shares which may be optioned and sold
under the Plan is 500,000 Shares, plus an annual increase to be added on the
first day of the Company's fiscal year, beginning in 2001, equal to 500,000
Shares or a lesser amount determined by the Board (the "Pool"). The Shares may
be authorized, but unissued, or reacquired Common Stock.
If an Option expires or becomes unexercisable without having been
exercised in full, the unpurchased Shares which were subject thereto shall
become available for future grant or sale under the Plan (unless the Plan has
terminated). Shares that have actually been issued under the Plan shall not be
returned to the Plan and shall not become available for future distribution
under the Plan.
4. Administration and Grants of Options under the Plan.
---------------------------------------------------
(a) Procedure for Grants. All grants of Options to Outside Directors
--------------------
under this Plan shall be automatic and nondiscretionary and shall be made
strictly in accordance with the following provisions:
(i) No person shall have any discretion to select which Outside
Directors shall be granted Options or to determine the number of Shares to be
covered by Options.
(ii) Each Outside Director shall be automatically granted an
Option to purchase 40,000 Shares (the "First Option") on the date on which the
later of the following events occurs: (A) the Effective Date, or (B) the date on
which such person first becomes an Outside Director, whether through election by
the shareholders of the Company or appointment by the Board
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<PAGE>
to fill a vacancy; provided, however, that an Inside Director who ceases to be
an Inside Director but who remains a Director shall not receive a First Option.
(iii) Each Outside Director shall be automatically granted an
Option to purchase 25,000 Shares (a "Subsequent Option") on the date of the
annual stockholder meeting in which the election for such Outside Director is to
be held, provided he or she is then an Outside Director and if as of such date,
he or she shall have served on the Board for at least the preceding six (6)
months.
(iv) Notwithstanding the provisions of subsections (ii) and (iii)
hereof, any exercise of an Option granted before the Company has obtained
shareholder approval of the Plan in accordance with Section 16 hereof shall be
conditioned upon obtaining such shareholder approval of the Plan in accordance
with Section 16 hereof.
(v) The terms of a First Option granted hereunder shall be as
follows:
(A) the term of the First Option shall be ten (10) years.
(B) the First Option shall be exercisable only while the
Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the First Option.
(D) subject to Section 10 hereof, the First Option shall
become exercisable in three (3) successive equal annual installments on each of
the first three (3) anniversaries of its date of grant, provided that the
Optionee continues to serve as a Director on such dates. Notwithstanding the
foregoing, a First Option granted to an Outside Director who commenced service
with the Company before the effective date of the Company's initial public
offering of equity securities shall vest in three (3) successive equal annual
installments on each of the first three (3) anniversaries of such Outside
Director's commencement of service with the Company.
(vi) The terms of a Subsequent Option granted hereunder shall be
as follows:
(A) the term of the Subsequent Option shall be ten (10)
years.
(B) the Subsequent Option shall be exercisable only while
the Outside Director remains a Director of the Company, except as set forth in
Sections 8 and 10 hereof.
(C) the exercise price per Share shall be 100% of the Fair
Market Value per Share on the date of grant of the Subsequent Option.
(D) subject to Section 10 hereof, the Subsequent Option
shall become exercisable as to 100% percent of the Shares subject to the
Subsequent Option on the first anniversary of its date of grant, provided that
the Optionee continues to serve as a Director on such date.
-4-
<PAGE>
(vii) In the event that any Option granted under the Plan would
cause the number of Shares subject to outstanding Options plus the number of
Shares previously purchased under Options to exceed the Pool, then the remaining
Shares available for Option grant shall be granted under Options to the Outside
Directors on a pro rata basis. No further grants shall be made until such time,
if any, as additional Shares become available for grant under the Plan through
action of the Board or the shareholders to increase the number of Shares which
may be issued under the Plan or through cancellation or expiration of Options
previously granted hereunder.
5. Eligibility. Options may be granted only to Outside Directors. All
-----------
Options shall be automatically granted in accordance with the terms set forth in
Section 4 hereof.
The Plan shall not confer upon any Optionee any right with respect to
continuation of service as a Director or nomination to serve as a Director, nor
shall it interfere in any way with any rights which the Director or the Company
may have to terminate the Director's relationship with the Company at any time.
6. Term of Plan. The Plan shall become effective upon the IPO. It shall
------------
continue in effect for a term of ten (10) years unless sooner terminated under
Section 11 of the Plan.
7. Form of Consideration. The consideration to be paid for the Shares
---------------------
to be issued upon exercise of an Option, including the method of payment, shall
consist of (i) cash, (ii) check, (iii) other shares which (x) in the case of
Shares acquired upon exercise of an option, have been owned by the Optionee for
more than six (6) months on the date of surrender, and (y) have a Fair Market
Value on the date of surrender equal to the aggregate exercise price of the
Shares as to which said Option shall be exercised, (iv) consideration received
by the Company under a cashless exercise program implemented by the Company in
connection with the Plan, or (v) any combination of the foregoing methods of
payment.
8. Exercise of Option.
------------------
(a) Procedure for Exercise; Rights as a Shareholder. Any Option
-----------------------------------------------
granted hereunder shall be exercisable at such times as are set forth in Section
4 hereof; provided, however, that no Options shall be exercisable until
shareholder approval of the Plan in accordance with Section 16 hereof has been
obtained.
An Option may not be exercised for a fraction of a Share.
An Option shall be deemed to be exercised when written notice of
such exercise has been given to the Company in accordance with the terms of the
Option by the person entitled to exercise the Option and full payment for the
Shares with respect to which the Option is exercised has been received by the
Company. Full payment may consist of any consideration and method of payment
allowable under Section 7 of the Plan. Until the issuance (as evidenced by the
appropriate entry on the books of the Company or of a duly authorized transfer
agent of the Company) of the stock certificate evidencing such Shares, no right
to vote or receive dividends or any other rights as a shareholder shall exist
with respect to the Optioned Stock, notwithstanding the exercise of the Option.
A share certificate for the number of Shares so acquired shall be issued to the
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<PAGE>
Optionee as soon as practicable after exercise of the Option. No adjustment
shall be made for a dividend or other right for which the record date is prior
to the date the stock certificate is issued, except as provided in Section 10 of
the Plan.
Exercise of an Option in any manner shall result in a decrease in
the number of Shares which thereafter may be available, both for purposes of the
Plan and for sale under the Option, by the number of Shares as to which the
Option is exercised.
(b) Termination of Continuous Status as a Director. Subject to
----------------------------------------------
Section 10 hereof, in the event an Optionee's status as a Director terminates
(other than upon the Optionee's death or Disability), the Optionee may exercise
his or her Option, but only within three (3) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of such termination, and to the extent that the
Optionee does not exercise such Option (to the extent otherwise so entitled)
within the time specified herein, the Option shall terminate.
(c) Disability of Optionee. In the event Optionee's status as a
----------------------
Director terminates as a result of Disability, the Optionee may exercise his or
her Option, but only within twelve (12) months following the date of such
termination, and only to the extent that the Optionee was entitled to exercise
it on the date of such termination (but in no event later than the expiration of
its ten (10) year term). To the extent that the Optionee was not entitled to
exercise an Option on the date of termination, or if he or she does not exercise
such Option (to the extent otherwise so entitled) within the time specified
herein, the Option shall terminate.
(d) Death of Optionee. In the event of an Optionee's death, each of
-----------------
the Optionee's outstanding Options shall accelerate and become immediately
vested and exercisable with respect to one hundred percent (100%) of the Shares
then subject to each such Option. Each such Option may be exercised by the
Optionee's designated beneficiary, provided such beneficiary has been designated
prior to Optionee's death in a form acceptable by the Board. If no such
beneficiary has been designated by the Optionee, then each such Option may be
exercised by the personal representative of the Optionee's estate or by the
person or persons to whom the Option is transferred pursuant to the Optionee's
will or in accordance with the laws of descent and distribution. The Option may
be exercised in whole or in part by the Optionee's designated beneficiary,
estate or the person or persons who acquire the right to exercise the Option,
but only within twelve (12) months following the date of death (but in no event
later than the expiration of its ten (10) year term). To the extent the Option
is not exercised within the time specified herein, the Option shall terminate.
9. Non-Transferability of Options. The Option may not be sold, pledged,
------------------------------
assigned, hypothecated, transferred, or disposed of in any manner other than by
will or by the laws of descent or distribution and may be exercised, during the
lifetime of the Optionee, only by the Optionee.
-6-
<PAGE>
10. Adjustments Upon Changes in Capitalization, Dissolution, Merger or
------------------------------------------------------------------
Asset Sale.
- ----------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the number of Shares which have been authorized for
issuance under the Plan, including Shares as to which no Options have yet been
granted or which have been returned to the Plan upon cancellation or expiration
of an Option, the number of Shares that may be added annually to the Shares
reserved under the Plan (pursuant to Section 3(i)), the number of Shares covered
by each outstanding Option, as well as the price per Share covered by each such
outstanding Option, and the number of Shares issuable pursuant to the automatic
grant provisions of Section 4 hereof shall be proportionately adjusted for any
increase or decrease in the number of issued Shares resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of issued
Shares effected without receipt of consideration by the Company; provided,
however, that conversion of any convertible securities of the Company shall not
be deemed to have been "effected without receipt of consideration." Except as
expressly provided herein, no issuance by the Company of shares of stock of any
class, or securities convertible into shares of stock of any class, shall
affect, and no adjustment by reason thereof shall be made with respect to, the
number or price of Shares subject to an Option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, to the extent that an Option has not
been previously exercised, it shall terminate immediately prior to the
consummation of such proposed action.
(c) Merger or Asset Sale. In the event of a merger of the Company
--------------------
with or into another corporation or the sale of substantially all of the assets
of the Company, outstanding Options may be assumed or equivalent options may be
substituted by the successor corporation or a Parent or Subsidiary thereof (the
"Successor Corporation"). If an Option is assumed or substituted for, the Option
or equivalent option shall continue to be exercisable as provided in Section 4
hereof for so long as the Optionee serves as a Director or a director of the
Successor Corporation. Thereafter, the Option or option shall remain exercisable
in accordance with Sections 8(b) through (d) above. If the Successor Corporation
does not assume an outstanding Option or substitute for it an equivalent option,
the Option shall become fully vested and exercisable, including as to Shares for
which it would not otherwise be exercisable. In such event the Board shall
notify the Optionee that the Option shall be fully exercisable for a period of
thirty (30) days from the date of such notice, and upon the expiration of such
period the Option shall terminate.
For the purposes of this Section 10(c), an Option shall be
considered assumed if, following the merger or sale of assets, the Option
confers the right to purchase or receive, for each Share of Optioned Stock
subject to the Option immediately prior to the merger or sale of assets, the
consideration (whether stock, cash, or other securities or property) received in
the merger or sale of assets by holders of Common Stock for each Share held on
the effective date of the transaction (and if holders were offered a choice of
consideration, the type of consideration chosen by the holders of a majority of
the outstanding Shares). If such consideration received in the merger or sale of
assets is not solely common stock of the successor corporation or its Parent,
the Administrator may, with the consent of the successor corporation, provide
for the consideration to be received upon the exercise of the Option, for each
Share of Optioned Stock subject to the Option, to be solely common stock of
-7-
<PAGE>
the successor corporation or its Parent equal in fair market value to the per
share consideration received by holders of Common Stock in the merger or sale of
assets.
Notwithstanding the foregoing, in the event of a Change of
Control, each outstanding Option shall accelerate and become vested and
exercisable immediately prior to such Change of Control with respect to one
hundred percent (100%) of the Shares then subject to each such Option. Each such
outstanding Option shall terminate immediately following the Change of Control.
11. Amendment and Termination of the Plan.
-------------------------------------
(a) Amendment and Termination. The Board may at any time amend,
-------------------------
alter, suspend, or discontinue the Plan, but no amendment, alteration,
suspension, or discontinuation shall be made which would impair the rights of
any Optionee under any grant theretofore made, without his or her consent. In
addition, to the extent necessary and desirable to comply with any applicable
law, regulation or stock exchange rule, the Company shall obtain shareholder
approval of any Plan amendment in such a manner and to such a degree as
required.
(b) Effect of Amendment or Termination. Any such amendment or
----------------------------------
termination of the Plan shall not affect Options already granted and such
Options shall remain in full force and effect as if this Plan had not been
amended or terminated.
12. Time of Granting Options. The date of grant of an Option shall, for
------------------------
all purposes, be the date determined in accordance with Section 4 hereof.
13. Conditions Upon Issuance of Shares. Shares shall not be issued
----------------------------------
pursuant to the exercise of an Option unless the exercise of such Option and the
issuance and delivery of such Shares pursuant thereto shall comply with all
relevant provisions of law, including, without limitation, the Securities Act of
1933, as amended, the Exchange Act, the rules and regulations promulgated
thereunder, state securities laws, and the requirements of any stock exchange
upon which the Shares may then be listed, and shall be further subject to the
approval of counsel for the Company with respect to such compliance.
As a condition to the exercise of an Option, the Company may require
the person exercising such Option to represent and warrant at the time of any
such exercise that the Shares are being purchased only for investment and
without any present intention to sell or distribute such Shares, if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned relevant provisions of law.
Inability of the Company to obtain authority from any regulatory body
having jurisdiction, which authority is deemed by the Company's counsel to be
necessary to the lawful issuance and sale of any Shares hereunder, shall relieve
the Company of any liability in respect of the failure to issue or sell such
Shares as to which such requisite authority shall not have been obtained.
-8-
<PAGE>
14. Reservation of Shares. The Company, during the term of this Plan,
---------------------
will at all times reserve and keep available such number of Shares as shall be
sufficient to satisfy the requirements of the Plan.
15. Option Agreement. Options shall be evidenced by written option
----------------
agreements in such form as the Board shall approve.
16. Shareholder Approval. The Plan shall be subject to approval by the
--------------------
shareholders of the Company within twelve (12) months after the date the Plan is
adopted. Such shareholder approval shall be obtained in the degree and manner
required under applicable state and federal law and any stock exchange rules.
-9-
<PAGE>
EXHIBIT 10.6
[FIRST OPTION]
PALM, INC.
FORM OF DIRECTOR OPTION AGREEMENT
Palm, Inc. (the "Company"), has granted to ___________________ (the
"Optionee"), an option to purchase a total of 40,000 shares of the Company's
Common Stock (the "Optioned Stock"), at the price determined as provided herein,
and in all respects subject to the terms, definitions and provisions of the
Company's 1999 Director Option Plan (the "Plan") adopted by the Company which is
incorporated herein by reference. The terms defined in the Plan shall have the
same defined meanings herein.
1. Nature of the Option. This Option is a nonstatutory option and is not
--------------------
intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $_______ for each share of
--------------
Common Stock.
3. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) This Option shall become exercisable in installments
cumulatively with respect to one-third (1/3) of the Optioned Stock one year
after the date [of grant/the Optionee began his or her service to the Company],
and as to an additional one-third (1/3) of the Optioned Stock on each
anniversary of the date [of grant/the Optionee began his or her Service to the
Company], so that one hundred percent (100%) of the Optioned Stock shall be
exercisable three (3) years after the date [of grant/the Optionee began his or
her service to the Company]; provided, that the Optionee remains in service on
such dates; provided, further, that in no event shall any Option be exercisable
prior to the date the stockholders of the Company approve the Plan.
(b) This Option may not be exercised for a fraction of a share.
(c) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(ii) Method of Exercise. This Option shall be exercisable by written
------------------
notice which shall state the election to exercise the Option and the number of
Shares in respect of which the Option is being exercised. Such written notice,
in the form attached hereto as Exhibit A, shall be signed by the Optionee and
shall be delivered in person or by certified mail to the Secretary of the
Company. The written notice shall be accompanied by payment of the exercise
price.
4. Method of Payment. Payment of the exercise price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(i) cash;
<PAGE>
(ii) check; or
(iii) surrender of other shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of surrender, and (y) have a Fair Market Value
on the date of surrender equal to the aggregate exercise price of the Shares as
to which said Option shall be exercised; or
(iv) delivery of a properly executed exercise notice together with such
other documentation as the Company and the broker, if applicable, shall require
to effect an exercise of the Option and delivery to the Company of the sale or
loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The terms
of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. Term of Option. This Option may not be exercised more than ten (10)
--------------
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
8. Taxation Upon Exercise of Option. Optionee understands that, upon
--------------------------------
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the
-2-
<PAGE>
date of exercise of the Option, to the extent not included in income as
described above, will be treated as capital gain or loss.
DATE OF GRANT: ______________
Palm, Inc.
A Delaware corporation
By: ________________________________
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated: _________________
______________________________
Optionee
-3-
<PAGE>
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
Palm, Inc.
______________
______________
Attention: Corporate Secretary
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
------------------
exercise Optionee's option to purchase _______ shares of the Common Stock (the
"Shares") of Palm, Inc. (the "Company") under and pursuant to the Company's 1999
Director Option Plan and the Director Option Agreement dated _______________
(the "Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the Shares
--------------------------------
must be held indefinitely unless they are registered under the Securities Act of
1933, as amended (the "1933 Act"), or unless an exemption from such registration
is available, and that the certificate(s) representing the Shares may bear a
legend to that effect. Optionee understands that the Company is under no
obligation to register the Shares and that an exemption may not be available or
may not permit Optionee to transfer Shares in the amounts or at the times
proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer adverse
----------------
tax consequences as a result of Optionee's purchase or disposition of the
Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
6. Entire Agreement. The Agreement is incorporated herein by reference.
----------------
This Exercise Notice and the Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the
<PAGE>
subject matter hereof. This Exercise Notice and the Agreement are governed by
[Delaware] law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: PALM, INC.
By: _______________________ By: _______________________________
Its: ______________________________
Address:
Dated: ____________________ Dated: ____________________________
<PAGE>
[SUBSEQUENT OPTION]
PALM, INC.
DIRECTOR OPTION AGREEMENT
Palm, Inc. (the "Company"), has granted to ___________________ (the
"Optionee"), an option to purchase a total of 25,000 shares of the Company's
Common Stock (the "Optioned Stock"), at the price determined as provided herein,
and in all respects subject to the terms, definitions and provisions of the
Company's 1999 Director Option Plan (the "Plan") adopted by the Company which is
incorporated herein by reference. The terms defined in the Plan shall have the
same defined meanings herein.
1. Nature of the Option. This Option is a nonstatutory option and is not
--------------------
intended to qualify for any special tax benefits to the Optionee.
2. Exercise Price. The exercise price is $_______ for each share of
--------------
Common Stock.
3. Exercise of Option. This Option shall be exercisable during its term
------------------
in accordance with the provisions of Section 8 of the Plan as follows:
(i) Right to Exercise.
-----------------
(a) This Option shall become exercisable as to 100% of the
Optioned Stock one year after the date of grant; provided that the Optionee
remains in service on such date; provided, further, that in no event shall any
Option be exercisable prior to the date the stockholders of the Company approve
the Plan.
(b) This Option may not be exercised for a fraction of a share.
(c) In the event of Optionee's death, disability or other
termination of service as a Director, the exercisability of the Option is
governed by Section 8 of the Plan.
(ii) Method of Exercise. This Option shall be exercisable by
------------------
written notice which shall state the election to exercise the Option and the
number of Shares in respect of which the Option is being exercised. Such written
notice, in the form attached hereto as Exhibit A, shall be signed by the
Optionee and shall be delivered in person or by certified mail to the Secretary
of the Company. The written notice shall be accompanied by payment of the
exercise price.
4. Method of Payment. Payment of the exercise price shall be by any of
-----------------
the following, or a combination thereof, at the election of the Optionee:
(i) cash;
(ii) check; or
(iii) surrender of other shares which (x) in the case of Shares
acquired upon exercise of an Option, have been owned by the Optionee for more
than six (6) months on the date of
<PAGE>
surrender, and (y) have a Fair Market Value on the date of surrender equal to
the aggregate exercise price of the Shares as to which said Option shall be
exercised; or
(iv) delivery of a properly executed exercise notice together with
such other documentation as the Company and the broker, if applicable, shall
require to effect an exercise of the Option and delivery to the Company of the
sale or loan proceeds required to pay the exercise price.
5. Restrictions on Exercise. This Option may not be exercised if the
------------------------
issuance of such Shares upon such exercise or the method of payment of
consideration for such shares would constitute a violation of any applicable
federal or state securities or other law or regulations, or if such issuance
would not comply with the requirements of any stock exchange upon which the
Shares may then be listed. As a condition to the exercise of this Option, the
Company may require Optionee to make any representation and warranty to the
Company as may be required by any applicable law or regulation.
6. Non-Transferability of Option. This Option may not be transferred in
-----------------------------
any manner otherwise than by will or by the laws of descent or distribution and
may be exercised during the lifetime of Optionee only by the Optionee. The
terms of this Option shall be binding upon the executors, administrators, heirs,
successors and assigns of the Optionee.
7. Term of Option. This Option may not be exercised more than ten (10)
--------------
years from the date of grant of this Option, and may be exercised during such
period only in accordance with the Plan and the terms of this Option.
