<PAGE>
As filed with the Securities and Exchange Commission on June 21, 1999
Registration No. 333-77855
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
Amendment No. 2
To
FORM S-1
REGISTRATION STATEMENT
Under the Securities Act of 1933
---------------
BE INCORPORATED
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
Delaware 7371 94-3123667
<S> <C> <C>
(State or other jurisdiction (Primary Standard Industrial (I.R.S. Employer
of
incorporation or Classification Code Number) Identification No.)
organization)
</TABLE>
---------------
800 El Camino Real
Suite 400
Menlo Park, CA 94025
(650) 462-4100
(Address, including zip code, and telephone number,
including area code, of registrant's principal executive offices)
---------------
Jean-Louis F. Gassee
Chief Executive Officer
Be Incorporated
800 El Camino Real
Suite 400
Menlo Park, CA 94025
(650) 462-4100
(Name, address, including zip code, and telephone number,
including area code, of agent for service)
---------------
Copies to:
<TABLE>
<S> <C>
Andrei M. Manoliu, Esq. Michael J. Halloran, Esq.
Tomas C. Tovar, Esq. Katharine A. Martin, Esq.
Frank F. Rahmani, Esq. Dawn C. Steele, Esq.
Cooley Godward LLP Pillsbury Madison & Sutro LLP
Five Palo Alto Square 2550 Hanover Street
3000 El Camino Real Palo Alto, CA 94304-1115
Palo Alto, CA 94306-2155 (650) 233-4500
(650) 843-5000
</TABLE>
---------------
Approximate date of proposed sale to the public: As soon as practicable after
this Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, as amended (the "Securities Act"), check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the Prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
<CAPTION>
Title of Securities to be Amounts to be Proposed Maximum Amount of
Registered Registered (1) Aggregate Offering Price (2) Registration Fee (3)
- ------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Common stock, $.001 par value... 6,900,000 $69,000,000 $19,182
- ------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Includes shares that the Underwriters have the option to purchase solely to
cover over-allotments.
(2) Estimated solely for the purpose of calculating the amount of the
registration fee in accordance with Rule 457(a) under the Securities Act of
1933.
(3) This amount was previously paid.
---------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment that specifically states that this Registration
Statement shall thereafter become effective in accordance with Section 8(a) of
the Securities Act of 1933 or until the Registration Statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may change. We may not +
+sell these securities until the registration statement filed with the SEC is +
+effective and this prospectus is delivered in final form. This preliminary +
+prospectus is not an offer to sell these securities, and it is not soliciting +
+an offer to buy these securities in any state where the offer or sale is not +
+permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JUNE 21, 1999
6,000,000 Shares
[Be Incorporated LOGO]
Common Stock
------------
Be Incorporated is offering shares of its common stock. This is our initial
public offering, and no public market currently exists for our shares. We
anticipate that the initial public offering price will be between $8.00 and
$10.00 per share of common stock.
------------
We intend to list our common stock on the Nasdaq National Market under the
symbol "BEOS."
Please see "Risk Factors" beginning on page 9 to read about the risks you
should consider before buying shares of our common stock.
------------
<TABLE>
<CAPTION>
Per
Share Total
----- -----
<S> <C> <C>
Public offering price............................................... $ $
Underwriting discounts and commissions.............................. $ $
Proceeds to Be Incorporated......................................... $ $
</TABLE>
------------
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities, or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
The underwriters have an option to purchase up to an additional 900,000
shares of common stock from us to cover over-allotments.
------------
Volpe Brown Whelan & Company Needham & Company, Inc.
The date of this prospectus is , 1999.
<PAGE>
INSIDE BeOS
<TABLE>
<S> <C>
[A still shot of Be delivers BeOS, an
various applications operating system designed
running on for digital media
BeOs] applications and Internet
appliances.
BeOS allows
to simultaneously
operate multiple
audio, video,
image processing,
and internet-
based software
applications.
Here's just some of what BeOS offers:
FEATURES WHAT IT MEANS TO YOU
Symmetric Multiprocessing BeOS Protected Memory Each
can run multiple application has its own
applications on from 1 to 8 protected memory. As a
processors. Processors can result, users experience
be added or taken away significantly better overall
without the need to reboot system stability as compared
BeOS. to traditional operating
systems.
Pervasive Multithreading BeOS
enables users to perform
a number of different tasks
simultaneously without
facing system delays and
freezes exhibited by other
operating systems.
Journaled File System BeOS
uses a 64 bit file system
that enables it to utilize
extremely large files,
typical of digital media
applications. Journaled file
system means the file system
stays intact even if the
computer was abruptly shut
down.
Modular Architecture The
Modularity of BeOS enables
OEMs to tailor the
operating system for
specific applications or
devices.