8. Taxation Upon Exercise of Option. Optionee understands that, upon
--------------------------------
exercise of this Option, he or she will recognize income for tax purposes in an
amount equal to the excess of the then Fair Market Value of the Shares purchased
over the exercise price paid for such Shares. Since the Optionee is subject to
Section 16(b) of the Securities Exchange Act of 1934, as amended, under certain
limited circumstances the measurement and timing of such income (and the
commencement of any capital gain holding period) may be deferred, and the
Optionee is advised to contact a tax advisor concerning the application of
Section 83 in general and the availability a Section 83(b) election in
particular in connection with the exercise of the Option. Upon a resale of such
Shares by the Optionee, any difference between the sale price and the Fair
Market Value of the Shares on the
<PAGE>
date of exercise of the Option, to the extent not included in income as
described above, will be treated as capital gain or loss.
DATE OF GRANT: ______________
Palm, Inc.
A Delaware corporation
By: ______________________________
Optionee acknowledges receipt of a copy of the Plan, a copy of which is
attached hereto, and represents that he or she is familiar with the terms and
provisions thereof, and hereby accepts this Option subject to all of the terms
and provisions thereof. Optionee hereby agrees to accept as binding, conclusive
and final all decisions or interpretations of the Board upon any questions
arising under the Plan.
Dated: _________________
______________________________
Optionee
<PAGE>
EXHIBIT A
DIRECTOR OPTION EXERCISE NOTICE
Palm, Inc.
______________
______________
Attention: Corporate Secretary
1. Exercise of Option. The undersigned ("Optionee") hereby elects to
------------------
exercise Optionee's option to purchase _______ shares of the Common Stock (the
"Shares") of Palm, Inc. (the "Company") under and pursuant to the Company's 1999
Director Option Plan and the Director Option Agreement dated _______________
(the "Agreement").
2. Representations of Optionee. Optionee acknowledges that Optionee has
---------------------------
received, read and understood the Agreement.
3. Federal Restrictions on Transfer. Optionee understands that the Shares
--------------------------------
must be held indefinitely unless they are registered under the Securities Act of
1933, as amended (the "1933 Act"), or unless an exemption from such registration
is available, and that the certificate(s) representing the Shares may bear a
legend to that effect. Optionee understands that the Company is under no
obligation to register the Shares and that an exemption may not be available or
may not permit Optionee to transfer Shares in the amounts or at the times
proposed by Optionee.
4. Tax Consequences. Optionee understands that Optionee may suffer
----------------
adverse tax consequences as a result of Optionee's purchase or disposition of
the Shares. Optionee represents that Optionee has consulted with any tax
consultant(s) Optionee deems advisable in connection with the purchase or
disposition of the Shares and that Optionee is not relying on the Company for
any tax advice.
5. Delivery of Payment. Optionee herewith delivers to the Company the
-------------------
aggregate purchase price for the Shares that Optionee has elected to purchase
and has made provision for the payment of any federal or state withholding taxes
required to be paid or withheld by the Company.
6. Entire Agreement. The Agreement is incorporated herein by reference.
----------------
This Exercise Notice and the Agreement constitute the entire agreement of the
parties and supersede in their entirety all prior undertakings and agreements of
the Company and Optionee with respect to the
<PAGE>
subject matter hereof. This Exercise Notice and the Agreement are governed by
[Delaware] law except for that body of law pertaining to conflict of laws.
Submitted by: Accepted by:
OPTIONEE: PALM, INC.
By:________________________ By: __________________________
Its: _________________________
Address:
Dated: ____________________ Dated: _______________________
-2-
<PAGE>
EXHIBIT 10.8
PALM, INC.
FORM OF INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is entered into as of
____________, ___ by and between Palm, Inc., a Delaware corporation (the
"Company") and ____________________________________ ("Indemnitee").
RECITALS
--------
A. The Company and Indemnitee recognize the significant increases in the
cost of liability insurance for its directors, officers, employees, agents and
fiduciaries.
B. The Company and Indemnitee further recognize the substantial increase
in corporate litigation in general, subjecting directors, officers, employees,
agents and fiduciaries to expensive litigation risks at the same time as the
availability and coverage of liability insurance has been severely limited.
C. Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other directors,
officers, employees, agents and fiduciaries of the Company may not be willing to
continue to serve in such capacities without additional protection.
D. The Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve the Company and, in part, in
order to induce Indemnitee to continue to provide services to the Company,
wishes to provide for the indemnification and advancing of expenses to
Indemnitee to the maximum extent permitted by law.
E. In view of the considerations set forth above, the Company desires
that Indemnitee be indemnified by the Company as set forth herein.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. Indemnification.
---------------
(a) Indemnification of Expenses. The Company shall indemnify
---------------------------
Indemnitee to the fullest extent permitted by law if Indemnitee was or is or
becomes a party to or witness or other participant in, or is threatened to be
made a party to or witness or other participant in, any threatened, pending or
completed action, suit, proceeding or alternative dispute resolution mechanism,
or any hearing, inquiry or investigation that Indemnitee in good faith believes
might lead to
-1-
<PAGE>
the institution of any such action, suit, proceeding or alternative dispute
resolution mechanism, whether civil, criminal, administrative, investigative or
other (hereinafter a "Claim") by reason of (or arising in part out of) any event
or occurrence related to the fact that Indemnitee is or was a director, officer,
employee, agent or fiduciary of the Company, or any subsidiary of the Company,
or is or was serving at the request of the Company as a director, officer,
employee, agent or fiduciary of another corporation, partnership, joint venture,
trust or other enterprise, or by reason of any action or inaction on the part of
Indemnitee while serving in such capacity (hereinafter an "Indemnifiable Event")
against any and all expenses (including attorneys' fees and all other costs,
expenses and obligations incurred in connection with investigating, defending,
being a witness in or participating in (including on appeal), or preparing to
defend, be a witness in or participate in, any such action, suit, proceeding,
alternative dispute resolution mechanism, hearing, inquiry or investigation),
judgments, fines, penalties and amounts paid in settlement (if such settlement
is approved in advance by the Company, which approval shall not be unreasonably
withheld) of such Claim and any federal, state, local or foreign taxes imposed
on Indemnitee as a result of the actual or deemed receipt of any payments under
this Agreement (collectively, hereinafter "Expenses"), including all interest,
assessments and other charges paid or payable in connection with or in respect
of such Expenses. Such payment of Expenses shall be made by the Company as soon
as practicable but in any event no later than five days after written demand by
Indemnitee therefor is presented to the Company.
(b) Reviewing Party. Notwithstanding the foregoing, (i) the
---------------
obligations of the Company under Section 1(a) shall be subject to the condition
that the Reviewing Party (as described in Section 10(e) hereof) shall not have
determined (in a written opinion, in any case in which the Independent Legal
Counsel referred to in Section 1(c) hereof is involved) that Indemnitee would
not be permitted to be indemnified under applicable law, and (ii) the obligation
of the Company to make an advance payment of Expenses to Indemnitee pursuant to
Section 2(a) (an "Expense Advance") shall be subject to the condition that, if,
when and to the extent that the Reviewing Party determines that Indemnitee would
not be permitted to be so indemnified under applicable law, the Company shall be
entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the
Company) for all such amounts theretofore paid; provided, however, that if
Indemnitee has commenced or thereafter commences legal proceedings in a court of
competent jurisdiction to secure a determination that Indemnitee should be
indemnified under applicable law, any determination made by the Reviewing Party
that Indemnitee would not be permitted to be indemnified under applicable law
shall not be binding and Indemnitee shall not be required to reimburse the
Company for any Expense Advance until a final judicial determination is made
with respect thereto (as to which all rights of appeal therefrom have been
exhausted or lapsed). Indemnitees' obligation to reimburse the Company for any
Expense Advance shall be unsecured and no interest shall be charged thereon. If
there has not been a Change in Control (as defined in Section 10(c) hereof), the
Reviewing Party shall be selected by the Board of Directors, and if there has
been such a Change in Control (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control), the Reviewing Party shall be the
Independent Legal Counsel referred to in
-2-
<PAGE>
Section 1(c) hereof. If there has been no determination by the Reviewing Party
or if the Reviewing Party determines that Indemnitee substantively would not be
permitted to be indemnified in whole or in part under applicable law, Indemnitee
shall have the right to commence litigation seeking an initial determination by
the court or challenging any such determination by the Reviewing Party or any
aspect thereof, including the legal or factual bases therefor, and the Company
hereby consents to service of process and to appear in any such proceeding. Any
determination by the Reviewing Party otherwise shall be conclusive and binding
on the Company and Indemnitee.
(c) Change in Control. The Company agrees that if there is a Change
-----------------
in Control of the Company (other than a Change in Control which has been
approved by a majority of the Company's Board of Directors who were directors
immediately prior to such Change in Control) then, with respect to all matters
thereafter arising concerning the rights of Indemnitees to payments of Expenses
and Expense Advances under this Agreement or any other agreement or under the
Company's Certificate of Incorporation or Bylaws as now or hereafter in effect,
Independent Legal Counsel (as defined in Section 10(d) hereof) shall be selected
by Indemnitee and approved by the Company (which approval shall not be
unreasonably withheld). Such counsel, among other things, shall render its
written opinion to the Company and Indemnitee as to whether and to what extent
Indemnitee would be permitted to be indemnified under applicable law and the
Company agrees to abide by such opinion. The Company agrees to pay the
reasonable fees of the Independent Legal Counsel referred to above and to fully
indemnify such counsel against any and all expenses (including attorneys' fees),
claims, liabilities and damages arising out of or relating to this Agreement or
its engagement pursuant hereto.
(d) Mandatory Payment of Expenses. Notwithstanding any other
-----------------------------
provision of this Agreement other than Section 9 hereof, to the extent that
Indemnitee has been successful on the merits or otherwise, including, without
limitation, the dismissal of an action without prejudice, in defense of any
action, suit, proceeding, inquiry or investigation referred to in Section (1)(a)
hereof or in the defense of any claim, issue or matter therein, Indemnitee shall
be indemnified against all Expenses incurred by Indemnitee in connection
therewith.
2. Expenses; Indemnification Procedure.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all Expenses
-----------------------
incurred by Indemnitee. The advances to be made hereunder shall be paid by the
Company to Indemnitee as soon as practicable but in any event no later than five
days after written demand by Indemnitee therefor to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to Indemnitees' right to be indemnified under this
Agreement, give the Company notice in writing as soon as practicable of any
Claim made against Indemnitee for which indemnification will or could be sought
under this Agreement. Notice to the Company shall be directed to the
-3-
<PAGE>
Chief Executive Officer of the Company at the address shown on the signature
page of this Agreement (or such other address as the Company shall designate in
writing to Indemnitee). In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitees' power.
(c) No Presumptions; Burden of Proof. For purposes of this
--------------------------------
Agreement, the termination of any Claim by judgment, order, settlement (whether
with or without court approval) or conviction, or upon a plea of nolo
----
contendere, or its equivalent, shall not create a presumption that Indemnitee
- ----------
did not meet any particular standard of conduct or have any particular belief or
that a court has determined that indemnification is not permitted by applicable
law. In addition, neither the failure of the Reviewing Party to have made a
determination as to whether Indemnitee has met any particular standard of
conduct or had any particular belief, nor an actual determination by the
Reviewing Party that Indemnitee has not met such standard of conduct or did not
have such belief, prior to the commencement of legal proceedings by Indemnitee
to secure a judicial determination that Indemnitee should be indemnified under
applicable law, shall be a defense to Indemnitee's claim or create a presumption
that Indemnitee has not met any particular standard of conduct or did not have
any particular belief. In connection with any determination by the Reviewing
Party or otherwise as to whether Indemnitee is entitled to be indemnified
hereunder, the burden of proof shall be on the Company to establish that
Indemnitee is not so entitled.
(d) Notice to Insurers. If, at the time of the receipt by the
------------------
Company of a notice of a Claim pursuant to Section 2(b) hereof, the Company has
liability insurance in effect which may cover such Claim, the Company shall give
prompt notice of the commencement of such Claim to the insurers in accordance
with the procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to pay,
on behalf of Indemnitee, all amounts payable as a result of such action, suit,
proceeding, inquiry or investigation in accordance with the terms of such
policies.
(e) Selection of Counsel. In the event the Company shall be
--------------------
obligated hereunder to pay the Expenses of any Claim, the Company shall be
entitled to assume the defense of such Claim with counsel approved by
Indemnitee, which approval shall not be unreasonably withheld, upon the delivery
to Indemnitee of written notice of its election so to do. After delivery of such
notice, approval of such counsel by Indemnitee and the retention of such counsel
by the Company, the Company will not be liable to Indemnitee under this
Agreement for any fees of counsel subsequently incurred by Indemnitee with
respect to the same Claim; provided that, (i) Indemnitee shall have the right to
employ Indemnitees' counsel in any such Claim at Indemnitee expense and (ii) if
(A) the employment of counsel by Indemnitee has been previously authorized by
the Company, (B) Indemnitee shall have reasonably concluded that there is a
conflict of interest between the Company and Indemnitee in the conduct of any
such defense, or (C) the Company shall not continue to retain such counsel to
defend such Claim, then the fees and expenses of Indemnitee counsel shall be at
the expense of the Company. The Company shall have
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<PAGE>
the right to conduct such defense as it sees fit in its sole discretion,
including the right to settle any claim against Indemnitee without the consent
of the Indemnitee.
3. Additional Indemnification Rights; Nonexclusivity.
-------------------------------------------------
(a) Scope. The Company hereby agrees to indemnify Indemnitee to the
-----
fullest extent permitted by law, notwithstanding that such indemnification is
not specifically authorized by the other provisions of this Agreement, the
Company's Certificate of Incorporation, the Company's Bylaws or by statute. In
the event of any change after the date of this Agreement in any applicable law,
statute or rule which expands the right of a Delaware corporation to indemnify a
member of its Board of Directors or an officer, employee, agent or fiduciary, it
is the intent of the parties hereto that Indemnitee shall enjoy by this
Agreement the greater benefits afforded by such change. In the event of any
change in any applicable law, statute or rule which narrows the right of a
Delaware corporation to indemnify a member of its Board of Directors or an
officer, employee, agent or fiduciary, such change, to the extent not otherwise
required by such law, statute or rule to be applied to this Agreement, shall
have no effect on this Agreement or the parties' rights and obligations
hereunder except as set forth in Section 8(a) hereof.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall be in addition to any rights to which Indemnitee may be entitled under the
Company's Certificate of Incorporation, its Bylaws, any agreement, any vote of
stockholders or disinterested directors, the General Corporation Law of the
State of Delaware, or otherwise. The indemnification provided under this
Agreement shall continue as to Indemnitee for any action Indemnitee took or did
not take while serving in an indemnified capacity even though Indemnitee may
have ceased to serve in such capacity.
4. No Duplication of Payments. The Company shall not be liable under
--------------------------
this Agreement to make any payment in connection with any Claim made against
Indemnitee to the extent Indemnitee has otherwise actually received payment
(under any insurance policy, Certificate of Incorporation, Bylaw or otherwise)
of the amounts otherwise indemnifiable hereunder.
5. Partial Indemnification. If Indemnitee is entitled under any
-----------------------
provision of this Agreement to indemnification by the Company for some or a
portion of Expenses incurred in connection with any Claim, but not, however, for
all of the total amount thereof, the Company shall nevertheless indemnify
Indemnitee for the portion of such Expenses to which Indemnitee are entitled.
6. Mutual Acknowledgement. Both the Company and Indemnitee acknowledge
----------------------
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors, officers, employees, agents or
fiduciaries under this Agreement or otherwise. Indemnitee understands and
acknowledges that the Company has undertaken or may be required in the future to
undertake with the Securities and Exchange Commission to submit the
-5-
<PAGE>
question of indemnification to a court in certain circumstances for a
determination of the Company's right under public policy to indemnify
Indemnitee.
7. Liability Insurance. To the extent the Company maintains liability
-------------------
insurance applicable to directors, officers, employees, agents or fiduciaries,
Indemnitee shall be covered by such policies in such a manner as to provide
Indemnitee the same rights and benefits as are accorded to the most favorably
insured of the Company's directors, if Indemnitee is a director; or of the
Company's officers, if Indemnitee is not a director of the Company but is an
officer; or of the Company's key employees, agents or fiduciaries, if Indemnitee
is not an officer or director but is a key employee, agent or fiduciary.
8. Exceptions. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Action or Omissions. (i) To indemnify Indemnitee for
----------------------------
Indemnitee's acts, omissions or transactions from which Indemnitee or the
Indemnitee may not be indemnified under applicable law; or (ii) to indemnify
Indemnity for Indemnity's intentional acts or transactions in violation of the
Company's policies;
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to Claims initiated or brought voluntarily by
Indemnitee and not by way of defense, except (i) with respect to actions or
proceedings brought to establish or enforce a right to indemnification under
this Agreement or any other agreement or insurance policy or under the Company's
Certificate of Incorporation or Bylaws now or hereafter in effect relating to
Claims for Indemnifiable Events, (ii) in specific cases if the Board of
Directors has approved the initiation or bringing of such Claim, or (iii) as
otherwise required under Section 145 of the Delaware General Corporation Law,
regardless of whether Indemnitee ultimately is determined to be entitled to such
indemnification, advance expense payment or insurance recovery, as the case may
be;
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by Indemnitee with respect to any proceeding instituted by Indemnitee
to enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by Indemnitee in such
proceeding was not made in good faith or was frivolous; or
(d) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
9. Period of Limitations. No legal action shall be brought and no cause
---------------------
of action shall be asserted by or in the right of the Company against
Indemnitee, Indemnitee's estate, spouse, heirs, executors or personal or legal
representatives after the expiration of two years from the date
-6-
<PAGE>
of accrual of such cause of action, and any claim or cause of action of the
Company shall be extinguished and deemed released unless asserted by the timely
filing of a legal action within such two-year period; provided, however, that if
-------- -------
any shorter period of limitations is otherwise applicable to any such cause of
action, such shorter period shall govern.
10. Construction of Certain Phrases.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees, agents or
fiduciaries, so that if Indemnitee is or was a director, officer, employee,
agent or fiduciary of such constituent corporation, or is or was serving at the
request of such constituent corporation as a director, officer, employee, agent
or fiduciary of another corporation, partnership, joint venture, employee
benefit plan, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company" shall include any
service as a director, officer, employee, agent or fiduciary of the Company
which imposes duties on, or involves services by, such director, officer,
employee, agent or fiduciary with respect to an employee benefit plan, its
participants or its beneficiaries; and if Indemnitee acted in good faith and in
a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee shall be
deemed to have acted in a manner "not opposed to the best interests of the
Company" as referred to in this Agreement.
(c) For purposes of this Agreement a "Change in Control" shall be
deemed to have occurred if (i) any "person" (as such term is used in Sections
13(d) and 14(d) of the Securities Exchange Act of 1934, as amended), other than
a trustee or other fiduciary holding securities under an employee benefit plan
of the Company or a corporation owned directly or indirectly by the stockholders
of the Company in substantially the same proportions as their ownership of stock
of the Company, (A) who is or becomes the beneficial owner, directly or
indirectly, of securities of the Company representing 10% or more of the
combined voting power of the Company's then outstanding Voting Securities,
increases his beneficial ownership of such securities by 5% or more over the
percentage so owned by such person, or (B) becomes the "beneficial owner" (as
defined in Rule 13d-3 under said Act), directly or indirectly, of securities of
the Company representing more than 20% of the total voting power represented by
the Company's then outstanding Voting Securities, (ii) during any period of two
consecutive years,
-7-
<PAGE>
individuals who at the beginning of such period constitute the Board of
Directors of the Company and any new director whose election by the Board of
Directors or nomination for election by the Company's stockholders was approved
by a vote of at least two-thirds of the directors then still in office who
either were directors at the beginning of the period or whose election or
nomination for election was previously so approved, cease for any reason to
constitute a majority thereof, or (iii) the stockholders of the Company approve
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 80% 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 the stockholders of the
Company approve a plan of complete liquidation of the Company or an agreement
for the sale or disposition by the Company of (in one transaction or a series of
transactions) all or substantially all of the Company's assets.
(d) For purposes of this Agreement, "Independent Legal Counsel" shall
mean an attorney or firm of attorneys, selected in accordance with the
provisions of Section 1(c) hereof, who shall not have otherwise performed
services for the Company or Indemnitee within the last three years (other than
with respect to matters concerning the rights of Indemnitee under this
Agreement, or of other indemnitees under similar indemnity agreements).
(e) For purposes of this Agreement, a "Reviewing Party" shall mean
any appropriate person or body consisting of a member or members of the
Company's Board of Directors or any other person or body appointed by the Board
of Directors who is not a party to the particular Claim for which Indemnitee are
seeking indemnification, or Independent Legal Counsel.
(f) For purposes of this Agreement, "Voting Securities" shall mean
any securities of the Company that vote generally in the election of directors.
11. Counterparts. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
12. Binding Effect; Successors and Assigns. This Agreement shall be
--------------------------------------
binding upon and inure to the benefit of and be enforceable by the parties
hereto and their respective successors, assigns, including any direct or
indirect successor by purchase, merger, consolidation or otherwise to all or
substantially all of the business and/or assets of the Company, spouses, heirs,
and personal and legal representatives. The Company shall require and cause any
successor (whether direct or indirect by purchase, merger, consolidation or
otherwise) to all, substantially all, or a substantial part, of the business
and/or assets of the Company, by written agreement in form and substance
satisfactory to Indemnitee, expressly to assume and agree to perform this
Agreement in the same manner and to the same extent that the Company would be
required to perform if no
-8-
<PAGE>
such succession had taken place. This Agreement shall continue in effect with
respect to Claims relating to Indemnifiable Events regardless of whether
Indemnitee continues to serve as a director, officer, employee, agent or
fiduciary of the Company or of any other enterprise at the Company's request.
13. Attorneys' Fees. In the event that any action is instituted by
---------------
Indemnitee under this Agreement or under any liability insurance policies
maintained by the Company to enforce or interpret any of the terms hereof or
thereof, Indemnitee shall be entitled to be paid all Expenses incurred by
Indemnitee with respect to such action, regardless of whether Indemnitee is
ultimately successful in such action, and shall be entitled to the advancement
of Expenses with respect to such action, unless, as a part of such action, a
court of competent jurisdiction over such action determines that each of the
material assertions made by Indemnitee as a basis for such action was not made
in good faith or was frivolous. In the event of an action instituted by or in
the name of the Company under this Agreement to enforce or interpret any of the
terms of this Agreement, Indemnitee shall be entitled to be paid all Expenses
incurred by Indemnitee in defense of such action (including costs and expenses
incurred with respect to Indemnitee counterclaims and cross-claims made in such
action), and shall be entitled to the advancement of Expenses with respect to
such action, unless, as a part of such action, a court having jurisdiction over
such action determines that each of Indemnitee material defenses to such action
was made in bad faith or was frivolous.
14. Notice. All notices and other communications required or permitted
------
hereunder shall be in writing, shall be effective when given, and shall in any
event be deemed to be given (a) five (5) days after deposit with the U.S. Postal
Service or other applicable postal service, if delivered by first class mail,
postage prepaid, (b) upon delivery, if delivered by hand, (c) one business day
after the business day of deposit with Federal Express or similar overnight
courier, freight prepaid, or (d) one day after the business day of delivery by
facsimile transmission, if delivered by facsimile transmission, with copy by
first class mail, postage prepaid, and shall be addressed if to Indemnitee, at
the Indemnitee address as set forth beneath Indemnitee signatures to this
Agreement and if to the Company at the address of its principal corporate
offices (attention: Secretary) or at such other address as such party may
designate by ten days' advance written notice to the other party hereto.
15. Consent to Jurisdiction. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of Delaware
for all purposes in connection with any action or proceeding which arises out of
or relates to this Agreement and agree that any action instituted under this
Agreement shall be commenced, prosecuted and continued only in the Court of
Chancery of the State of Delaware in and for New Castle County, which shall be
the exclusive and only proper forum for adjudicating such a claim.
16. Severability. The provisions of this Agreement shall be severable in
------------
the event that any of the provisions hereof (including any provision within a
single section, paragraph or
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<PAGE>
sentence) are held by a court of competent jurisdiction to be invalid, void or
otherwise unenforceable, and the remaining provisions shall remain enforceable
to the fullest extent permitted by law. Furthermore, to the fullest extent
possible, the provisions of this Agreement (including, without limitations, each
portion of this Agreement containing any provision held to be invalid, void or
otherwise unenforceable, that is not itself invalid, void or unenforceable)
shall be construed so as to give effect to the intent manifested by the
provision held invalid, illegal or unenforceable.
17. Choice of Law. This Agreement shall be governed by and its provisions
-------------
construed and enforced in accordance with the laws of the State of Delaware, as
applied to contracts between Delaware residents, entered into and to be
performed entirely within the State of Delaware, without regard to the conflict
of laws principles thereof.
18. Subrogation. In the event of payment under this Agreement, the
-----------
Company shall be subrogated to the extent of such payment to all of the rights
of recovery of Indemnitee who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the Company
effectively to bring suit to enforce such rights.
19. Amendment and Termination. No amendment, modification, termination or
-------------------------
cancellation of this Agreement shall be effective unless it is in writing signed
by both the parties hereto. No waiver of any of the provisions of this
Agreement shall be deemed or shall constitute a waiver of any other provisions
hereof (whether or not similar) nor shall such waiver constitute a continuing
waiver.
20. Integration and Entire Agreement. This Agreement sets forth the
--------------------------------
entire understanding between the parties hereto and supersedes and merges all
previous written and oral negotiations, commitments, understandings and
agreements relating to the subject matter hereof between the parties hereto.
21. No Construction as Employment Agreement. Nothing contained in this
---------------------------------------
Agreement shall be construed as giving Indemnitee any right to be retained in
the employ of the Company or any of its subsidiaries.
[Remainder of page intentionally left blank; signature page follows immediately
hereafter]
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first above written.
PALM, INC.
______________________________________
By:
______________________________________
Title:
Address:______________________________
______________________________
AGREED TO AND ACCEPTED BY:
Signature: _______________________
Name: _______________________
Address: _______________________
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<PAGE>
EXHIBIT 10.11
PALM COMPUTING, INC.
COMMON STOCK PURCHASE AGREEMENT
December 13, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Agreement To Sell and Purchase................................................. 1
1.1 Authorization Of Shares............................................... 1
1.2 Sale And Purchase Of Common Stock..................................... 1
1.3 Hart-Scott-Rodino Compliance.......................................... 2
2. Closing, Delivery And Payment.................................................. 2
3. Representations and Warranties Of The Company.................................. 3
3.1 Organization, Good Standing And Qualification......................... 3
3.2 Authorization; Binding Obligations.................................... 3
3.3 Compliance With Other Instruments..................................... 3
3.4 Valid Issuance of Shares.............................................. 4
3.5 Litigation, Etc....................................................... 4
3.6 Governmental Consent, Etc............................................. 4
3.7 Intellectual Property Rights.......................................... 4
4. Representations And Warranties Of Purchaser.................................... 4
4.1 Requisite Power And Authority......................................... 4
4.2 Consents.............................................................. 5
4.3 Investment Representations............................................ 5
4.4 Legends............................................................... 6
4.5 Removal of Legend and Transfer Restrictions........................... 6
5. Conditions To Closing.......................................................... 6
5.1 Conditions To Purchaser's Obligations At The Closing.................. 6
5.2 Conditions To Obligations Of The Company.............................. 7
6. Rule 144 Reporting............................................................. 8
7. Covenants...................................................................... 8
7.1 "Stand-Off"Agreement.................................................. 8
7.2 Right of First Offer.................................................. 9
8. Miscellaneous.................................................................. 10
8.1 Governing Law......................................................... 10
8.2 Survival.............................................................. 10
8.3 Successors And Assigns................................................ 10
8.4 Separability.......................................................... 10
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION> Page
----
<S> <C>
8.5 Amendment And Waiver................................................. 10
8.6 Notices.............................................................. 11
8.7 Expenses............................................................. 11
8.8 Attorneys' Fees...................................................... 11
8.9 Titles And Subtitles................................................. 11
8.10 Counterparts......................................................... 11
8.11 Broker's Fees........................................................ 11
8.12 Termination.......................................................... 11
8.13 Subsequent, Consents, Permits and Waivers............................ 11
8.14 Most Favored Nations................................................. 11
</TABLE>
List of Exhibits:
Annex 1 - Formula
Annex 2 - Company Schedule of Exceptions
Exhibit A - Form of Legal Opinion
-ii-
<PAGE>
PALM COMPUTING, INC.
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement") is entered into as
of December 13, 1999, by and between Palm Computing, Inc., a California
corporation (the "Company"), and America Online, Inc., a Delaware corporation
("Purchaser").
RECITALS
Whereas, the Company intends to reincorporate by merger into Palm, Inc., a
Delaware corporation being formed for the purpose of the reincorporation and
that will be the surviving entity; the "Company" as used in this Agreement
refers to, prior to such merger, the California corporation and, after such
merger, the Delaware corporation; the Delaware corporation will assume this
Agreement; and
Whereas, Purchaser desires to purchase shares of the Company's common stock
("Common Stock"), such purchase to be made in a private placement to close
concurrently with, but not before, the closing of the initial public offering of
the Company (the "IPO") pursuant to a Registration Statement to be filed on Form
S-1 with the Securities and Exchange Commission (the "Commission") (such
registration statement, as amended, shall be referred to herein as the
"Registration Statement"); and
Whereas, the Company desires to issue and sell the Shares (as defined
below) to Purchaser on the terms and conditions set forth herein.
Now, Therefore, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. Agreement To Sell and Purchase.
1.1 Authorization Of Shares. On or prior to the Closing (as defined in
Section 2 below), the Company shall have authorized the sale and issuance to
Purchaser of the Shares. Prior to the Closing the Company will have adopted and
filed a Certificate of Incorporation (the "Certificate of Incorporation") with
the Secretary of State of the State of Delaware authorizing sufficient shares of
Common Stock to cover the sale and issuance of the Shares to be purchased
hereunder.
1.2 Sale And Purchase Of Common Stock. Subject to the terms and conditions
hereof, the Company hereby agrees to issue and sell to Purchaser and Purchaser
agrees to purchase from the Company, at the Closing, the lesser of: (a) that
whole number of shares of Common Stock equal to
-1-
<PAGE>
the quotient determined by dividing $80 million by the per share Price to Public
(as defined below) and rounding down to the nearest whole number or (b) that
whole number of shares of Common Stock determined by multiplying the number of
shares of Post-Money Outstanding Capital Stock of the Company by .015 and
rounding down to the nearest whole number. For purposes of this Agreement, the
term "Post-Money Outstanding Capital Stock" shall mean the number of shares of
Common Stock outstanding immediately following the closing of the IPO and
including (i) the number of shares of Common Stock issuable pursuant to then
outstanding options or warrants for Common Stock (including those options issued
at the time of the IPO and excluding specifically options to purchase 3Com
common stock which may be converted into options to purchase the Company's
Common Stock at the time 3Com distributes its shares of the Company's Common
Stock to 3Com stockholders), (ii) any Common Stock issuable pursuant to any then
outstanding class or series of stock convertible into Common Stock and (iii) the
Private Placement Shares (as defined on Annex 1 attached to this Agreement). The
shares of Common Stock to be purchased hereunder are referred to as the
"Shares". The per share purchase price for the Shares purchased hereunder shall
be the per share Price to Public.
For purposes of this Agreement, the term "Price to Public" shall mean
the Price to Public set forth on the cover page of the final Prospectus (as
defined below). For purposes of this Agreement, the term "Prospectus" means the
prospectus, as amended, on file with the Commission at the time the Registration
Statement becomes effective, including the information deemed to be part of the
Registration at the time of effectiveness pursuant to Rule 430A, if applicable,
except that if the Prospectus filed by the Company pursuant to Rule 424(b)
differs from the prospectus on file at the time the Registration Statement
becomes effective, the term "Prospectus" shall refer to the Rule 424(b)
Prospectus from and after the time it was filed with the Commission or
transmitted to the Commission for filing.
1.3 Hart-Scott-Rodino Compliance. Notwithstanding anything else in this
Agreement, if the sale and issuance of the Shares is subject to the premerger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), it shall be a condition to the Closing that
any waiting period under the HSR Act applicable to the purchase of the Shares
shall have expired or been terminated and any approvals required thereunder
shall have been obtained, and the parties shall cooperate in promptly filing
premerger reports and in taking all steps reasonably necessary to obtain early
termination of any applicable HSR Act waiting periods. If any such waiting
period shall not have expired or been subject to early termination on or before
the date ninety (90) days from the date of this Agreement, either party may
terminate this Agreement by giving written notice to the other.
2. Closing, Delivery And Payment
Subject to the terms of Section 5, the closing of the sale and purchase of
the Shares under this Agreement (the "Closing") shall take place concurrently
with, but not before, the closing of the IPO at the offices of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto,
California 94304. The date of the Closing is referred to as the "Closing Date."
At the
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<PAGE>
Closing, subject to the terms and conditions hereof, the Company will deliver to
Purchaser a certificate representing the number of Shares to be purchased at the
Closing against payment by or on behalf of Purchaser of the purchase price
therefor by cash, wire transfer, or by such other means as shall be mutually
agreeable to Purchaser and the Company.
3. Representations and Warranties Of The Company. The Company represents and
warrants to Purchaser that, as of the effective date of the underwriting
agreement entered into with the managing underwriters of the IPO (the
"Underwriting Agreement"), the representations and warranties set forth in such
underwriting agreement will be true and correct in all respects and incorporated
by reference herein. Except as set forth in the Schedule of Exceptions attached
hereto as Annex 2, the Company hereby additionally represents and warrants to
Purchaser as of the date hereof as follows:
3.1 Organization, Good Standing And Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. The Company has full power and authority to own and
operate its properties and assets, and to carry on its business as presently
conducted. The Company is duly qualified, is authorized to do business and is in
good standing as a foreign corporation in all jurisdictions in which the nature
of its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions, in the aggregate, in
which failure to do so would not have a material adverse effect on the Company
or its business.
3.2 Authorization; Binding Obligations. All corporate action on the part
of the Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the Certificate of
Incorporation, for the sale and issuance of the Shares pursuant hereto and for
the performance of the Company's obligations hereunder has been taken or will be
taken prior to the Closing. This Agreement, when executed and delivered, will be
a valid and binding obligation of the Company enforceable in accordance with its
terms. The sale of the Shares is not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly waived or complied
with. When issued in compliance with the provisions of this Agreement and the
Certificate of Incorporation, the Shares will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Shares may be subject to restrictions on transfer under this Agreement
and under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.
3.3 Compliance With Other Instruments. The execution, delivery and
performance of and compliance with this Agreement and the issuance and sale of
the Shares pursuant hereto will not (i) materially conflict with, or result in a
material breach or violation of, or constitute a material default under, or
result in the creation or imposition of any material lien, (ii) violate,
conflict with or result in the breach of any material terms of, or result in the
material modification of, any material contract or otherwise give any other
contracting party the right to terminate a material contract, or constitute (or
with notice or lapse of time both constitute) a material default under any
material
-3-
<PAGE>
contract to which the Company is a party or by or to which it or any of its
assets or properties may be bound or subject or (iii) result in any violation,
or be in conflict with or constitute a default under any term, of its charter or
bylaws.
3.4 Valid Issuance of Shares. The Shares which will be purchased by
Purchaser hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
authorized and issued, fully paid and nonassessable.
3.5 Litigation, Etc. There is no action, suit, proceeding nor, to the
Company's knowledge, any investigation pending or currently threatened against
the Company, that questions the validity of this Agreement or the right of the
Company to enter into such agreements, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financial or otherwise.
3.6 Governmental Consent, Etc. No consent, approval or authorization of,
or designation, declaration or filing with, any governmental authority on the
part of the Company is required in connection with the valid execution,
delivery, and performance of this Agreement or the offer, sale or issuance of
the Shares, or the consummation of any other transaction contemplated by this
Agreement except certain filings as may be required under the Securities Act and
state securities laws and regulations, which filings will be made timely in
accordance with the applicable law or regulation.
3.7 Intellectual Property Rights. To the knowledge of the Company, the
Company or its subsidiaries own and possess or are licensed under all patents,
patent applications, licenses, trademarks, trade secrets, trade names, brand
names, inventions and copyrights or other proprietary rights ("Intellectual
Property") employed in the operation of their respective businesses as currently
conducted, and, to the knowledge of the Company, with no infringement of or
conflict with the rights or others respecting any of the same. Neither the
Company nor any subsidiary has received any communications alleging that the
Company or any subsidiary has violated any of the Intellectual Property of any
other person or entity. Reasonable security measures have been taken by the
Company and its subsidiaries to protect the secrecy, confidentiality and value
of the Company's and its subsidiaries' trade secrets, including their respective
know-how, technology, concepts and other technical data for the development,
processing, manufacture and sale of its products. Each employee of and
consultant to the Company or its subsidiaries has executed an invention
assignment and confidentiality agreement with the Company or its subsidiaries.
4. Representations And Warranties Of Purchaser
Purchaser hereby represents and warrants to the Company as follows:
4.1 Requisite Power And Authority. Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and to carry out the provisions of this Agreement. All action on
Purchaser's part required for the lawful execution and
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delivery of this Agreement has been or will be effectively taken prior to the
Closing. This Agreement, when executed and delivered, will be a valid and
binding obligation of Purchaser, enforceable in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights and (ii) general principles of equity that restrict the
availability of equitable remedies.
4.2 Consents. All consents, approvals, orders, authorizations,
registrations, qualifications, designations, declarations or filings with any
governmental or banking authority on the part of Purchaser required in
connection with the consummation of the transactions contemplated in this
Agreement have been or shall have been obtained prior to and be effective as of
the Closing.
4.3 Investment Representations. Purchaser understands that the Shares
have not been registered under the Securities Act. Purchaser also understands
that the Shares are being offered and sold pursuant to an exemption from
registration contained in the Securities Act based in part upon Purchaser's
representations contained in the Agreement. Purchaser hereby represents and
warrants as follows:
(a) Purchaser Is An Accredited Investor. Purchaser represents
that Purchaser is an "accredited investor" within the meaning of Rule 501(a) of
Regulation D under the Securities Act.
(b) Purchaser Bears Economic Risk. Purchaser must bear the
economic risk of this investment indefinitely unless the Shares are registered
pursuant to the Securities Act, or an exemption from registration is available.
Purchaser understands that it will have no registration rights with respect to
the Shares. Purchaser also understands that there is no assurance that any
exemption from registration under the Securities Act will be available and that,
even if available, such exemption may not allow Purchaser to transfer all or any
portion of the Shares under the circumstances, in the amounts or at the times
Purchaser might propose.
(c) Acquisition For Own Account. Purchaser is acquiring the
Shares for Purchaser's own account for investment only, and not with a view
towards their distribution within the meaning of the Securities Act.
(d) Purchaser Can Protect Its Interest. Purchaser represents that
by reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement. Purchaser is not a corporation,
trust or partnership specifically formed for the purpose of consummating these
transactions.
(e) Company Information. Purchaser has had an opportunity to
discuss the Company's business, management and financial affairs with directors,
officers and management of the Company and has had the opportunity to review the
Company's operations and facilities.
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Purchaser has also had the opportunity to ask questions of and receive answers
from, the Company and its management regarding the terms and conditions of this
investment.
4.4 Legends. Each certificate representing the Shares may be endorsed
with the following legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE
"RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED UNDER THE ACT.
THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED
EXCEPT (I) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT, OR (II) IN COMPLIANCE WITH RULE 144 OR (III) PURSUANT
TO AN OPINION OF COUNSEL TO THE CORPORATION THAT SUCH REGISTRATION OR
COMPLIANCE IS NOT REQUIRED AS TO SUCH SALE, OFFER OR DISTRIBUTION."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH, THE TERMS OF CERTAIN AGREEMENTS AMONG
THE COMPANY AND THE STOCKHOLDER, WHICH INCLUDE, WITHOUT LIMITATION, 180 DAY
MARKET STANDOFF RESTRICTIONS AND OBLIGATIONS OF RIGHTS OF FIRST OFFER,
COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE COMPANY."
The Company need not register a transfer of any Shares, and may also instruct
its transfer agent not to register the transfer of the Shares, unless the
conditions specified in the foregoing legends are satisfied.
4.5 Removal of Legend and Transfer Restrictions. Any legend endorsed on a
certificate pursuant to subsection 4.4 and the stop transfer instructions with
respect to such Shares shall be removed and the Company shall issue a
certificate without such legend to the holder thereof if such legend may be
properly removed under the terms of Rule 144 promulgated under the Securities
Act or if such holder provides the Company with an opinion of counsel for such
holder, reasonably satisfactory to legal counsel for the Company, to the effect
that a sale, transfer or assignment of such Shares may be made without
registration.
5. Conditions To Closing.
5.1 Conditions To Purchaser's Obligations At The Closing. Purchaser's
obligation to purchase the Shares identified in Section 1.2 of the Agreement at
the Closing are subject to the satisfaction, at or prior to the Closing, of the
following conditions:
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(a) Concurrent Closing of IPO. The Closing shall occur
concurrently with, and not before, the closing of the IPO.
(b) Representations And Warranties True; Performance Of
Obligations. The representations and warranties made by the Company in Section 3
(except for Section 3.5 and 3.7) and the representations and warranties which
are incorporated by reference from the Underwriting Agreement shall be true and
correct as of the Closing, and the Company shall have performed and complied
with all obligations and conditions herein required to be performed or complied
with by it on or prior to the Closing and shall have delivered an officer's
certificate as to the matters set forth in this Section 5.1(b).
(c) Legal Investment. At the time of the Closing, the sale and
issuance of the Shares shall be legally permitted by all laws and regulations to
which Purchaser and the Company are subject.
(d) Consents, Permits, And Waivers. The Company shall have
obtained any and all authorizations, approvals, consents, permits and waivers
necessary or appropriate for consummation of the transactions contemplated by
this Agreement (except for such as may be properly obtained subsequent to the
Closing, and such items shall be effective on and as of the Closing).
(e) Legal Opinion. The Company shall have delivered an opinion of
counsel to the Purchaser in substantially the form attached hereto as Exhibit A.
---------
(f) Transfer Agent Instructions. The Company shall have delivered
to Purchaser a copy of a letter to the Company's transfer agent, dated the
Closing Date, and instructing the transfer agent to issue the Shares.
5.2 Conditions To Obligations Of The Company. The Company's obligation to
issue and sell the Shares at the Closing is subject to the satisfaction, on or
prior to the Closing of the following conditions:
(a) Concurrent Closing of IPO. The closing of the IPO shall occur
concurrently with, but not before, the Closing.