Extensive Libraries BeOS
features "kits" that make
programming simple--including
a Media Kit for audio-visual
content, an Interface Kit for
graphic user interfaces, a
Game Kit, and a Network Kit
for network and Internet
access applications. Also
included is an industry-
standard OpenGL(R) 3D
graphics library.
Drivers Device drivers can
be loaded and unloaded as
needed without requiring a
system reboot.
</TABLE>
<PAGE>
[A picture showing a professional in front of a
computer.]
Ed Watkins:Real Estate Agent by day.
Digital Media Wizard by night.
BeOS brings Digital Media to Ed.
BeOS gives Ed the power to view, create and
edit digital media content--from his digital
camera to his digital video disk player--on
any system including desktop PC, laptop, or
dedicated system. BeOS is optimized for
digital media applications allowing Ed to do
this more effectively than with traditional
operating systems.
<PAGE>
[Six pictures showing people performing various
activities with computers.]
BeOS unlocks creative potential for a wide
range of users.
BeOS enables users to create, edit and view
digital media content with a range of
applications without requiring specialized
hardware. Using BeOS, OEMs can develop products
and services tailored to specific markets
without compromising the quality, stability,
and performance of digital media applications.
BeOS extends digital media to Internet
Appliances.
Internet appliances are any device primarily used
for accessing the internet. The combination of an
efficient, new operating system designed for fast
performance and rich digital media applications
make BeOS an ideal solution for Internet
Appliances.
<PAGE>
You should rely only on the information contained in this prospectus. We have
not authorized anyone to provide you with information different from that
contained in this prospectus. We are offering to sell, and seeking offers to
buy, shares of common stock only in jurisdictions where offers and sales are
permitted. The information contained in this prospectus is accurate only as of
the date of this prospectus, regardless of the time of delivery of this
prospectus or of any sale of the common stock.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary....................................................... 4
Risk Factors............................................................. 9
Use of Proceeds.......................................................... 21
Dividend Policy.......................................................... 21
Capitalization........................................................... 22
Dilution................................................................. 23
Selected Financial Information........................................... 24
Management's Discussion and Analysis of Financial Condition and Results
of Operations........................................................... 25
Business................................................................. 35
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management................................................................. 46
Certain Relationships and Transactions..................................... 54
Principal Stockholders..................................................... 57
Description of Capital Stock............................................... 59
Shares Eligible for Future Sale............................................ 62
Underwriting............................................................... 63
Legal Matters.............................................................. 65
Experts.................................................................... 65
Where You Can Find More Information........................................ 66
Index to Consolidated Financial Statements................................. F-1
</TABLE>
---------------
Be(R) and BeOS(R) are our registered trademarks. We also hold other common
law trademarks such as BeDepot(TM), BeDepot.com(TM), BeBox(TM), and Be
Everywhere(TM). This prospectus also includes trademarks owned by other
companies.
Until , 1999 (25 days after the date of this prospectus), all dealers
effecting transactions in the common stock, whether or not participating in
this distribution, may be required to deliver a prospectus. This is in addition
to the obligation of dealers to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or subscriptions.
3
<PAGE>
PROSPECTUS SUMMARY
This summary highlights some of the information contained in this prospectus.
It may not contain all of the information that you should consider before
investing in our common stock. To understand this offering fully, you should
read the entire prospectus carefully, including the Risk Factors, the financial
statements and the notes following the financial statements.
About Be Incorporated
We offer the BeOS(R) operating system, an operating system designed for
digital media applications and Internet appliances. BeOS is capable of
providing faster and more predictable processing times for digital media
applications than traditional desktop operating systems. BeOS can run on a wide
range of devices including Internet appliances, desktop PCs and high-
performance multiprocessor workstations. BeOS allows users to simultaneously
operate multiple audio, video, image processing and Internet-based software
applications while maintaining system stability, media quality and processor
performance. BeOS provides professional users and enthusiasts with an
environment to quickly and easily develop applications and digital content such
as audio, video, animation and images, and is designed to facilitate the
integration of new technologies. BeOS is also architected to address the
market-specific requirements of PC manufacturers, Internet appliance and
consumer electronic manufacturers. The modular nature of BeOS allows PC and
other device manufacturers, also known as "OEMs," to incorporate only those
features of our operating system that are required for a particular device,
allowing them to deliver specific content while meeting the cost targets for
that device. Using BeOS, OEMs can develop products and services tailored to
specific markets without compromising the quality, stability and performance of
digital media applications delivered to the user.
As users have embraced digital media, they have come to expect richer
content, high resolution audio, video and images when using personal computers,
consumer electronic devices and software applications. With the growth of the
Internet, many users are also demanding that the same level of high resolution
audio, real-time video and detailed 3D graphics and animation be delivered over
the Internet. However, existing operating system architectures have
increasingly become a key limiting factor in meeting these demands. The growing
demand for richer content, audio and video editing and processing capabilities,
3D graphics, and Internet-delivered digital media is placing considerable
strain on traditional operating systems.