(b) Representations And Warranties True. The representations and
warranties made by Purchaser in Section 4 hereof shall be true and correct in
all material respects at the date of the Closing, with the same force and effect
as if they had been made on and as of said date.
(c) Performance Of Obligations. Purchaser shall have performed
and complied with all agreements and conditions herein required to be performed
or complied with by Purchaser on or before the Closing.
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(d) Payment of Purchase Price. Purchaser shall deliver to the
Company payment for the Shares to be acquired by such Purchase in the amounts
set forth in Section 1.2 hereto pursuant to the wire instructions provided by
the company.
6. Rule 144 Reporting
With a view to making available to Purchaser the benefits of certain rules
and regulations of the SEC which may permit the sale of the Shares to the public
without registration, the Company agrees at all times after the effective date
of the Registration Statement to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144.
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(c) so long as Purchaser owns any Shares, to furnish to
Purchaser within a reasonable time upon a written request by Purchaser, a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144 (at any time after ninety (90) days after the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public) and of the Exchange Act (at
any time after it has become subject to such reporting requirements), a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents so filed by the Company as Purchaser may reasonably
request in complying with any rule or regulation of the SEC allowing Purchaser
to sell any such securities without registration.
7. Covenants
7.1 "Stand-Off" Agreement. The Purchaser agrees not to (1) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly any of the Shares or
any shares of Common Stock of the Company or any securities convertible into or
exercisable or exchangeable for Shares or Common Stock of the Company (whether
such shares or any such securities are now owned by the undersigned or are
hereafter acquired, or (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Shares or Common Stock of the Company, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Shares or Common Stock or such other securities, in cash or otherwise, for 180
days following the Closing. The provisions of this Section 7.1 shall be for the
benefit of and enforceable by the underwriters of the IPO, acting through the
managing underwriter.
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7.2 Right of First Offer. For so long as Purchaser holds any Shares, if
the Purchaser joins in a partnership, limited partnership, syndicate, or
otherwise acts in concert or alone for the purpose of disposing of more than 5%
of the Shares (as adjusted for stock splits or similar events after the date
hereof) to a single person or transferee or any group of affiliated persons or
transferees but specifically excluding any hedging or similar transactions, the
Purchaser shall give the Company the opportunity to purchase such stock, in the
following manner:
(a) The Purchaser shall give notice (the "Transfer Notice") to
the Company in writing of such intention, specifying the number and kind of
securities proposed to be sold or transferred, the proposed price per share
therefor (the "Transfer Price") and the other material terms, upon which such
disposition is proposed to be made, including the names of the proposed
purchasers or transferees if such persons have been identified.
(b) The Company shall have the right, exercisable by written
notice given by the Company to the Purchaser within ten calendar days of receipt
of the Transfer Notice to purchase all of the shares specified in such Transfer
Notice upon the terms specified in such Transfer Notice. Notwithstanding the
foregoing, the Company shall have twenty-five calendar days from the receipt of
the Transfer Notice (regardless of the date of the Transfer Notice) to notify
Purchaser of the Company's election to purchase the shares pursuant to this
Section 7.2 if the Company shall furnish a certificate signed by the President
or Chief Executive Officer of the Company within ten calendar days of receipt of
the Transfer Notice stating that, in the good faith judgment of the management
of the Company, it would be detrimental to the Company and its stockholders to
decide whether to elect to purchase the Shares within the ten day period
provided for pursuant to this Section 7.2 (it being understood that the mere
election of Purchaser to sell such Shares in a transaction triggering the
provisions of this Section 7.2 shall not constitute such an event). The purchase
of the shares by the Company must be completed within 60 calendar days from the
receipt of the Transfer Notice. The Company and Purchaser shall use their best
efforts to secure during such period any approvals required on their respective
parts in connection therewith. The Company shall have the right to pay for such
shares specified in the Transfer Notice: (a) the same amount in cash, if the
consideration to be paid consists of cash, or (b) to the extent that the
consideration to be paid does not consist of cash, consideration per share
equivalent to that set forth in the Transfer Notice, or an amount of cash having
equivalent value, as determined in good faith by mutual agreement of the Company
and the Purchaser.
(c) If the Company (or its assignees) does not exercise its
right of first offer hereunder within the time specified for such exercise, the
Seller(s) shall be free, during the period of 120 days following the date of the
Transfer Notice, to sell the shares specified in such Transfer Notice for such
consideration and on such other material terms as shall be no more favorable to
the purchaser of the shares than the terms specified in such Transfer Notice.
(d) The provisions of this Section 7.2 shall terminate upon the
earlier to occur of: (i) such time as 3Com Corporation distributes its shares of
the Company's Common Stock to the shareholders of 3Com Corporation or (ii) one
year following the Closing Date.
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<PAGE>
8. Miscellaneous
8.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of California.
8.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by Purchaser and the closing of
the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument, except as
expressly provided otherwise in such certificate or instrument.
8.3 Successors And Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time; provided, however,
that prior to the receipt by the Company of adequate written notice of the
transfer of any Shares specifying the full name and address of the transferee,
the Company may deem and treat the person listed as the holder of such Shares in
its records as the absolute owner and holder of such Shares for all purposes,
the payment of any dividends or any redemption price.
8.4 Separability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, such provision shall, to the extent
practicable, be modified so as to make it valid, legal and enforceable and to
maintain as nearly as practicable the intent of the parties, and the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
8.5 Amendment And Waiver.
(a) This Agreement may be amended or modified only upon the
written consent of the parties hereto.
(b) The obligations of the Company and the rights of the holder
of the Shares under this Agreement may be waived only with the written consent
of the parties hereto.
(c) Except to the extent provided in this Section 8.5, neither
this Agreement nor any provision hereof may be changed, waived, discharged or
terminated, except by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
(d) Any amendment or waiver effected in accordance with this
Section 8.5 shall be binding upon any future holder of some or all of the
Shares.
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<PAGE>
8.6 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given and received
(a) upon personal delivery, (b) on the fifth day following mailing sent by
registered or certified mail, return receipt requested, postage prepaid, (c)
upon confirmed delivery by means of a nationally recognized overnight courier
service or (d) upon confirmed transmission of facsimile addressed: (i) if to
Purchaser, at Purchaser's address as set forth on the Company's records, or at
such other address as Purchaser shall have furnished to the Company in writing
or (ii) if to the Company, at its address as set forth at the end of this
Agreement, or at such other address as the Company shall have furnished to
Purchaser in writing.
8.7 Expenses. The Company shall pay all costs and expenses that it incurs
with respect to the negotiation, execution, delivery and performance of the
Agreement, and Purchaser shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement.
8.8 Attorneys' Fees. If legal action is brought to enforce or interpret
this Agreement, the prevailing party shall be entitled to recover its reasonable
attorneys' fees and legal costs in connection therewith.
8.9 Titles And Subtitles. The titles of the paragraphs and subparagraphs
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
8.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
8.11 Broker's Fees. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 8.11 being untrue.
8.12 Termination. If the Registration Statement for the IPO has not
become effective by June 1, 2000, Purchaser in its discretion may elect to
terminate this Agreement by providing written notice to the Company at any time
thereafter.
8.13 Subsequent, Consents, Permits and Waivers. The Company shall obtain
promptly after the Closing all authorizations, approvals, consents, permits and
waivers that are necessary or applicable for consummation of the transactions
contemplated by this Agreement and that were not obtained prior to the Closing
because they may be properly obtained subsequent to the Closing.
8.14 Most Favored Nations. Except for the maximum number of shares being
purchased, the Company agrees that the material terms (including, without
limitation, the terms of Section 3
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hereof) of this Agreement will be no less favorable to Purchaser than the terms
given to other investors (including investors that may enter into such
agreements after the date hereof, if any) that are purchasing shares of the
Company's capital stock in private placements that are closing concurrently with
the closing of the IPO.
[Remainder of Page Intentionally Left Blank]
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In Witness Whereof, the parties hereto have executed this Agreement as of
the date set forth in the first paragraph hereof.
Company:
Palm Computing, Inc.
5400 Bayfront Plaza
Santa Clara, CA 95052-8145
By: /s/ PALM COMPUTING, INC.
----------------------------
Purchaser:
By: /s/ AMERICA ONLINE, INC.
---------------------------
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Annex 1
In connection with that certain Common Stock Purchase Agreement dated
as of December 13, 1999, by and between the Company and the Purchaser (the
"Agreement"), the appropriate formula set forth herein shall be used to
determine the number of "Private Placement Shares" pursuant to Section 1.2 of
the Agreement. Capitalized terms not otherwise defined herein shall have the
meaning ascribed to them in the Agreement. For purposes of this Annex 1, the
term Pre-Money Outstanding Capital Stock shall mean the number of shares of
Common Stock outstanding immediately following the closing of the IPO and
including (i) the number of shares of Common Stock issuable pursuant to then
outstanding options or warrants for Common Stock (including those options issued
at the time of the IPO and excluding specifically options to purchase 3Com
common stock which may be converted into options to purchase the Company's
Common Stock at the time 3Com distributes its shares of the Company's Common
Stock to 3Com stockholders) and (ii) any Common Stock issuable pursuant to any
then outstanding class or series of stock convertible into Common Stock.
Background
By way of background, the Company is issuing shares of Common Stock to
one or more investors (including the Purchaser) pursuant to private placements
that are to close concurrently with (but not before) the IPO. Such investors
(including the Purchaser) have agreed to purchase the lesser of (a) a maximum
dollar amount of shares of Common Stock or (b) a certain percentage of the
Company's Post-Money Capital Stock as shown below. The aggregate of the
investment amounts is contemplated to be equal to or less than 4.5% of the
Company's Post-Money Outstanding Capital Stock, allocated as follows:
Nokia--the lesser of 1 1/2% of the Post-Money Outstanding Capital
Stock or $80 million;
America Online, Inc.--the lesser of 1 1/2% of the Post-Money
Outstanding Capital Stock or $80 million;
Motorola, Inc.--the lesser of 1 1/2% of the Post-Money Outstanding
Capital Stock or $65 million.
For the purposes of the formulas below, the Pre-Money Value shall be
equal to the Pre-Money Outstanding Capital Stock multiplied by the per share
Price to Public.
Formulas
(a) Subject to the limitations of Section 1.2, in the event the
Pre-Money Value is less than $4,138,333,333.33 based upon the final valuation of
the Company upon the closing of
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IPO, then the number of Private Placement Shares shall be determined by the
following formula where "X" equals the Private Placement Shares:
X = .045(Pre-Money Outstanding Capital Stock + X)
(b) Subject to the limitations of Section 1.2, in the event the Pre-
Money Value is equal to or greater than $4,138,333,333.33 and less than
$5,108,333,333.33 based upon the final valuation of the Company upon the closing
of the IPO, then the number of Private Placement Shares shall be determined by
the following formula where "X" equals the Private Placement Shares:
X = .03(Pre-Money Outstanding Capital Stock + X) + Y
Where "Y" is equal to ($65,000,000/per share Price to Public)
(c) Subject to the limitations of Section 1.2, in the event the Pre-
Money Value is equal to or greater than $5,108,333,333.33 based upon the final
valuation of the Company upon the closing of the IPO, then the number of Private
Placement Shares shall be determined by the following formula where "X" equals
the Private Placement Shares:
X = $225,000,000/per share Price to Public
In the case of (b) above, Y shall be rounded down to the nearest whole
number. In the case of (a), (b) and (c) above, X shall be rounded down to the
nearest whole number.
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Annex 2
-------
PALM COMPUTING, INC.
COMPANY SCHEDULE OF EXCEPTIONS
------------------------------
Pursuant to Section 3 of the Common Stock Purchase Agreement (the "
Agreement ") dated as of December __, 1999, by and between the Company and the
Purchaser, the Company hereby delivers this Schedule of Exceptions to the
representations and warranties of the Company given in the Agreement. Each
section number in this Schedule of Exceptions corresponds to the section numbers
in the Agreement; however, any information disclosed herein under any section
number shall be deemed to be disclosed and incorporated in any other section
number of the Agreement where such disclosure would be appropriate. Any
capitalized terms not otherwise defined herein shall have the meaning ascribed
to them in the Agreement.
3.1 Organization; Good Standing and Qualification
---------------------------------------------
No Exceptions.
3.2 Authorization; Binding Obligations
----------------------------------
No Exceptions.
3.3 Compliance with Other Instruments
---------------------------------
No Exceptions.
3.4 Valid Issuance of Shares
------------------------
No Exceptions.
3.5 Litigation, Etc.
----------------
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, 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
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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 24, 1999, the court stayed the action pending 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
contemplate that 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 us to substantial damages
and require us to indemnify our licensees for damages that they may suffer.
Moreover, if there is an adverse determination, a license may be necessary to
continue using the Graffiti 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.
3.6 Governmental Consent, Etc.
-------------------------
No Exceptions.
3.7 Intellectual Property Rights
----------------------------
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, 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 24, 1999, the court stayed the
action pending 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 contemplate that 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 us
to substantial damages and require us to indemnify our licensees for damages
that they may suffer. Moreover, if there is an adverse determination, a license
may be necessary to continue using the Graffiti 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.
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EXHIBIT A
---------
_________, 2000
To the Purchasers of Common Stock of
Palm, Inc. pursuant to the Common Stock
Purchase Agreement dated as of the date hereof
Ladies and Gentlemen:
Reference is made to the Common Stock Purchase Agreement dated as of
December __, 1999 (the "Purchase Agreement") by and among Palm, Inc., a Delaware
corporation (the "Company"), and the purchasers to the Purchase Agreement (the
"Purchasers"), which provides for the issuance and sale by the Company to the
Purchasers of an aggregate of up to [____________] shares of Common Stock (the
"Shares") at a purchase price of $[____] per share for an aggregate purchase
price of up to approximately $[_________]. This opinion is rendered to you
pursuant to Section 5.1(e) of the Purchase Agreement and all terms used herein
have the meanings defined for them in the Purchase Agreement unless otherwise
defined herein.
We have acted as counsel for the Company in connection with the
negotiation, execution and delivery of the Purchase Agreement and the issuance
of the Shares to the Purchasers as contemplated by the Purchase Agreement. As
such counsel, we have made such legal and factual examinations and inquiries as
we have deemed advisable or necessary for the purpose of rendering this opinion,
and we have examined originals or copies of the following:
(a) The Certificate of Incorporation (the "Certificate");
(b) The Bylaws of the Company;
(c) The resolutions adopted by the Board of Directors of the Company and
the stockholders of the Company with respect to the transactions
contemplated by the Purchase Agreement;
(d) The certificates representing the shares of the Company's Common Stock
issued to the Purchasers on the date hereof;
(e) Executed counterparts of the Purchase Agreement;
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(f) The Compliance Certificate dated the date hereof delivered to you;
(g) The certified or official bank checks or evidence of wire transfers
payable to the Company delivered by the Purchasers on the date hereof
as consideration for the sale of the Shares; and
(h) The certificates of certain state authorities and filing officers,
copies of which are being delivered to you on the date hereof.
As used in this opinion, the expressions "to our knowledge," "known to us,"
and "of which we are aware" with reference to matters of fact means that, after
an examination of documents made available to us by the Company and after
inquiries of officers of the Company, we find no reason to believe that the
opinions expressed herein are factually incorrect. Further, the expressions "to
our knowledge," "known to us," "of which we are aware" or similar language with
reference to matters of fact refers to the current actual knowledge of the
attorneys of this firm who have worked on matters for the Company solely in
connection with the Purchase Agreement. We have not undertaken any independent
investigation to determine the existence or absence of any fact, and no
inference as to our knowledge of the existence or absence of any fact should be
drawn from our representation of the Company or the rendering of the opinions
set forth below.
For purposes of this opinion, we are assuming that each party (other than
the Company) to the Purchase Agreement has all requisite power and authority,
and has taken any and all necessary corporate or partnership action, to execute
and deliver the Purchase Agreement to which it is a party and to effect any and
all transactions related or contemplated thereby, and that each of you duly and
validly executed and delivered the Purchase Agreement. We are also assuming
that the representations and warranties made by each Purchaser and the Company
under the Purchase Agreement are true and correct, and that the Purchasers have
purchased the Shares for value, in good faith and without notice of adverse
claims within the meaning of the Delaware Uniform Commercial Code.
The opinions, hereinafter expressed are subject to the following additional
exceptions, qualifications, limitations and assumptions:
We express no opinion as to (i) the effect of applicable bankruptcy,
insolvency, reorganization, liquidation, conservatorship, readjustment of debt,
moratorium or other similar laws affecting the rights of creditors or (ii) the
provisions of the Purchase Agreement relating to indemnity or contribution.
We express no opinion as to the effect of rules of law governing
specific performance, injunctive relief or other equitable remedies (regardless
of whether any such remedy is considered in a proceeding at law or in equity) or
as to the effects of public policy on the enforceability of any provision of any
agreement;
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<PAGE>
We express no opinion as to compliance with applicable anti-fraud
provisions of federal or state securities laws.
We have assumed the genuineness of all signatures on original
documents, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all copies submitted to us as copies
thereof, the legal capacity of natural persons, and the due execution and
delivery of all documents (except as to due execution and delivery by the
Company) where due execution and delivery are a prerequisite to the
effectiveness thereof.
Our opinion set forth in paragraph 1 below is based solely on the
certificate referenced above as to the legal existence and corporate and tax
good standing of the Company in the state of Delaware.
This opinion is subject to the effect of statutes, principles of
equity and court decisions providing (i) that certain covenants and provisions
of agreements are unenforceable where enforcement of such covenants or
provisions under the circumstances would violate the enforcing party's implied
covenant of good faith and fair dealing, and (ii) that a court may refuse to
enforce, or may limit the application of, a contract or any clause thereof that
the court finds to be unconscionable or contrary to public policy.
We have not reviewed, and express no opinion on, (i) financial
covenants or similar provisions requiring financial calculations or
determinations to ascertain whether there is any such conflict, (ii) provisions
relating to the occurrence of a "material adverse event" or words of similar
import or (iii) parol evidence bearing on interpretation or construction.
The opinions expressed herein are limited in all respects to existing
laws, rules and regulations of the State of California, the General Corporation
Law of the State of Delaware, as amended (the "DGCL") and applicable United
States federal laws, rules and regulations. Furthermore, we have made no
inquiry into, and express no opinion with respect to, any federal or state
statute, rule or regulation relating to any tax, antitrust, land use, safety,
environmental, hazardous material, patent, copyright, trademark or trade name
matter, as to the statutes, regulations, treaties or common laws of any other
nation, state or jurisdiction, or the effect on the transactions contemplated in
the Purchase Agreement of noncompliance under any such statutes, regulations,
treaties or common laws. We further disclaim any opinion as to any statute,
rule, regulation, ordinance, order or other promulgation of any regional or
local governmental body or as to any related judicial or administrative opinion.
Our opinions relate solely to the express provisions of the Purchase
Agreement and the exhibits referred to therein and attached thereto and we
express no opinion as to any other oral or written agreements or understandings
between the Company or any of the Purchasers.
Provisions of the Purchase Agreement requiring that waivers must be in
writing may not be binding or enforceable if a non-executory oral agreement has
been created modifying any
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<PAGE>
such provision or an implied agreement by trade practice or course of conduct
has given rise to a waiver.
Based upon and subject to the foregoing, and subject in all respects to the
disclosure on the Disclosure Schedule attached to the Purchase Agreement, we are
of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware. The Company
has the requisite corporate power to own the properties and assets
owned by it and to carry on its business as presently conducted.
2. The Company has all requisite legal and corporate power to execute and
deliver the Purchase Agreement, to sell and issue the shares of Common
Stock to the Purchasers as contemplated by the Purchase Agreement and
to carry out and perform its obligations under the terms of the
Purchase Agreement.
3. The authorized capital stock of the Company consists of [________]
shares of Common Stock, [________] of which are issued and
outstanding, and [_________] shares of Preferred Stock, none of which
is outstanding. All issued and outstanding shares have been duly
authorized, validly issued, fully paid, and nonassessable and have
been issued in compliance with the registration and qualifications
requirements of all applicable securities laws. Upon the issuance,
sale, and delivery for the consideration stated in the Purchase
Agreement, the shares of Common Stock being issued and sold to the
Purchasers on the date hereof shall be duly authorized, validly
issued, fully paid, and nonassessable, shall have been issued in
compliance with the registration or qualification requirements of all
applicable securities laws (but excluding jurisdictions outside the
United States); provided, however, that the shares of Common Stock may
be subject to restrictions on transfer under state and/or federal
securities laws. To our knowledge, except for rights described in the
Purchase Agreement (including the Disclosure Schedule) or in the
Prospectus and the Restated Certificate, there are no other options,
warrants, conversion privileges or other rights presently outstanding
to purchase or otherwise acquire any authorized but unissued shares of
capital stock or other securities of the Company, or any other
agreements to issue any such securities or rights.
4. All corporate action on the part of the Company, its directors and
stockholders necessary for the authorization, execution, delivery and
performance of the Purchase Agreement by the Company, and the
authorization, sale, issuance and delivery of the Common Stock to the
Purchasers pursuant to the Purchase Agreement and the Certificate, and
the performance of the Company's obligations under the Purchase
Agreement has been taken. The Purchase Agreement, when executed and
delivered by the parties thereto, shall constitute a valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms.
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<PAGE>
5. The execution, delivery and performance of the terms of the Purchase
Agreement and the issuance of the Common Stock to the Purchasers
pursuant to the Purchase Agreement do not violate (i) any provision of
the Company's Certificate or Bylaws, or (ii) to our knowledge, any
law, statute, rule or regulation of the United States, the State of
California.
6. Subject to the accuracy of the Purchaser's representations in Section
4 of the Purchase Agreement, we are of the opinion that the offer,
sale and issuance of the Common Stock to the Purchasers in conformity
with the terms of the Purchase Agreement and the Certificate
constitute transactions exempt from the registration and qualification
requirements of Section 5 of the Securities Act of 1933, as amended,
the laws of the State of California, and the DGCL.
This opinion is furnished to the Purchasers solely for your benefit in
connection with the purchase of the Shares and is not to be made available to or
relied upon by any other person, firm or entity for any purpose without our
express prior written consent.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
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<PAGE>
EXHIBIT 10.12
PALM COMPUTING, INC.
COMMON STOCK PURCHASE AGREEMENT
December 13, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Agreement To Sell and Purchase........................................ 1
1.1 Authorization Of Shares...................................... 1
1.2 Sale And Purchase Of Common Stock............................ 1
1.3 Hart-Scott-Rodino Compliance................................. 2
2. Closing, Delivery And Payment......................................... 2
3. Representations and Warranties Of The Company......................... 3
3.1 Organization, Good Standing And Qualification................ 3
3.2 Authorization; Binding Obligations........................... 3
3.3 Compliance With Other Instruments............................ 3
3.4 Valid Issuance of Shares..................................... 4
3.5 Litigation, Etc.............................................. 4
3.6 Governmental Consent, Etc.................................... 4
3.7 Intellectual Property Rights................................. 4
4. Representations And Warranties Of Purchaser........................... 4
4.1 Requisite Power And Authority................................ 4
4.2 Consents..................................................... 5
4.3 Investment Representations................................... 5
4.4 Legends...................................................... 6
4.5 Removal of Legend and Transfer Restrictions.................. 6
5. Conditions To Closing................................................. 6
5.1 Conditions To Purchaser's Obligations At The Closing......... 6
5.2 Conditions To Obligations Of The Company..................... 7
6. Rule 144 Reporting.................................................... 8
7. Covenants............................................................. 8
7.1 "Stand-Off" Agreement........................................ 8
7.2 Right of First Offer......................................... 9
8. Miscellaneous......................................................... 10
8.1 Governing Law................................................ 10
8.2 Survival..................................................... 10
8.3 Successors And Assigns....................................... 10
8.4 Separability................................................. 10
</TABLE>
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TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
8.5 Amendment And Waiver......................................... 10
8.6 Notices...................................................... 11
8.7 Expenses..................................................... 11
8.8 Attorneys' Fees.............................................. 11
8.9 Titles And Subtitles......................................... 11
8.10 Counterparts................................................. 11
8.11 Broker's Fees................................................ 11
8.12 Termination.................................................. 11
8.13 Subsequent, Consents, Permits and Waivers.................... 11
8.14 Most Favored Nations......................................... 11
</TABLE>
List of Exhibits:
Exhibit A - Preliminary Prospectus
Exhibit B - Legal Opinion
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PALM COMPUTING, INC.
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement") is entered into as
of December 13, 1999, by and between Palm Computing, Inc., a California
corporation (the "Company"), and Motorola, Inc., a Delaware corporation
("Purchaser").
RECITALS
Whereas, the Company intends to reincorporate by merger into Palm, Inc., a
Delaware corporation being formed for the purpose of the reincorporation and
that will be the surviving entity; the "Company" as used in this Agreement
refers to, prior to such merger, the California corporation and, after such
merger, the Delaware corporation; the Delaware corporation will assume this
Agreement; and
Whereas, Purchaser desires to purchase shares of the Company's common stock
("Common Stock"), such purchase to be made in a private placement to close
concurrently with, but not before, the closing of the initial public offering of
the Company (the "IPO") pursuant to a Registration Statement to be filed on Form
S-1 with the Securities and Exchange Commission (the "Commission") (such
registration statement, as amended, shall be referred to herein as the
"Registration Statement"); and
Whereas, the Company desires to issue and sell the Shares (as defined
below) to Purchaser on the terms and conditions set forth herein.
Now, Therefore, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. Agreement To Sell and Purchase.
1.1 Authorization Of Shares. On or prior to the Closing (as defined in
Section 2 below), the Company shall have authorized the sale and issuance to
Purchaser of the Shares. Prior to the Closing the Company will have adopted and
filed a Certificate of Incorporation (the "Certificate of Incorporation") with
the Secretary of State of the State of Delaware authorizing sufficient shares of
Common Stock to cover the sale and issuance of the Shares to be purchased
hereunder.
1.2 Sale And Purchase Of Common Stock. Subject to the terms and conditions
hereof, the Company hereby agrees to issue and sell to Purchaser and Purchaser
agrees to purchase from the Company, at the Closing, the lesser of: (a) that
whole number of shares of Common Stock equal to
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the quotient determined by dividing $65 million by the per share Price to Public
(as defined below) and rounding down to the nearest whole number or (b) that
whole number of shares of Common Stock determined by multiplying the number of
shares of Post-Money Outstanding Capital Stock of the Company by .015 and
rounding down to the nearest whole number. For purposes of this Agreement, the
term "Post-Money Outstanding Capital Stock" shall mean the number of shares of
Common Stock outstanding immediately following the closing of the IPO and
including (i) the number of shares of Common Stock issuable pursuant to then
outstanding options or warrants for Common Stock (including those options issued
at the time of the IPO and excluding specifically options to purchase 3Com
common stock which may be converted into options to purchase the Company's
Common Stock at the time 3Com distributes its shares of the Company's Common
Stock to 3Com stockholders), (ii) any Common Stock issuable pursuant to any then
outstanding class or series of stock convertible into Common Stock and (iii) the
Private Placement Shares (as defined on Annex 1 attached to this Agreement). The
shares of Common Stock to be purchased hereunder are referred to as the
"Shares". The per share purchase price for the Shares purchased hereunder shall
be the per share Price to Public.
For purposes of this Agreement, the term "Price to Public" shall mean
the Price to Public set forth on the cover page of the final Prospectus (as
defined below). For purposes of this Agreement, the term "Prospectus" means the
prospectus, as amended, on file with the Commission at the time the Registration
Statement becomes effective, including the information deemed to be part of the
Registration at the time of effectiveness pursuant to Rule 430A, if applicable,
except that if the Prospectus filed by the Company pursuant to Rule 424(b)
differs from the prospectus on file at the time the Registration Statement
becomes effective, the term "Prospectus" shall refer to the Rule 424(b)
Prospectus from and after the time it was filed with the Commission or
transmitted to the Commission for filing.
1.3 Hart-Scott-Rodino Compliance. Notwithstanding anything else in this
Agreement, if the sale and issuance of the Shares is subject to the premerger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), it shall be a condition to the Closing that
any waiting period under the HSR Act applicable to the purchase of the Shares
shall have expired or been terminated and any approvals required thereunder
shall have been obtained, and the parties shall cooperate in promptly filing
premerger reports and in taking all steps reasonably necessary to obtain early
termination of any applicable HSR Act waiting periods. If any such waiting
period shall not have expired or been subject to early termination on or before
the date ninety (90) days from the date of this Agreement, either party may
terminate this Agreement by giving written notice to the other.
2. Closing, Delivery And Payment.
Subject to the terms of Section 5, the closing of the sale and purchase of
the Shares under this Agreement (the "Closing") shall take place concurrently
with, but not before, the closing of the IPO at the offices of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto,
California 94304. The date of the Closing is referred to as the "Closing Date."
At the
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<PAGE>
Closing, subject to the terms and conditions hereof, the Company will deliver to
Purchaser a certificate representing the number of Shares to be purchased at the
Closing against payment by or on behalf of Purchaser of the purchase price
therefor by cash, wire transfer, or by such other means as shall be mutually
agreeable to Purchaser and the Company.
3. Representations and Warranties Of The Company. The Company represents and
warrants to Purchaser that, as of the effective date of the underwriting
agreement entered into with the managing underwriters of the IPO (the
"Underwriting Agreement"), the representations and warranties set forth in such
underwriting agreement will be true and correct in all respects and incorporated
by reference herein. Except as set forth in the Schedule of Exceptions attached
hereto as Annex 2, the Company hereby additionally represents and warrants to
Purchaser as of the date hereof as follows:
3.1 Organization, Good Standing And Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. The Company has full power and authority to own and
operate its properties and assets, and to carry on its business as presently
conducted. The Company is duly qualified, is authorized to do business and is in
good standing as a foreign corporation in all jurisdictions in which the nature
of its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions, in the aggregate, in
which failure to do so would not have a material adverse effect on the Company
or its business.
3.2 Authorization; Binding Obligations. All corporate action on the part
of the Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the Certificate of
Incorporation, for the sale and issuance of the Shares pursuant hereto and for
the performance of the Company's obligations hereunder has been taken or will be
taken prior to the Closing. This Agreement, when executed and delivered, will be
a valid and binding obligation of the Company enforceable in accordance with its
terms. The sale of the Shares is not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly waived or complied
with. When issued in compliance with the provisions of this Agreement and the
Certificate of Incorporation, the Shares will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Shares may be subject to restrictions on transfer under this Agreement
and under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.
3.3 Compliance With Other Instruments. The execution, delivery and
performance of and compliance with this Agreement and the issuance and sale of
the Shares pursuant hereto will not (i) materially conflict with, or result in a
material breach or violation of, or constitute a material default under, or
result in the creation or imposition of any material lien, (ii) violate,
conflict with or result in the breach of any material terms of, or result in the
material modification of, any material contract or otherwise give any other
contracting party the right to terminate a material contract, or constitute (or
with notice or lapse of time both constitute) a material default under any
material
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<PAGE>
contract to which the Company is a party or by or to which it or any of its
assets or properties may be bound or subject or (iii) result in any violation,
or be in conflict with or constitute a default under any term, of its charter or
bylaws.
3.4 Valid Issuance of Shares. The Shares which will be purchased by
Purchaser hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
authorized and issued, fully paid and nonassessable.
3.5 Litigation, Etc. There is no action, suit, proceeding nor, to the
Company's knowledge, any investigation pending or currently threatened against
the Company, that questions the validity of this Agreement or the right of the
Company to enter into such agreements, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financial or otherwise.
3.6 Governmental Consent, Etc. No consent, approval or authorization of,
or designation, declaration or filing with, any governmental authority on the
part of the Company is required in connection with the valid execution,
delivery, and performance of this Agreement or the offer, sale or issuance of
the Shares, or the consummation of any other transaction contemplated by this
Agreement except certain filings as may be required under the Securities Act and
state securities laws and regulations, which filings will be made timely in
accordance with the applicable law or regulation.
3.7 Intellectual Property Rights. To the knowledge of the Company, the
Company or its subsidiaries own and possess or are licensed under all patents,
patent applications, licenses, trademarks, trade secrets, trade names, brand
names, inventions and copyrights or other proprietary rights ("Intellectual
Property") employed in the operation of their respective businesses as currently
conducted, and, to the knowledge of the Company, with no infringement of or
conflict with the rights or others respecting any of the same. Neither the
Company nor any subsidiary has received any communications alleging that the
Company or any subsidiary has violated any of the Intellectual Property of any
other person or entity. Reasonable security measures have been taken by the
Company and its subsidiaries to protect the secrecy, confidentiality and value
of the Company's and its subsidiaries' trade secrets, including their respective
know-how, technology, concepts and other technical data for the development,
processing, manufacture and sale of its products. Each employee of and
consultant to the Company or its subsidiaries has executed an invention
assignment and confidentiality agreement with the Company or its subsidiaries.
4. Representations And Warranties Of Purchaser
Purchaser hereby represents and warrants to the Company as follows:
4.1 Requisite Power And Authority. Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and to carry out the provisions of this Agreement. All action on
Purchaser's part required for the lawful execution and
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<PAGE>
delivery of this Agreement has been or will be effectively taken prior to the
Closing. This Agreement, when executed and delivered, will be a valid and
binding obligation of Purchaser, enforceable in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights and (ii) general principles of equity that restrict the
availability of equitable remedies.
4.2 Consents. All consents, approvals, orders, authorizations,
registrations, qualifications, designations, declarations or filings with any
governmental or banking authority on the part of Purchaser required in
connection with the consummation of the transactions contemplated in this
Agreement have been or shall have been obtained prior to and be effective as of
the Closing.
4.3 Investment Representations. Purchaser understands that the Shares have
not been registered under the Securities Act. Purchaser also understands that
the Shares are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement. Purchaser hereby represents and warrants as follows:
(a) Purchaser Is An Accredited Investor. Purchaser represents
that Purchaser is an "accredited investor" within the meaning of Rule 501(a) of
Regulation D under the Securities Act.
(b) Purchaser Bears Economic Risk. Purchaser must bear the
economic risk of this investment indefinitely unless the Shares are registered
pursuant to the Securities Act, or an exemption from registration is available.
Purchaser understands that it will have no registration rights with respect to
the Shares. Purchaser also understands that there is no assurance that any
exemption from registration under the Securities Act will be available and that,
even if available, such exemption may not allow Purchaser to transfer all or any
portion of the Shares under the circumstances, in the amounts or at the times
Purchaser might propose.
(c) Acquisition For Own Account. Purchaser is acquiring the
Shares for Purchaser's own account for investment only, and not with a view
towards their distribution within the meaning of the Securities Act.
(d) Purchaser Can Protect Its Interest. Purchaser represents
that by reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement. Purchaser is not a corporation,
trust or partnership specifically formed for the purpose of consummating these
transactions.
(e) Company Information. Purchaser has had an opportunity to
discuss the Company's business, management and financial affairs with directors,
officers and management of the Company and has had the opportunity to review the
Company's operations and facilities.
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<PAGE>
Purchaser has also had the opportunity to ask questions of and receive answers
from, the Company and its management regarding the terms and conditions of this
investment.
4.4 Legends. Each certificate representing the Shares may be endorsed with
the following legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE "ACT"), AND ARE
"RESTRICTED SECURITIES" AS DEFINED IN RULE 144 PROMULGATED UNDER THE ACT.
THE SECURITIES MAY NOT BE SOLD OR OFFERED FOR SALE OR OTHERWISE DISTRIBUTED
EXCEPT (I) IN CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT, OR (II) IN COMPLIANCE WITH RULE 144 OR (III) PURSUANT
TO AN OPINION OF COUNSEL TO THE CORPORATION THAT SUCH REGISTRATION OR
COMPLIANCE IS NOT REQUIRED AS TO SUCH SALE, OFFER OR DISTRIBUTION."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND MAY BE
TRANSFERRED ONLY IN ACCORDANCE WITH, THE TERMS OF CERTAIN AGREEMENTS AMONG
THE COMPANY AND THE STOCKHOLDER, WHICH INCLUDE, WITHOUT LIMITATION, 180 DAY
MARKET STANDOFF RESTRICTIONS AND OBLIGATIONS OF RIGHTS OF FIRST OFFER,
COPIES OF WHICH ARE ON FILE WITH THE SECRETARY OF THE COMPANY."
The Company need not register a transfer of any Shares, and may also instruct
its transfer agent not to register the transfer of the Shares, unless the
conditions specified in the foregoing legends are satisfied.
4.5 Removal of Legend and Transfer Restrictions. Any legend endorsed on a
certificate pursuant to subsection 4.4 and the stop transfer instructions with
respect to such Shares shall be removed and the Company shall issue a
certificate without such legend to the holder thereof if such legend may be
properly removed under the terms of Rule 144 promulgated under the Securities
Act or if such holder provides the Company with an opinion of counsel for such
holder, reasonably satisfactory to legal counsel for the Company, to the effect
that a sale, transfer or assignment of such Shares may be made without
registration.
5. Conditions To Closing.
5.1 Conditions To Purchaser's Obligations At The Closing. Purchaser's
obligation to purchase the Shares identified in Section 1.2 of the Agreement at
the Closing are subject to the satisfaction, at or prior to the Closing, of the
following conditions:
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(a) Concurrent Closing of IPO. The Closing shall occur
concurrently with, and not before, the closing of the IPO.
(b) Representations And Warranties True; Performance Of
Obligations. The representations and warranties made by the Company in Section 3
(except for Section 3.5 and 3.7) and the representations and warranties which
are incorporated by reference from the Underwriting Agreement shall be true and
correct as of the Closing, and the Company shall have performed and complied
with all obligations and conditions herein required to be performed or complied
with by it on or prior to the Closing and shall have delivered an officer's
certificate as to the matters set forth in this Section 5.1(b).
(c) Legal Investment. At the time of the Closing, the sale and
issuance of the Shares shall be legally permitted by all laws and regulations to
which Purchaser and the Company are subject.
(d) Consents, Permits, And Waivers. The Company shall have
obtained any and all authorizations, approvals, consents, permits and waivers
necessary or appropriate for consummation of the transactions contemplated by
this Agreement (except for such as may be properly obtained subsequent to the
Closing, and such items shall be effective on and as of the Closing).
(e) Legal Opinion. The Company shall have delivered an opinion
of counsel to the Purchaser in substantially the form attached hereto as Exhibit
-------
A.
- --
(f) Transfer Agent Instructions. The Company shall have
delivered to Purchaser a copy of a letter to the Company's transfer agent, dated
the Closing Date, and instructing the transfer agent to issue the Shares.
5.2 Conditions To Obligations Of The Company. The Company's obligation to
issue and sell the Shares at the Closing is subject to the satisfaction, on or
prior to the Closing of the following conditions:
(a) Concurrent Closing of IPO. The closing of the IPO shall
occur concurrently with, but not before, the Closing.
(b) Representations And Warranties True. The representations and
warranties made by Purchaser in Section 4 hereof shall be true and correct in
all material respects at the date of the Closing, with the same force and effect
as if they had been made on and as of said date.
(c) Performance Of Obligations. Purchaser shall have performed
and complied with all agreements and conditions herein required to be performed
or complied with by Purchaser on or before the Closing.
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<PAGE>
(d) Payment of Purchase Price. Purchaser shall deliver to the Company
payment for the Shares to be acquired by such Purchase in the amounts set forth
in Section 1.2 hereto pursuant to the wire instructions provided by the company.
6. Rule 144 Reporting
With a view to making available to Purchaser the benefits of certain rules
and regulations of the SEC which may permit the sale of the Shares to the public
without registration, the Company agrees at all times after the effective date
of the Registration Statement to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144.
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act") .
(c) so long as Purchaser owns any Shares, to furnish to Purchaser
within a reasonable time upon a written request by Purchaser, a written
statement by the Company as to its compliance with the reporting requirements of
said Rule 144 (at any time after ninety (90) days after the effective date of
the first registration statement filed by the Company for an offering of its
securities to the general public) and of the Exchange Act (at any time after it
has become subject to such reporting requirements), a copy of the most recent
annual or quarterly report of the Company, and such other reports and documents
so filed by the Company as Purchaser may reasonably request in complying with
any rule or regulation of the SEC allowing Purchaser to sell any such securities
without registration.
7. Covenants
7.1 "Stand-Off" Agreement. The Purchaser agrees not to (1) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly any of the Shares or
any shares of Common Stock of the Company or any securities convertible into or
exercisable or exchangeable for Shares or Common Stock of the Company (whether
such shares or any such securities are now owned by the undersigned or are
hereafter acquired, or (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Shares or Common Stock of the Company, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Shares or Common Stock or such other securities, in cash or otherwise, for 180
days following the Closing. The provisions of this Section 7.1 shall be for the
benefit of and enforceable by the underwriters of the IPO, acting through the
managing underwriter.
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<PAGE>
7.2 Right of First Offer. For so long as Purchaser holds any Shares, if
the Purchaser joins in a partnership, limited partnership, syndicate, or
otherwise acts in concert or alone for the purpose of disposing of more than 5%
of the Shares (as adjusted for stock splits or similar events after the date
hereof) to a single person or transferee or any group of affiliated persons or
transferees but specifically excluding any hedging or similar transactions, the
Purchaser shall give the Company the opportunity to purchase such stock, in the
following manner:
(a) The Purchaser shall give notice (the "Transfer Notice") to
the Company in writing of such intention, specifying the number and kind of
securities proposed to be sold or transferred, the proposed price per share
therefor (the "Transfer Price") and the other material terms, upon which such
disposition is proposed to be made, including the names of the proposed
purchasers or transferees if such persons have been identified.
(b) The Company shall have the right, exercisable by written
notice given by the Company to the Purchaser within ten calendar days of receipt
of the Transfer Notice to purchase all of the shares specified in such Transfer
Notice upon the terms specified in such Transfer Notice. Notwithstanding the
foregoing, the Company shall have twenty-five calendar days from the receipt of
the Transfer Notice (regardless of the date of the Transfer Notice) to notify
Purchaser of the Company's election to purchase the shares pursuant to this
Section 7.2 if the Company shall furnish a certificate signed by the President
or Chief Executive Officer of the Company within ten calendar days of receipt of
the Transfer Notice stating that, in the good faith judgment of the management
of the Company, it would be detrimental to the Company and its stockholders to
decide whether to elect to purchase the Shares within the ten day period
provided for pursuant to this Section 7.2 (it being understood that the mere
election of Purchaser to sell such Shares in a transaction triggering the
provisions of this Section 7.2 shall not constitute such an event). The purchase
of the shares by the Company must be completed within 60 calendar days from the
receipt of the Transfer Notice. The Company and Purchaser shall use their best
efforts to secure during such period any approvals required on their respective
parts in connection therewith. The Company shall have the right to pay for such
shares specified in the Transfer Notice: (a) the same amount in cash, if the
consideration to be paid consists of cash, or (b) to the extent that the
consideration to be paid does not consist of cash, consideration per share
equivalent to that set forth in the Transfer Notice, or an amount of cash having
equivalent value, as determined in good faith by mutual agreement of the Company
and the Purchaser.
(c) If the Company (or its assignees) does not exercise its
right of first offer hereunder within the time specified for such exercise, the
Seller(s) shall be free, during the period of 120 days following the date of the
Transfer Notice, to sell the shares specified in such Transfer Notice for such
consideration and on such other material terms as shall be no more favorable to
the purchaser of the shares than the terms specified in such Transfer Notice.
(d) The provisions of this Section 7.2 shall terminate upon the
earlier to occur of: (i) such time as 3Com Corporation distributes its shares of
the Company's Common Stock to the shareholders of 3Com Corporation or (ii) one
year following the Closing Date.
-9-
<PAGE>
8. Miscellaneous
8.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of California.
8.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by Purchaser and the closing of
the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument, except as
expressly provided otherwise in such certificate or instrument.
8.3 Successors And Assigns. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of the Shares from time to time; provided, however,
that prior to the receipt by the Company of adequate written notice of the
transfer of any Shares specifying the full name and address of the transferee,
the Company may deem and treat the person listed as the holder of such Shares in
its records as the absolute owner and holder of such Shares for all purposes,
the payment of any dividends or any redemption price.
8.4 Separability. In case any provision of the Agreement shall be
invalid, illegal or unenforceable, such provision shall, to the extent
practicable, be modified so as to make it valid, legal and enforceable and to
maintain as nearly as practicable the intent of the parties, and the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
8.5 Amendment And Waiver.
(a) This Agreement may be amended or modified only upon the
written consent of the parties hereto.
(b) The obligations of the Company and the rights of the holder
of the Shares under this Agreement may be waived only with the written consent
of the parties hereto.
(c) Except to the extent provided in this Section 8.5, neither
this Agreement nor any provision hereof may be changed, waived, discharged or
terminated, except by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
(d) Any amendment or waiver effected in accordance with this
Section 8.5 shall be binding upon any future holder of some or all of the
Shares.
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<PAGE>
8.6 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given and received
(a) upon personal delivery, (b) on the fifth day following mailing sent by
registered or certified mail, return receipt requested, postage prepaid, (c)
upon confirmed delivery by means of a nationally recognized overnight courier
service or (d) upon confirmed transmission of facsimile addressed: (i) if to
Purchaser, at Purchaser's address as set forth on the Company's records, or at
such other address as Purchaser shall have furnished to the Company in writing
or (ii) if to the Company, at its address as set forth at the end of this
Agreement, or at such other address as the Company shall have furnished to
Purchaser in writing.
8.7 Expenses. The Company shall pay all costs and expenses that it incurs
with respect to the negotiation, execution, delivery and performance of the
Agreement, and Purchaser shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement.
8.8 Attorneys' Fees. If legal action is brought to enforce or interpret
this Agreement, the prevailing party shall be entitled to recover its reasonable
attorneys' fees and legal costs in connection therewith.
8.9 Titles And Subtitles. The titles of the paragraphs and subparagraphs
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
8.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
8.11 Broker's Fees. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 8.11 being untrue.
8.12 Termination. If the Registration Statement for the IPO has not become
effective by June 1, 2000, Purchaser in its discretion may elect to terminate
this Agreement by providing written notice to the Company at any time
thereafter.
8.13 Subsequent, Consents, Permits and Waivers. The Company shall obtain
promptly after the Closing all authorizations, approvals, consents, permits and
waivers that are necessary or applicable for consummation of the transactions
contemplated by this Agreement and that were not obtained prior to the Closing
because they may be properly obtained subsequent to the Closing.
8.14 Most Favored Nations. Except for the maximum number of shares being
purchased, the Company agrees that the material terms (including, without
limitation, the terms of Section 3
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hereof) of this Agreement will be no less favorable to Purchaser than the terms
given to other investors (including investors that may enter into such
agreements after the date hereof, if any) that are purchasing shares of the
Company's capital stock in private placements that are closing concurrently with
the closing of the IPO.
[Remainder of Page Intentionally Left Blank]
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<PAGE>
In Witness Whereof, the parties hereto have executed this Agreement as of
the date set forth in the first paragraph hereof.
Company:
Palm Computing, Inc.
5400 Bayfront Plaza
Santa Clara, CA 95052-8145
By: /s/ PALM COMPUTING, INC.
-----------------------------
Purchaser:
By: /s/ MOTOROLA, INC.
------------------------------
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Annex 1
In connection with that certain Common Stock Purchase Agreement dated
as of December 13, 1999, by and between the Company and the Purchaser (the
"Agreement"), the appropriate formula set forth herein shall be used to
determine the number of "Private Placement Shares" pursuant to Section 1.2 of
the Agreement. Capitalized terms not otherwise defined herein shall have the
meaning ascribed to them in the Agreement. For purposes of this Annex 1, the
term Pre-Money Outstanding Capital Stock shall mean the number of shares of
Common Stock outstanding immediately following the closing of the IPO and
including (i) the number of shares of Common Stock issuable pursuant to then
outstanding options or warrants for Common Stock (including those options issued
at the time of the IPO and excluding specifically options to purchase 3Com
common stock which may be converted into options to purchase the Company's
Common Stock at the time 3Com distributes its shares of the Company's Common
Stock to 3Com stockholders) and (ii) any Common Stock issuable pursuant to any
then outstanding class or series of stock convertible into Common Stock.
Background
By way of background, the Company is issuing shares of Common Stock to
one or more investors (including the Purchaser) pursuant to private placements
that are to close concurrently with (but not before) the IPO. Such investors
(including the Purchaser) have agreed to purchase the lesser of (a) a maximum
dollar amount of shares of Common Stock or (b) a certain percentage of the
Company's Post-Money Capital Stock as shown below. The aggregate of the
investment amounts is contemplated to be equal to or less than 4.5% of the
Company's Post-Money Outstanding Capital Stock, allocated as follows:
Nokia--the lesser of 1 1/2% of the Post-Money Outstanding Capital
Stock or $80 million;
America Online, Inc.--the lesser of 1 1/2% of the Post-Money
Outstanding Capital Stock or $80 million;
Motorola, Inc.--the lesser of 1 1/2% of the Post-Money Outstanding
Capital Stock or $65 million.
For the purposes of the formulas below, the Pre-Money Value shall be
equal to the Pre-Money Outstanding Capital Stock multiplied by the per share
Price to Public.
Formulas
(a) Subject to the limitations of Section 1.2, in the event the Pre-
Money Value is less than $4,138,333,333.33 based upon the final valuation of the
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IPO, then the number of Private Placement Shares shall be determined by the
following formula where "X" equals the Private Placement Shares:
X = .045(Pre-Money Outstanding Capital Stock + X)
(b) Subject to the limitations of Section 1.2, in the event the
Pre-Money Value is equal to or greater than $4,138,333,333.33 and less than
$5,108,333,333.33 based upon the final valuation of the Company upon the closing
of the IPO, then the number of Private Placement Shares shall be determined by
the following formula where "X" equals the Private Placement Shares:
X = .03(Pre-Money Outstanding Capital Stock + X) + Y
Where "Y" is equal to ($65,000,000/per share Price to Public)
(c) Subject to the limitations of Section 1.2, in the event the
Pre-Money Value is equal to or greater than $5,108,333,333.33 based upon the
final valuation of the Company upon the closing of the IPO, then the number of
Private Placement Shares shall be determined by the following formula where "X"
equals the Private Placement Shares:
X = $225,000,000/per share Price to Public
In the case of (b) above, Y shall be rounded down to the nearest whole
number. In the case of (a), (b) and (c) above, X shall be rounded down to the
nearest whole number.
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Annex 2
-------
PALM COMPUTING, INC.
COMPANY SCHEDULE OF EXCEPTIONS
------------------------------
Pursuant to Section 3 of the Common Stock Purchase Agreement (the "
Agreement ") dated as of December __, 1999, by and between the Company and the
Purchaser, the Company hereby delivers this Schedule of Exceptions to the
representations and warranties of the Company given in the Agreement. Each
section number in this Schedule of Exceptions corresponds to the section numbers
in the Agreement; however, any information disclosed herein under any section
number shall be deemed to be disclosed and incorporated in any other section
number of the Agreement where such disclosure would be appropriate. Any
capitalized terms not otherwise defined herein shall have the meaning ascribed
to them in the Agreement.
3.1 Organization; Good Standing and Qualification
---------------------------------------------
No Exceptions.
3.2 Authorization; Binding Obligations
----------------------------------
No Exceptions.
3.3 Compliance with Other Instruments
---------------------------------
No Exceptions.
3.4 Valid Issuance of Shares
------------------------
No Exceptions.
3.5 Litigation, Etc.
----------------
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, 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
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<PAGE>
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 24, 1999, the court stayed the action pending 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
contemplate that 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 us to substantial damages
and require us to indemnify our licensees for damages that they may suffer.
Moreover, if there is an adverse determination, a license may be necessary to
continue using the Graffiti 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.
3.6 Governmental Consent, Etc.
-------------------------
No Exceptions.
3.7 Intellectual Property Rights
----------------------------
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, 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 24, 1999, the court stayed the
action pending 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 contemplate that 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 us
to substantial damages and require us to indemnify our licensees for damages
that they may suffer. Moreover, if there is an adverse determination, a license
may be necessary to continue using the Graffiti 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.
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EXHIBIT A
---------
____________, 2000
To the Purchasers of Common Stock of
Palm, Inc. pursuant to the Common Stock
Purchase Agreement dated as of the date hereof
Ladies and Gentlemen:
Reference is made to the Common Stock Purchase Agreement dated as of
December __, 1999 (the "Purchase Agreement") by and among Palm, Inc., a Delaware
corporation (the "Company"), and the purchasers to the Purchase Agreement (the
"Purchasers"), which provides for the issuance and sale by the Company to the
Purchasers of an aggregate of up to [____________] shares of Common Stock (the
"Shares") at a purchase price of $[____] per share for an aggregate purchase
price of up to approximately $[_________]. This opinion is rendered to you
pursuant to Section 5.1(e) of the Purchase Agreement and all terms used herein
have the meanings defined for them in the Purchase Agreement unless otherwise
defined herein.
We have acted as counsel for the Company in connection with the
negotiation, execution and delivery of the Purchase Agreement and the issuance
of the Shares to the Purchasers as contemplated by the Purchase Agreement. As
such counsel, we have made such legal and factual examinations and inquiries as
we have deemed advisable or necessary for the purpose of rendering this opinion,
and we have examined originals or copies of the following:
(a) The Certificate of Incorporation (the "Certificate");
(b) The Bylaws of the Company;
(c) The resolutions adopted by the Board of Directors of the Company and
the stockholders of the Company with respect to the transactions
contemplated by the Purchase Agreement;
(d) The certificates representing the shares of the Company's Common Stock
issued to the Purchasers on the date hereof;
(e) Executed counterparts of the Purchase Agreement;
(f) The Compliance Certificate dated the date hereof delivered to you;
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(g) The certified or official bank checks or evidence of wire transfers
payable to the Company delivered by the Purchasers on the date hereof
as consideration for the sale of the Shares; and
(h) The certificates of certain state authorities and filing officers,
copies of which are being delivered to you on the date hereof.
As used in this opinion, the expressions "to our knowledge," "known to
us," and "of which we are aware" with reference to matters of fact means that,
after an examination of documents made available to us by the Company and after
inquiries of officers of the Company, we find no reason to believe that the
opinions expressed herein are factually incorrect. Further, the expressions "to
our knowledge," "known to us," "of which we are aware" or similar language with
reference to matters of fact refers to the current actual knowledge of the
attorneys of this firm who have worked on matters for the Company solely in
connection with the Purchase Agreement. We have not undertaken any independent
investigation to determine the existence or absence of any fact, and no
inference as to our knowledge of the existence or absence of any fact should be
drawn from our representation of the Company or the rendering of the opinions
set forth below.
For purposes of this opinion, we are assuming that each party (other than
the Company) to the Purchase Agreement has all requisite power and authority,
and has taken any and all necessary corporate or partnership action, to execute
and deliver the Purchase Agreement to which it is a party and to effect any and
all transactions related or contemplated thereby, and that each of you duly and
validly executed and delivered the Purchase Agreement. We are also assuming that
the representations and warranties made by each Purchaser and the Company under
the Purchase Agreement are true and correct, and that the Purchasers have
purchased the Shares for value, in good faith and without notice of adverse
claims within the meaning of the Delaware Uniform Commercial Code.
The opinions, hereinafter expressed are subject to the following additional
exceptions, qualifications, limitations and assumptions:
We express no opinion as to (i) the effect of applicable bankruptcy,
insolvency, reorganization, liquidation, conservatorship, readjustment of debt,
moratorium or other similar laws affecting the rights of creditors or (ii) the
provisions of the Purchase Agreement relating to indemnity or contribution.
We express no opinion as to the effect of rules of law governing
specific performance, injunctive relief or other equitable remedies (regardless
of whether any such remedy is considered in a proceeding at law or in equity) or
as to the effects of public policy on the enforceability of any provision of any
agreement;
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We express no opinion as to compliance with applicable anti-fraud
provisions of federal or state securities laws.
We have assumed the genuineness of all signatures on original
documents, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all copies submitted to us as copies
thereof, the legal capacity of natural persons, and the due execution and
delivery of all documents (except as to due execution and delivery by the
Company) where due execution and delivery are a prerequisite to the
effectiveness thereof.
Our opinion set forth in paragraph 1 below is based solely on the
certificate referenced above as to the legal existence and corporate and tax
good standing of the Company in the state of Delaware.
This opinion is subject to the effect of statutes, principles of
equity and court decisions providing (i) that certain covenants and provisions
of agreements are unenforceable where enforcement of such covenants or
provisions under the circumstances would violate the enforcing party's implied
covenant of good faith and fair dealing, and (ii) that a court may refuse to
enforce, or may limit the application of, a contract or any clause thereof that
the court finds to be unconscionable or contrary to public policy.
We have not reviewed, and express no opinion on, (i) financial
covenants or similar provisions requiring financial calculations or
determinations to ascertain whether there is any such conflict, (ii) provisions
relating to the occurrence of a "material adverse event" or words of similar
import or (iii) parol evidence bearing on interpretation or construction.
The opinions expressed herein are limited in all respects to existing
laws, rules and regulations of the State of California, the General Corporation
Law of the State of Delaware, as amended (the "DGCL") and applicable United
States federal laws, rules and regulations. Furthermore, we have made no inquiry
into, and express no opinion with respect to, any federal or state statute, rule
or regulation relating to any tax, antitrust, land use, safety, environmental,
hazardous material, patent, copyright, trademark or trade name matter, as to the
statutes, regulations, treaties or common laws of any other nation, state or
jurisdiction, or the effect on the transactions contemplated in the Purchase
Agreement of noncompliance under any such statutes, regulations, treaties or
common laws. We further disclaim any opinion as to any statute, rule,
regulation, ordinance, order or other promulgation of any regional or local
governmental body or as to any related judicial or administrative opinion.
Our opinions relate solely to the express provisions of the Purchase
Agreement and the exhibits referred to therein and attached thereto and we
express no opinion as to any other oral or written agreements or understandings
between the Company or any of the Purchasers.
Provisions of the Purchase Agreement requiring that waivers must be in
writing may not be binding or enforceable if a non-executory oral agreement has
been created modifying any
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<PAGE>
such provision or an implied agreement by trade practice or course of conduct
has given rise to a waiver.
Based upon and subject to the foregoing, and subject in all respects to the
disclosure on the Disclosure Schedule attached to the Purchase Agreement, we are
of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware. The Company
has the requisite corporate power to own the properties and assets
owned by it and to carry on its business as presently conducted.
2. The Company has all requisite legal and corporate power to execute and
deliver the Purchase Agreement, to sell and issue the shares of Common
Stock to the Purchasers as contemplated by the Purchase Agreement and
to carry out and perform its obligations under the terms of the
Purchase Agreement.
3. The authorized capital stock of the Company consists of [________]
shares of Common Stock, [________] of which are issued and
outstanding, and [_________] shares of Preferred Stock, none of which
is outstanding. All issued and outstanding shares have been duly
authorized, validly issued, fully paid, and nonassessable and have
been issued in compliance with the registration and qualifications
requirements of all applicable securities laws. Upon the issuance,
sale, and delivery for the consideration stated in the Purchase
Agreement, the shares of Common Stock being issued and sold to the
Purchasers on the date hereof shall be duly authorized, validly
issued, fully paid, and nonassessable, shall have been issued in
compliance with the registration or qualification requirements of all
applicable securities laws (but excluding jurisdictions outside the
United States); provided, however, that the shares of Common Stock may
be subject to restrictions on transfer under state and/or federal
securities laws. To our knowledge, except for rights described in the
Purchase Agreement (including the Disclosure Schedule) or in the
Prospectus and the Restated Certificate, there are no other options,
warrants, conversion privileges or other rights presently outstanding
to purchase or otherwise acquire any authorized but unissued shares of
capital stock or other securities of the Company, or any other
agreements to issue any such securities or rights.
4. All corporate action on the part of the Company, its directors and
stockholders necessary for the authorization, execution, delivery and
performance of the Purchase Agreement by the Company, and the
authorization, sale, issuance and delivery of the Common Stock to the
Purchasers pursuant to the Purchase Agreement and the Certificate, and
the performance of the Company's obligations under the Purchase
Agreement has been taken. The Purchase Agreement, when executed and
delivered by the parties thereto, shall constitute a valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms.
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<PAGE>
5. The execution, delivery and performance of the terms of the Purchase
Agreement and the issuance of the Common Stock to the Purchasers
pursuant to the Purchase Agreement do not violate (i) any provision of
the Company's Certificate or Bylaws, or (ii) to our knowledge, any
law, statute, rule or regulation of the United States, the State of
California.
6. Subject to the accuracy of the Purchaser's representations in Section
4 of the Purchase Agreement, we are of the opinion that the offer,
sale and issuance of the Common Stock to the Purchasers in conformity
with the terms of the Purchase Agreement and the Certificate
constitute transactions exempt from the registration and qualification
requirements of Section 5 of the Securities Act of 1933, as amended,
the laws of the State of California, and the DGCL.
This opinion is furnished to the Purchasers solely for your benefit in
connection with the purchase of the Shares and is not to be made available to or
relied upon by any other person, firm or entity for any purpose without our
express prior written consent.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
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EXHIBIT 10.13
PALM COMPUTING, INC.
COMMON STOCK PURCHASE AGREEMENT
December 13, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Agreement To Sell and Purchase.................................. 1
1.1 Authorization Of Shares.................................... 1
1.2 Sale And Purchase Of Common Stock.......................... 1
1.3 Hart-Scott-Rodino Compliance............................... 2
2. Closing, Delivery And Payment................................... 2
3. Representations and Warranties Of The Company................... 3
3.1 Organization, Good Standing And Qualification.............. 3
3.2 Authorization; Binding Obligations......................... 3
3.3 Compliance With Other Instruments.......................... 3
3.4 Valid Issuance of Shares................................... 4
3.5 Litigation, Etc............................................ 4
3.6 Governmental Consent, Etc.................................. 4
3.7 Intellectual Property Rights............................... 4
4. Representations And Warranties Of Purchaser..................... 4
4.1 Requisite Power And Authority.............................. 4
4.2 Consents................................................... 5
4.3 Investment Representations................................. 5
4.4 Legends.................................................... 6
4.5 Removal of Legend and Transfer Restrictions................ 6
5. Conditions To Closing........................................... 6
5.1 Conditions To Purchaser's Obligations At The Closing....... 6
5.2 Conditions To Obligations Of The Company................... 7
6. Rule 144 Reporting.............................................. 8
7. Covenants....................................................... 8
7.1 "Stand-Off" Agreement...................................... 8
7.2 Right of First Offer....................................... 9
8. Miscellaneous................................................... 10
8.1 Governing Law.............................................. 10
8.2 Survival................................................... 10
8.3 Successors And Assigns..................................... 10
8.4 Separability............................................... 10
</TABLE>
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TABLE OF CONTENTS
(continued)
<TABLE>
PAGE
----
<S> <C>
8.5 Amendment And Waiver....................................... 10
8.6 Notices.................................................... 11
8.7 Expenses................................................... 11
8.8 Attorneys' Fees............................................ 11
8.9 Titles And Subtitles....................................... 11
8.10 Counterparts............................................... 11
8.11 Broker's Fees.............................................. 11
8.12 Termination................................................ 11
8.13 Subsequent, Consents, Permits and Waivers.................. 11
8.14 Most Favored Nations....................................... 11
</TABLE>
List of Exhibits:
Exhibit A - Preliminary Prospectus
Exhibit B - Legal Opinion
ii
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PALM COMPUTING, INC.
COMMON STOCK PURCHASE AGREEMENT
This Common Stock Purchase Agreement (the "Agreement") is entered into as
of December 13, 1999, by and between Palm Computing, Inc., a California
corporation (the "Company"), and Nokia [AB Ojy], a Finland company
("Purchaser").
RECITALS
Whereas, the Company intends to reincorporate by merger into Palm, Inc., a
Delaware corporation being formed for the purpose of the reincorporation and
that will be the surviving entity; the "Company" as used in this Agreement
refers to, prior to such merger, the California corporation and, after such
merger, the Delaware corporation; the Delaware corporation will assume this
Agreement; and
Whereas, Purchaser desires to purchase shares of the Company's common stock
("Common Stock"), such purchase to be made in a private placement to close
concurrently with, but not before, the closing of the initial public offering of
the Company (the "IPO") pursuant to a Registration Statement to be filed on Form
S-1 with the Securities and Exchange Commission (the "Commission") (such
registration statement, as amended, shall be referred to herein as the
"Registration Statement"); and
Whereas, the Company desires to issue and sell the Shares (as defined
below) to Purchaser on the terms and conditions set forth herein.
Now, Therefore, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. Agreement To Sell and Purchase.
1.1 Authorization Of Shares. On or prior to the Closing (as defined in
Section 2 below), the Company shall have authorized the sale and issuance to
Purchaser of the Shares. Prior to the Closing the Company will have adopted and
filed a Certificate of Incorporation (the "Certificate of Incorporation") with
the Secretary of State of the State of Delaware authorizing sufficient shares of
Common Stock to cover the sale and issuance of the Shares to be purchased
hereunder.
1.2 Sale And Purchase Of Common Stock. Subject to the terms and conditions
hereof, the Company hereby agrees to issue and sell to Purchaser and Purchaser
agrees to purchase from the Company, at the Closing, the lesser of: (a) that
whole number of shares of Common Stock equal to
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the quotient determined by dividing $80 million by the per share Price to Public
(as defined below) and rounding down to the nearest whole number or (b) that
whole number of shares of Common Stock determined by multiplying the number of
shares of Post-Money Outstanding Capital Stock of the Company by .015 and
rounding down to the nearest whole number. For purposes of this Agreement, the
term "Post-Money Outstanding Capital Stock" shall mean the number of shares of
Common Stock outstanding immediately following the closing of the IPO and
including (i) the number of shares of Common Stock issuable pursuant to then
outstanding options or warrants for Common Stock (including those options issued
at the time of the IPO and excluding specifically options to purchase 3Com
common stock which may be converted into options to purchase the Company's
Common Stock at the time 3Com distributes its shares of the Company's Common
Stock to 3Com stockholders), (ii) any Common Stock issuable pursuant to any then
outstanding class or series of stock convertible into Common Stock and (iii) the
Private Placement Shares (as defined on Annex 1 attached to this Agreement). The
shares of Common Stock to be purchased hereunder are referred to as the
"Shares". The per share purchase price for the Shares purchased hereunder shall
be the per share Price to Public.
For purposes of this Agreement, the term "Price to Public" shall mean
the Price to Public set forth on the cover page of the final Prospectus (as
defined below). For purposes of this Agreement, the term "Prospectus" means the
prospectus, as amended, on file with the Commission at the time the Registration
Statement becomes effective, including the information deemed to be part of the
Registration at the time of effectiveness pursuant to Rule 430A, if applicable,
except that if the Prospectus filed by the Company pursuant to Rule 424(b)
differs from the prospectus on file at the time the Registration Statement
becomes effective, the term "Prospectus" shall refer to the Rule 424(b)
Prospectus from and after the time it was filed with the Commission or
transmitted to the Commission for filing.
1.3 Hart-Scott-Rodino Compliance. Notwithstanding anything else in this
Agreement, if the sale and issuance of the Shares is subject to the premerger
notification requirements of the Hart-Scott-Rodino Antitrust Improvements Act of
1976, as amended (the "HSR Act"), it shall be a condition to the Closing that
any waiting period under the HSR Act applicable to the purchase of the Shares
shall have expired or been terminated and any approvals required thereunder
shall have been obtained, and the parties shall cooperate in promptly filing
premerger reports and in taking all steps reasonably necessary to obtain early
termination of any applicable HSR Act waiting periods. If any such waiting
period shall not have expired or been subject to early termination on or before
the date ninety (90) days from the date of this Agreement, either party may
terminate this Agreement by giving written notice to the other.
2. Closing, Delivery And Payment.
Subject to the terms of Section 5, the closing of the sale and purchase of
the Shares under this Agreement (the "Closing") shall take place concurrently
with, but not before, the closing of the IPO at the offices of Wilson Sonsini
Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto,
California 94304. The date of the Closing is referred to as the "Closing Date."
At the
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Closing, subject to the terms and conditions hereof, the Company will deliver to
Purchaser a certificate representing the number of Shares to be purchased at the
Closing against payment by or on behalf of Purchaser of the purchase price
therefor by cash, wire transfer, or by such other means as shall be mutually
agreeable to Purchaser and the Company.
3. Representations and Warranties Of The Company. The Company represents and
warrants to Purchaser that, as of the effective date of the underwriting
agreement entered into with the managing underwriters of the IPO (the
"Underwriting Agreement"), the representations and warranties set forth in such
underwriting agreement will be true and correct in all respects and incorporated
by reference herein. Except as set forth in the Schedule of Exceptions attached
hereto as Annex 2, the Company hereby additionally represents and warrants to
Purchaser as of the date hereof as follows:
3.1 Organization, Good Standing And Qualification. The Company is a
corporation duly organized, validly existing and in good standing under the laws
of the State of California. The Company has full power and authority to own and
operate its properties and assets, and to carry on its business as presently
conducted. The Company is duly qualified, is authorized to do business and is in
good standing as a foreign corporation in all jurisdictions in which the nature
of its activities and of its properties (both owned and leased) makes such
qualification necessary, except for those jurisdictions, in the aggregate, in
which failure to do so would not have a material adverse effect on the Company
or its business.
3.2 Authorization; Binding Obligations. All corporate action on the part
of the Company, its officers, directors and shareholders necessary for the
authorization, execution and delivery of this Agreement and the Certificate of
Incorporation, for the sale and issuance of the Shares pursuant hereto and for
the performance of the Company's obligations hereunder has been taken or will be
taken prior to the Closing. This Agreement, when executed and delivered, will be
a valid and binding obligation of the Company enforceable in accordance with its
terms. The sale of the Shares is not and will not be subject to any preemptive
rights or rights of first refusal that have not been properly waived or complied
with. When issued in compliance with the provisions of this Agreement and the
Certificate of Incorporation, the Shares will be validly issued, fully paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Shares may be subject to restrictions on transfer under this Agreement
and under state and/or federal securities laws as set forth herein or as
otherwise required by such laws at the time a transfer is proposed.
3.3 Compliance With Other Instruments. The execution, delivery and
performance of and compliance with this Agreement and the issuance and sale of
the Shares pursuant hereto will not (i) materially conflict with, or result in a
material breach or violation of, or constitute a material default under, or
result in the creation or imposition of any material lien, (ii) violate,
conflict with or result in the breach of any material terms of, or result in the
material modification of, any material contract or otherwise give any other
contracting party the right to terminate a material contract, or constitute (or
with notice or lapse of time both constitute) a material default under any
material
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contract to which the Company is a party or by or to which it or any of its
assets or properties may be bound or subject or (iii) result in any violation,
or be in conflict with or constitute a default under any term, of its charter or
bylaws.
3.4 Valid Issuance of Shares. The Shares which will be purchased by
Purchaser hereunder, when issued, sold and delivered in accordance with the
terms hereof for the consideration expressed herein, will be duly and validly
authorized and issued, fully paid and nonassessable.
3.5 Litigation, Etc. There is no action, suit, proceeding nor, to the
Company's knowledge, any investigation pending or currently threatened against
the Company, that questions the validity of this Agreement or the right of the
Company to enter into such agreements, or which might result, either
individually or in the aggregate, in any material adverse change in the assets,
condition, affairs or prospects of the Company, financial or otherwise.
3.6 Governmental Consent, Etc. No consent, approval or authorization of,
or designation, declaration or filing with, any governmental authority on the
part of the Company is required in connection with the valid execution,
delivery, and performance of this Agreement or the offer, sale or issuance of
the Shares, or the consummation of any other transaction contemplated by this
Agreement except certain filings as may be required under the Securities Act and
state securities laws and regulations, which filings will be made timely in
accordance with the applicable law or regulation.
3.7 Intellectual Property Rights. To the knowledge of the Company, the
Company or its subsidiaries own and possess or are licensed under all patents,
patent applications, licenses, trademarks, trade secrets, trade names, brand
names, inventions and copyrights or other proprietary rights ("Intellectual
Property") employed in the operation of their respective businesses as currently
conducted, and, to the knowledge of the Company, with no infringement of or
conflict with the rights or others respecting any of the same. Neither the
Company nor any subsidiary has received any communications alleging that the
Company or any subsidiary has violated any of the Intellectual Property of any
other person or entity. Reasonable security measures have been taken by the
Company and its subsidiaries to protect the secrecy, confidentiality and value
of the Company's and its subsidiaries' trade secrets, including their respective
know-how, technology, concepts and other technical data for the development,
processing, manufacture and sale of its products. Each employee of and
consultant to the Company or its subsidiaries has executed an invention
assignment and confidentiality agreement with the Company or its subsidiaries.
4. Representations And Warranties Of Purchaser
Purchaser hereby represents and warrants to the Company as follows:
4.1 Requisite Power And Authority. Purchaser has all necessary power and
authority under all applicable provisions of law to execute and deliver this
Agreement and to carry out the provisions of this Agreement. All action on
Purchaser's part required for the lawful execution and
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delivery of this Agreement has been or will be effectively taken prior to the
Closing. This Agreement, when executed and delivered, will be a valid and
binding obligation of Purchaser, enforceable in accordance with its terms,
except (i) as limited by applicable bankruptcy, insolvency, reorganization,
moratorium or other laws of general application affecting enforcement of
creditors' rights and (ii) general principles of equity that restrict the
availability of equitable remedies.
4.2 Consents. All consents, approvals, orders, authorizations,
registrations, qualifications, designations, declarations or filings with any
governmental or banking authority on the part of Purchaser required in
connection with the consummation of the transactions contemplated in this
Agreement have been or shall have been obtained prior to and be effective as of
the Closing.
4.3 Investment Representations. Purchaser understands that the Shares have
not been registered under the Securities Act. Purchaser also understands that
the Shares are being offered and sold pursuant to an exemption from registration
contained in the Securities Act based in part upon Purchaser's representations
contained in the Agreement. Purchaser hereby represents and warrants as follows:
(a) Purchaser Is An Accredited Investor. Purchaser represents
that Purchaser is an "accredited investor" within the meaning of Rule 501(a) of
Regulation D under the Securities Act.
(b) Purchaser Bears Economic Risk. Purchaser must bear the
economic risk of this investment indefinitely unless the Shares are registered
pursuant to the Securities Act, or an exemption from registration is available.
Purchaser understands that it will have no registration rights with respect to
the Shares. Purchaser also understands that there is no assurance that any
exemption from registration under the Securities Act will be available and that,
even if available, such exemption may not allow Purchaser to transfer all or any
portion of the Shares under the circumstances, in the amounts or at the times
Purchaser might propose.
(c) Acquisition For Own Account. Purchaser is acquiring the
Shares for Purchaser's own account for investment only, and not with a view
towards their distribution within the meaning of the Securities Act.
(d) Purchaser Can Protect Its Interest. Purchaser represents
that by reason of its, or of its management's, business or financial experience,
Purchaser has the capacity to protect its own interests in connection with the
transactions contemplated in this Agreement. Purchaser is not a corporation,
trust or partnership specifically formed for the purpose of consummating these
transactions.
(e) Company Information. Purchaser has had an opportunity to
discuss the Company's business, management and financial affairs with directors,
officers and management of the Company and has had the opportunity to review the
Company's operations and facilities.
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Purchaser has also had the opportunity to ask questions of and receive answers
from, the Company and its management regarding the terms and conditions of this
investment.
4.4 Legends. Each certificate representing the Shares may be endorsed with
the following legends:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), AND ARE "RESTRICTED SECURITIES" AS DEFINED IN RULE 144
PROMULGATED UNDER THE ACT. THE SECURITIES MAY NOT BE SOLD OR
OFFERED FOR SALE OR OTHERWISE DISTRIBUTED EXCEPT (I) IN
CONJUNCTION WITH AN EFFECTIVE REGISTRATION STATEMENT FOR THE
SHARES UNDER THE ACT, OR (II) IN COMPLIANCE WITH RULE 144 OR
(III) PURSUANT TO AN OPINION OF COUNSEL TO THE CORPORATION THAT
SUCH REGISTRATION OR COMPLIANCE IS NOT REQUIRED AS TO SUCH SALE,
OFFER OR DISTRIBUTION."
"THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO, AND
MAY BE TRANSFERRED ONLY IN ACCORDANCE WITH, THE TERMS OF CERTAIN
AGREEMENTS AMONG THE COMPANY AND THE STOCKHOLDER, WHICH INCLUDE,
WITHOUT LIMITATION, 180 DAY MARKET STANDOFF RESTRICTIONS AND
OBLIGATIONS OF RIGHTS OF FIRST OFFER, COPIES OF WHICH ARE ON
FILE WITH THE SECRETARY OF THE COMPANY."
The Company need not register a transfer of any Shares, and may also instruct
its transfer agent not to register the transfer of the Shares, unless the
conditions specified in the foregoing legends are satisfied.
4.5 Removal of Legend and Transfer Restrictions. Any legend endorsed on a
certificate pursuant to subsection 4.4 and the stop transfer instructions with
respect to such Shares shall be removed and the Company shall issue a
certificate without such legend to the holder thereof if such legend may be
properly removed under the terms of Rule 144 promulgated under the Securities
Act or if such holder provides the Company with an opinion of counsel for such
holder, reasonably satisfactory to legal counsel for the Company, to the effect
that a sale, transfer or assignment of such Shares may be made without
registration.
5. Conditions To Closing.
5.1 Conditions To Purchaser's Obligations At The Closing. Purchaser's
obligation to purchase the Shares identified in Section 1.2 of the Agreement at
the Closing are subject to the satisfaction, at or prior to the Closing, of the
following conditions:
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(a) Concurrent Closing of IPO. The Closing shall occur
concurrently with, and not before, the closing of the IPO.
(b) Representations And Warranties True; Performance Of
Obligations. The representations and warranties made by the Company in Section 3
(except for Section 3.5 and 3.7) and the representations and warranties which
are incorporated by reference from the Underwriting Agreement shall be true and
correct as of the Closing, and the Company shall have performed and complied
with all obligations and conditions herein required to be performed or complied
with by it on or prior to the Closing and shall have delivered an officer's
certificate as to the matters set forth in this Section 5.1(b).
(c) Legal Investment. At the time of the Closing, the sale and
issuance of the Shares shall be legally permitted by all laws and regulations to
which Purchaser and the Company are subject.
(d) Consents, Permits, And Waivers. The Company shall have
obtained any and all authorizations, approvals, consents, permits and waivers
necessary or appropriate for consummation of the transactions contemplated by
this Agreement (except for such as may be properly obtained subsequent to the
Closing, and such items shall be effective on and as of the Closing).
(e) Legal Opinion. The Company shall have delivered an opinion
of counsel to the Purchaser in substantially the form attached hereto as Exhibit
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A.
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(f) Transfer Agent Instructions. The Company shall have
delivered to Purchaser a copy of a letter to the Company's transfer agent, dated
the Closing Date, and instructing the transfer agent to issue the Shares.
5.2 Conditions To Obligations Of The Company. The Company's obligation to
issue and sell the Shares at the Closing is subject to the satisfaction, on or
prior to the Closing of the following conditions:
(a) Concurrent Closing of IPO. The closing of the IPO shall
occur concurrently with, but not before, the Closing.
(b) Representations And Warranties True. The representations and
warranties made by Purchaser in Section 4 hereof shall be true and correct in
all material respects at the date of the Closing, with the same force and effect
as if they had been made on and as of said date.
(c) Performance Of Obligations. Purchaser shall have performed
and complied with all agreements and conditions herein required to be performed
or complied with by Purchaser on or before the Closing.
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(d) Payment of Purchase Price. Purchaser shall deliver to the
Company payment for the Shares to be acquired by such Purchase in the amounts
set forth in Section 1.2 hereto pursuant to the wire instructions provided by
the company.
6. Rule 144 Reporting.
With a view to making available to Purchaser the benefits of certain rules
and regulations of the SEC which may permit the sale of the Shares to the public
without registration, the Company agrees at all times after the effective date
of the Registration Statement to:
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144.
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Securities
Exchange Act of 1934, as amended (the "Exchange Act").
(c) so long as Purchaser owns any Shares, to furnish to
Purchaser within a reasonable time upon a written request by Purchaser, a
written statement by the Company as to its compliance with the reporting
requirements of said Rule 144 (at any time after ninety (90) days after the
effective date of the first registration statement filed by the Company for an
offering of its securities to the general public) and of the Exchange Act (at
any time after it has become subject to such reporting requirements), a copy of
the most recent annual or quarterly report of the Company, and such other
reports and documents so filed by the Company as Purchaser may reasonably
request in complying with any rule or regulation of the SEC allowing Purchaser
to sell any such securities without registration.
7. Covenants
7.1 "Stand-Off" Agreement. The Purchaser agrees not to (1) offer, pledge,
sell, contract to sell, sell any option or contract to purchase, purchase any
option or contract to sell, grant any option, right or warrant to purchase, or
otherwise transfer or dispose of, directly or indirectly any of the Shares or
any shares of Common Stock of the Company or any securities convertible into or
exercisable or exchangeable for Shares or Common Stock of the Company (whether
such shares or any such securities are now owned by the undersigned or are
hereafter acquired, or (2) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences of
ownership of the Shares or Common Stock of the Company, whether any such
transaction described in clause (1) or (2) above is to be settled by delivery of
Shares or Common Stock or such other securities, in cash or otherwise, for 180
days following the Closing. The provisions of this Section 7.1 shall be for the
benefit of and enforceable by the underwriters of the IPO, acting through the
managing underwriter.
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7.2 Right of First Offer. For so long as Purchaser holds any Shares, if
the Purchaser joins in a partnership, limited partnership, syndicate, or
otherwise acts in concert or alone for the purpose of disposing of more than 5%
of the Shares (as adjusted for stock splits or similar events after the date
hereof) to a single person or transferee or any group of affiliated persons or
transferees but specifically excluding any hedging or similar transactions, the
Purchaser shall give the Company the opportunity to purchase such stock, in the
following manner:
(a) The Purchaser shall give notice (the "Transfer Notice") to
the Company in writing of such intention, specifying the number and kind of
securities proposed to be sold or transferred, the proposed price per share
therefor (the "Transfer Price") and the other material terms, upon which such
disposition is proposed to be made, including the names of the proposed
purchasers or transferees if such persons have been identified.
(b) The Company shall have the right, exercisable by written
notice given by the Company to the Purchaser within ten calendar days of receipt
of the Transfer Notice to purchase all of the shares specified in such Transfer
Notice upon the terms specified in such Transfer Notice. Notwithstanding the
foregoing, the Company shall have twenty-five calendar days from the receipt of
the Transfer Notice (regardless of the date of the Transfer Notice) to notify
Purchaser of the Company's election to purchase the shares pursuant to this
Section 7.2 if the Company shall furnish a certificate signed by the President
or Chief Executive Officer of the Company within ten calendar days of receipt of
the Transfer Notice stating that, in the good faith judgment of the management
of the Company, it would be detrimental to the Company and its stockholders to
decide whether to elect to purchase the Shares within the ten day period
provided for pursuant to this Section 7.2 (it being understood that the mere
election of Purchaser to sell such Shares in a transaction triggering the
provisions of this Section 7.2 shall not constitute such an event). The purchase
of the shares by the Company must be completed within 60 calendar days from the
receipt of the Transfer Notice. The Company and Purchaser shall use their best
efforts to secure during such period any approvals required on their respective
parts in connection therewith. The Company shall have the right to pay for such
shares specified in the Transfer Notice: (a) the same amount in cash, if the
consideration to be paid consists of cash, or (b) to the extent that the
consideration to be paid does not consist of cash, consideration per share
equivalent to that set forth in the Transfer Notice, or an amount of cash having
equivalent value, as determined in good faith by mutual agreement of the Company
and the Purchaser.
(c) If the Company (or its assignees) does not exercise its
right of first offer hereunder within the time specified for such exercise, the
Seller(s) shall be free, during the period of 120 days following the date of the
Transfer Notice, to sell the shares specified in such Transfer Notice for such
consideration and on such other material terms as shall be no more favorable to
the purchaser of the shares than the terms specified in such Transfer Notice.
(d) The provisions of this Section 7.2 shall terminate upon the
earlier to occur of: (i) such time as 3Com Corporation distributes its shares of
the Company's Common Stock to the shareholders of 3Com Corporation or (ii) one
year following the Closing Date.
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8. Miscellaneous
8.1 Governing Law. This Agreement shall be governed in all respects by the
laws of the State of California.
8.2 Survival. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by Purchaser and the closing of
the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument, except as
expressly provided otherwise in such certificate or instrument.
8.3 Successors And Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall be
a holder of the Shares from time to time; provided, however, that prior to the
receipt by the Company of adequate written notice of the transfer of any Shares
specifying the full name and address of the transferee, the Company may deem and
treat the person listed as the holder of such Shares in its records as the
absolute owner and holder of such Shares for all purposes, the payment of any
dividends or any redemption price.
8.4 Separability. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, such provision shall, to the extent practicable, be
modified so as to make it valid, legal and enforceable and to maintain as nearly
as practicable the intent of the parties, and the validity, legality and
enforceability of the remaining provisions shall not in any way be affected or
impaired thereby.
8.5 Amendment And Waiver.
(a) This Agreement may be amended or modified only upon the
written consent of the parties hereto.
(b) The obligations of the Company and the rights of the holder
of the Shares under this Agreement may be waived only with the written consent
of the parties hereto.
(c) Except to the extent provided in this Section 8.5, neither
this Agreement nor any provision hereof may be changed, waived, discharged or
terminated, except by a statement in writing signed by the party against which
enforcement of the change, waiver, discharge or termination is sought.
(d) Any amendment or waiver effected in accordance with this
Section 8.5 shall be binding upon any future holder of some or all of the
Shares.
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8.6 Notices. All notices and other communications required or permitted
hereunder shall be in writing and shall be deemed effectively given and received
(a) upon personal delivery, (b) on the fifth day following mailing sent by
registered or certified mail, return receipt requested, postage prepaid, (c)
upon confirmed delivery by means of a nationally recognized overnight courier
service or (d) upon confirmed transmission of facsimile addressed: (i) if to
Purchaser, at Purchaser's address as set forth on the Company's records, or at
such other address as Purchaser shall have furnished to the Company in writing
or (ii) if to the Company, at its address as set forth at the end of this
Agreement, or at such other address as the Company shall have furnished to
Purchaser in writing.
8.7 Expenses. The Company shall pay all costs and expenses that it incurs
with respect to the negotiation, execution, delivery and performance of the
Agreement, and Purchaser shall pay all costs and expenses that it incurs with
respect to the negotiation, execution, delivery and performance of this
Agreement.
8.8 Attorneys' Fees. If legal action is brought to enforce or interpret
this Agreement, the prevailing party shall be entitled to recover its reasonable
attorneys' fees and legal costs in connection therewith.
8.9 Titles And Subtitles. The titles of the paragraphs and subparagraphs
of the Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
8.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
8.11 Broker's Fees. Each party hereto represents and warrants that no
agent, broker, investment banker, person or firm acting on behalf of or under
the authority of such party hereto is or will be entitled to any broker's or
finder's fee or any other commission directly or indirectly in connection with
the transactions contemplated herein. Each party hereto further agrees to
indemnify each other party for any claims, losses or expenses incurred by such
other party as a result of the representation in this Section 8.11 being untrue.
8.12 Termination. If the Registration Statement for the IPO has not become
effective by June 1, 2000, Purchaser in its discretion may elect to terminate
this Agreement by providing written notice to the Company at any time
thereafter.
8.13 Subsequent, Consents, Permits and Waivers. The Company shall obtain
promptly after the Closing all authorizations, approvals, consents, permits and
waivers that are necessary or applicable for consummation of the transactions
contemplated by this Agreement and that were not obtained prior to the Closing
because they may be properly obtained subsequent to the Closing.
8.14 Most Favored Nations. Except for the maximum number of shares being
purchased, the Company agrees that the material terms (including, without
limitation, the terms of Section 3
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hereof) of this Agreement will be no less favorable to Purchaser than the terms
given to other investors (including investors that may enter into such
agreements after the date hereof, if any) that are purchasing shares of the
Company's capital stock in private placements that are closing concurrently with
the closing of the IPO.
[Remainder of Page Intentionally Left Blank]
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In Witness Whereof, the parties hereto have executed this Agreement as of
the date set forth in the first paragraph hereof.
Company:
Palm Computing, Inc.
5400 Bayfront Plaza
Santa Clara, CA 95052-8145
By: /s/ PALM COMPUTING, INC.
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Purchaser:
By: /s/ NOKIA CORPORATION
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Annex 1
In connection with that certain Common Stock Purchase Agreement dated
as of December 13, 1999, by and between the Company and the Purchaser (the
"Agreement"), the appropriate formula set forth herein shall be used to
determine the number of "Private Placement Shares" pursuant to Section 1.2 of
the Agreement. Capitalized terms not otherwise defined herein shall have the
meaning ascribed to them in the Agreement. For purposes of this Annex 1, the
term Pre-Money Outstanding Capital Stock shall mean the number of shares of
Common Stock outstanding immediately following the closing of the IPO and
including (i) the number of shares of Common Stock issuable pursuant to then
outstanding options or warrants for Common Stock (including those options issued
at the time of the IPO and excluding specifically options to purchase 3Com
common stock which may be converted into options to purchase the Company's
Common Stock at the time 3Com distributes its shares of the Company's Common
Stock to 3Com stockholders) and (ii) any Common Stock issuable pursuant to any
then outstanding class or series of stock convertible into Common Stock.
Background
By way of background, the Company is issuing shares of Common Stock to
one or more investors (including the Purchaser) pursuant to private placements
that are to close concurrently with (but not before) the IPO. Such investors
(including the Purchaser) have agreed to purchase the lesser of (a) a maximum
dollar amount of shares of Common Stock or (b) a certain percentage of the
Company's Post-Money Capital Stock as shown below. The aggregate of the
investment amounts is contemplated to be equal to or less than 4.5% of the
Company's Post-Money Outstanding Capital Stock, allocated as follows:
Nokia--the lesser of 1 1/2% of the Post-Money Outstanding Capital
Stock or $80 million;
America Online, Inc.--the lesser of 1 1/2% of the Post-Money
Outstanding Capital Stock or $80 million;
Motorola, Inc.--the lesser of 1 1/2% of the Post-Money Outstanding
Capital Stock or $65 million.
For the purposes of the formulas below, the Pre-Money Value shall be
equal to the Pre-Money Outstanding Capital Stock multiplied by the per share
Price to Public.
Formulas
(a) Subject to the limitations of Section 1.2, in the event the
Pre-Money Value is less than $4,138,333,333.33 based upon the final valuation of
the Company upon the closing of the
<PAGE>
IPO, then the number of Private Placement Shares shall be determined by the
following formula where "X" equals the Private Placement Shares:
X = .045(Pre-Money Outstanding Capital Stock + X)
(b) Subject to the limitations of Section 1.2, in the event the
Pre-Money Value is equal to or greater than $4,138,333,333.33 and less than
$5,108,333,333.33 based upon the final valuation of the Company upon the closing
of the IPO, then the number of Private Placement Shares shall be determined by
the following formula where "X" equals the Private Placement Shares:
X = .03(Pre-Money Outstanding Capital Stock + X) + Y
Where "Y" is equal to ($65,000,000/per share Price to Public)
(c) Subject to the limitations of Section 1.2, in the event the
Pre-Money Value is equal to or greater than $5,108,333,333.33 based upon the
final valuation of the Company upon the closing of the IPO, then the number of
Private Placement Shares shall be determined by the following formula where "X"
equals the Private Placement Shares:
X = $225,000,000/per share Price to Public
In the case of (b) above, Y shall be rounded down to the nearest whole
number. In the case of (a), (b) and (c) above, X shall be rounded down to the
nearest whole number.
-2-
<PAGE>
Annex 2
-------
PALM COMPUTING, INC.
COMPANY SCHEDULE OF EXCEPTIONS
------------------------------
Pursuant to Section 3 of the Common Stock Purchase Agreement (the "
Agreement ") dated as of December __, 1999, by and between the Company and the
Purchaser, the Company hereby delivers this Schedule of Exceptions to the
representations and warranties of the Company given in the Agreement. Each
section number in this Schedule of Exceptions corresponds to the section numbers
in the Agreement; however, any information disclosed herein under any section
number shall be deemed to be disclosed and incorporated in any other section
number of the Agreement where such disclosure would be appropriate. Any
capitalized terms not otherwise defined herein shall have the meaning ascribed
to them in the Agreement.
3.1 Organization; Good Standing and Qualification
---------------------------------------------
No Exceptions.
3.2 Authorization; Binding Obligations
----------------------------------
No Exceptions.
3.3 Compliance with Other Instruments
---------------------------------
No Exceptions.
3.4 Valid Issuance of Shares
------------------------
No Exceptions.
3.5 Litigation, Etc.
----------------
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, 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
-3-
<PAGE>
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 24, 1999, the court stayed the action pending 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
contemplate that 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 us to substantial damages
and require us to indemnify our licensees for damages that they may suffer.
Moreover, if there is an adverse determination, a license may be necessary to
continue using the Graffiti 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.
3.6 Governmental Consent, Etc.
-------------------------
No Exceptions.
3.7 Intellectual Property Rights
----------------------------
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, 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 24, 1999, the court stayed the
action pending 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 contemplate that 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 us
to substantial damages and require us to indemnify our licensees for damages
that they may suffer. Moreover, if there is an adverse determination, a license
may be necessary to continue using the Graffiti 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.
-4-
<PAGE>
EXHIBIT A
---------
____________, 2000
To the Purchasers of Common Stock of
Palm, Inc. pursuant to the Common Stock
Purchase Agreement dated as of the date hereof
Ladies and Gentlemen:
Reference is made to the Common Stock Purchase Agreement dated as of
December __, 1999 (the "Purchase Agreement") by and among Palm, Inc., a Delaware
corporation (the "Company"), and the purchasers to the Purchase Agreement (the
"Purchasers"), which provides for the issuance and sale by the Company to the
Purchasers of an aggregate of up to [____________] shares of Common Stock (the
"Shares") at a purchase price of $[____] per share for an aggregate purchase
price of up to approximately $[_________]. This opinion is rendered to you
pursuant to Section 5.1(e) of the Purchase Agreement and all terms used herein
have the meanings defined for them in the Purchase Agreement unless otherwise
defined herein.
We have acted as counsel for the Company in connection with the
negotiation, execution and delivery of the Purchase Agreement and the issuance
of the Shares to the Purchasers as contemplated by the Purchase Agreement. As
such counsel, we have made such legal and factual examinations and inquiries as
we have deemed advisable or necessary for the purpose of rendering this opinion,
and we have examined originals or copies of the following:
(a) The Certificate of Incorporation (the "Certificate");
(b) The Bylaws of the Company;
(c) The resolutions adopted by the Board of Directors of the Company and
the stockholders of the Company with respect to the transactions
contemplated by the Purchase Agreement;
(d) The certificates representing the shares of the Company's Common Stock
issued to the Purchasers on the date hereof;
(e) Executed counterparts of the Purchase Agreement;
-5-
<PAGE>
(f) The Compliance Certificate dated the date hereof delivered to you;
(g) The certified or official bank checks or evidence of wire transfers
payable to the Company delivered by the Purchasers on the date hereof
as consideration for the sale of the Shares; and
(h) The certificates of certain state authorities and filing officers,
copies of which are being delivered to you on the date hereof.
As used in this opinion, the expressions "to our knowledge," "known to us,"
and "of which we are aware" with reference to matters of fact means that, after
an examination of documents made available to us by the Company and after
inquiries of officers of the Company, we find no reason to believe that the
opinions expressed herein are factually incorrect. Further, the expressions "to
our knowledge," "known to us," "of which we are aware" or similar language with
reference to matters of fact refers to the current actual knowledge of the
attorneys of this firm who have worked on matters for the Company solely in
connection with the Purchase Agreement. We have not undertaken any independent
investigation to determine the existence or absence of any fact, and no
inference as to our knowledge of the existence or absence of any fact should be
drawn from our representation of the Company or the rendering of the opinions
set forth below.
For purposes of this opinion, we are assuming that each party (other than
the Company) to the Purchase Agreement has all requisite power and authority,
and has taken any and all necessary corporate or partnership action, to execute
and deliver the Purchase Agreement to which it is a party and to effect any and
all transactions related or contemplated thereby, and that each of you duly and
validly executed and delivered the Purchase Agreement. We are also assuming that
the representations and warranties made by each Purchaser and the Company under
the Purchase Agreement are true and correct, and that the Purchasers have
purchased the Shares for value, in good faith and without notice of adverse
claims within the meaning of the Delaware Uniform Commercial Code.
The opinions, hereinafter expressed are subject to the following additional
exceptions, qualifications, limitations and assumptions:
We express no opinion as to (i) the effect of applicable bankruptcy,
insolvency, reorganization, liquidation, conservatorship, readjustment of debt,
moratorium or other similar laws affecting the rights of creditors or (ii) the
provisions of the Purchase Agreement relating to indemnity or contribution.
We express no opinion as to the effect of rules of law governing
specific performance, injunctive relief or other equitable remedies (regardless
of whether any such remedy is considered in a proceeding at law or in equity) or
as to the effects of public policy on the enforceability of any provision of any
agreement;
-6-
<PAGE>
We express no opinion as to compliance with applicable anti-fraud
provisions of federal or state securities laws.
We have assumed the genuineness of all signatures on original
documents, the authenticity of all documents submitted to us as originals, the
conformity to original documents of all copies submitted to us as copies
thereof, the legal capacity of natural persons, and the due execution and
delivery of all documents (except as to due execution and delivery by the
Company) where due execution and delivery are a prerequisite to the
effectiveness thereof.
Our opinion set forth in paragraph 1 below is based solely on the
certificate referenced above as to the legal existence and corporate and tax
good standing of the Company in the state of Delaware.
This opinion is subject to the effect of statutes, principles of
equity and court decisions providing (i) that certain covenants and provisions
of agreements are unenforceable where enforcement of such covenants or
provisions under the circumstances would violate the enforcing party's implied
covenant of good faith and fair dealing, and (ii) that a court may refuse to
enforce, or may limit the application of, a contract or any clause thereof that
the court finds to be unconscionable or contrary to public policy.
We have not reviewed, and express no opinion on, (i) financial
covenants or similar provisions requiring financial calculations or
determinations to ascertain whether there is any such conflict, (ii) provisions
relating to the occurrence of a "material adverse event" or words of similar
import or (iii) parol evidence bearing on interpretation or construction.
The opinions expressed herein are limited in all respects to existing
laws, rules and regulations of the State of California, the General Corporation
Law of the State of Delaware, as amended (the "DGCL") and applicable United
States federal laws, rules and regulations. Furthermore, we have made no inquiry
into, and express no opinion with respect to, any federal or state statute, rule
or regulation relating to any tax, antitrust, land use, safety, environmental,
hazardous material, patent, copyright, trademark or trade name matter, as to the
statutes, regulations, treaties or common laws of any other nation, state or
jurisdiction, or the effect on the transactions contemplated in the Purchase
Agreement of noncompliance under any such statutes, regulations, treaties or
common laws. We further disclaim any opinion as to any statute, rule,
regulation, ordinance, order or other promulgation of any regional or local
governmental body or as to any related judicial or administrative opinion.
Our opinions relate solely to the express provisions of the Purchase
Agreement and the exhibits referred to therein and attached thereto and we
express no opinion as to any other oral or written agreements or understandings
between the Company or any of the Purchasers.
Provisions of the Purchase Agreement requiring that waivers must be in
writing may not be binding or enforceable if a non-executory oral agreement has
been created modifying any
-7-
<PAGE>
such provision or an implied agreement by trade practice or course of conduct
has given rise to a waiver.
Based upon and subject to the foregoing, and subject in all respects to the
disclosure on the Disclosure Schedule attached to the Purchase Agreement, we are
of the opinion that:
1. The Company is a corporation duly incorporated, validly existing and
in good standing under the laws of the State of Delaware. The Company
has the requisite corporate power to own the properties and assets
owned by it and to carry on its business as presently conducted.
2. The Company has all requisite legal and corporate power to execute and
deliver the Purchase Agreement, to sell and issue the shares of Common
Stock to the Purchasers as contemplated by the Purchase Agreement and
to carry out and perform its obligations under the terms of the
Purchase Agreement.
3. The authorized capital stock of the Company consists of [________]
shares of Common Stock, [________] of which are issued and
outstanding, and [_________] shares of Preferred Stock, none of which
is outstanding. All issued and outstanding shares have been duly
authorized, validly issued, fully paid, and nonassessable and have
been issued in compliance with the registration and qualifications
requirements of all applicable securities laws. Upon the issuance,
sale, and delivery for the consideration stated in the Purchase
Agreement, the shares of Common Stock being issued and sold to the
Purchasers on the date hereof shall be duly authorized, validly
issued, fully paid, and nonassessable, shall have been issued in
compliance with the registration or qualification requirements of all
applicable securities laws (but excluding jurisdictions outside the
United States); provided, however, that the shares of Common Stock may
be subject to restrictions on transfer under state and/or federal
securities laws. To our knowledge, except for rights described in the
Purchase Agreement (including the Disclosure Schedule) or in the
Prospectus and the Restated Certificate, there are no other options,
warrants, conversion privileges or other rights presently outstanding
to purchase or otherwise acquire any authorized but unissued shares of
capital stock or other securities of the Company, or any other
agreements to issue any such securities or rights.
4. All corporate action on the part of the Company, its directors and
stockholders necessary for the authorization, execution, delivery and
performance of the Purchase Agreement by the Company, and the
authorization, sale, issuance and delivery of the Common Stock to the
Purchasers pursuant to the Purchase Agreement and the Certificate, and
the performance of the Company's obligations under the Purchase
Agreement has been taken. The Purchase Agreement, when executed and
delivered by the parties thereto, shall constitute a valid and binding
obligation of the Company, enforceable against the Company in
accordance with its terms.
-8-
<PAGE>
5. The execution, delivery and performance of the terms of the Purchase
Agreement and the issuance of the Common Stock to the Purchasers
pursuant to the Purchase Agreement do not violate (i) any provision of
the Company's Certificate or Bylaws, or (ii) to our knowledge, any
law, statute, rule or regulation of the United States, the State of
California.
6. Subject to the accuracy of the Purchaser's representations in Section
4 of the Purchase Agreement, we are of the opinion that the offer,
sale and issuance of the Common Stock to the Purchasers in conformity
with the terms of the Purchase Agreement and the Certificate
constitute transactions exempt from the registration and qualification
requirements of Section 5 of the Securities Act of 1933, as amended,
the laws of the State of California, and the DGCL.
This opinion is furnished to the Purchasers solely for your benefit in
connection with the purchase of the Shares and is not to be made available to or
relied upon by any other person, firm or entity for any purpose without our
express prior written consent.
Very truly yours,
WILSON SONSINI GOODRICH & ROSATI
-9-
<PAGE>
EXHIBIT 21.1
Subsidiaries of Palm, Inc.
January 2000
Subsidiaries of Palm, Inc.
- ---------------------------
Palm Mexico Sales S.A. de C.V.
Palm Computing K.K.
Palm Sales Canada Inc.
Palm Technology Investment Holdings Limited
Palm International Holdings Ltd.
Palm Computing Europe SARL
Subsidiaries of Palm International Holdings Ltd.
- -------------------------------------------------
Palm Manufacturing Technologies Limited
Palm Europe Ltd.
Subsidiaries of Palm Europe Ltd.
- --------------------------------
Palm Australia Sales Pty Limited
Palm France
Palm Germany Gmblt
Palm Sales Netherlands BV
Palm Hong Kong Limited
Palm Italy Branch
Palm Singapore Sales Pte. Ltd.
Palm Sweden Aktiebolag
Palm Europe Limited, London (UK), Zurich Branch
<PAGE>
EXHIBIT 23.1
INDEPENDENT AUDITORS' CONSENT AND REPORT ON SCHEDULE
We consent to the use in Amendment No. 2 to Registration Statement No. 333-
92657 of Palm, Inc. on Form S-1 of our report dated November 29, 1999 (January
24, 2000 as to the third, fourth and fifth paragraphs of Note 13 and all of
Note 15) appearing in the Prospectus, which is part of this Registration
Statement. We also consent to the references to us under the headings "Selected
Consolidated Financial Data" and "Experts" in such Prospectus.
Our audit of the consolidated financial statements referred to in our
aforementioned report also included the financial statement schedule of Palm,
Inc., listed in Item 15(b). This financial statement schedule is the
responsibility of the management of Palm, Inc. Our responsibility is to express
an opinion based on our audits. In our opinion, such financial statement
schedule, when considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly in all material respects the
information set forth therein.
/s/ DELOITTE & TOUCHE LLP
San Jose, California
January 26, 2000
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<PAGE>
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<S> <C>
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<FISCAL-YEAR-END> JUN-02-2000
<PERIOD-START> MAY-29-1999
<PERIOD-END> NOV-26-1999
<CASH> 29,568
<SECURITIES> 0
<RECEIVABLES> 134,867
<ALLOWANCES> 5,141
<INVENTORY> 36,695
<CURRENT-ASSETS> 224,308
<PP&E> 16,294
<DEPRECIATION> 6,018
<TOTAL-ASSETS> 247,369
<CURRENT-LIABILITIES> 220,543
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 26,431
<TOTAL-LIABILITY-AND-EQUITY> 247,369
<SALES> 435,060
<TOTAL-REVENUES> 435,060
<CGS> 246,342
<TOTAL-COSTS> 398,315
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 36,959
<INCOME-TAX> 14,439
<INCOME-CONTINUING> 22,520
<DISCONTINUED> 0
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<NET-INCOME> 22,520
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