The combination of an efficient, new operating system designed for fast
performance and rich digital media applications make BeOS an ideal solution for
Internet appliances. As a result, we believe the continued growth of the
Internet and emergence of Internet appliances provide a significant market
opportunity to increase the number of BeOS users. Internet appliances are any
device primarily used for accessing the Internet and using Internet-based
content, services and applications. Internet appliances can include low-cost
PCs, stand-alone screens used to deliver Internet-based content, smart hand-
held devices such as electronic address books and calendars modified to receive
Internet content, Internet screen-phones, and set-top boxes that provide
Internet access via the television. Using BeOS, developers can deliver high
quality audio, video, and images on these devices without sacrificing system
stability or performance. International Data Corporation, a third party market
research firm, estimates that worldwide shipments of Internet appliances
(excluding PCs) will grow from 5.9 million units in 1998 to over 55.7 million
in 2002. By 2002, IDC estimates that there will be more than 151 million
Internet appliances installed worldwide.
We promote BeOS through relationships with OEMs, application developers,
consumer electronic manufacturers and Internet service and content providers.
We currently have strategic relationships with Hitachi, Ltd., Fujitsu Computers
GmbH and Microworkz Computer Corporation. These relationships allow us to
collaborate on the development of PCs, Internet appliances and other devices
which use BeOS. We also have a technology exchange and support relationship
with Intel Corporation. We are working with application
4
<PAGE>
developers to increase the number and range of applications running on BeOS,
including audio and video mixing, graphics, productivity and gaming
applications. Our objective is to establish BeOS as the premier operating
system for Internet appliances and for professionals, enthusiasts and consumers
demanding media-rich capabilities on any hardware platform.
Be was founded in 1990. Our principal executive offices are located at 800 El
Camino Real, Suite 400, Menlo Park, California 94025, and our telephone number
is (650) 462-4100. Our Web site address is www.be.com. Information contained on
our Web site does not constitute part of this prospectus.
5
<PAGE>
The Offering
<TABLE>
<C> <S>
Common stock offered by us................... 6,000,000 shares
Common stock to be outstanding after the
offering.................................... 33,642,574 shares
Use of proceeds.............................. For increased sales and
marketing activities, research
and development, working
capital and other general
corporate purposes. See "Use of
Proceeds."
Proposed Nasdaq National Market symbol....... BEOS
</TABLE>
The total number of shares of common stock to be outstanding after the
offering shown above does not include:
. up to 900,000 shares issuable pursuant to the underwriters' over-
allotment option;
. 5,910,347 shares reserved for issuance upon the exercise of stock
options outstanding as of March 31, 1999 under our 1992 Stock Option
Plan, 1999 Equity Incentive Plan, and 1999 Non-Employee Directors' Stock
Option Plan;
. 5,089,653 shares available for future grant or issuances under our 1992
Stock Option Plan, 1999 Equity Incentive Plan, 1999 Non-Employee
Directors' Stock Option Plan, and our Employee Stock Purchase Plan; and
. outstanding warrants to purchase an aggregate of 2,870,975 shares of
common stock.
Except as otherwise indicated, all information in this prospectus assumes
that the underwriters' over-allotment option is not exercised and each
outstanding share of preferred stock is automatically converted into one share
of common stock.
6
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The following table summarizes the financial data for our business during the
periods indicated. The data set forth below should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and our financial statements and attached notes included elsewhere
in this prospectus.
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
---------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
------- -------- ------- -------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement of
Operations:
Net revenues............ $ - $ - $ - $ 86 $ 1,199 $ 64 $ 309
Cost of revenues (1).... - - - 84 2,161 143 85
------- -------- ------- -------- -------- ------- -------
Gross profit (loss)..... - - - 2 (962) (79) 224
Operating expenses:
Research and
development.......... 2,004 2,268 3,039 4,422 5,792 1,075 1,887
Sales and marketing... 447 1,558 2,711 4,032 4,496 856 1,882
General and
administrative....... 939 927 1,292 1,694 2,310 451 737
Amortization of
deferred stock
compensation (2)..... - - 955 867 3,881 537 1,665
------- -------- ------- -------- -------- ------- -------
Total operating
expenses........... 3,390 4,753 7,997 11,015 16,479 2,919 6,171
------- -------- ------- -------- -------- ------- -------
Loss from operations.... (3,390) (4,753) (7,997) (11,013) (17,441) (2,998) (5,947)
Other income (expense),
net.................... 53 (24) 220 580 580 74 101
Settlement received
(3).................... 750 - - - - - -
------- -------- ------- -------- -------- ------- -------
Net loss................ $(2,587) $ (4,777) $(7,777) $(10,433) $(16,861) $(2,924) $(5,846)
======= ======== ======= ======== ======== ======= =======
Net loss attributable to
common stockholders.... $(2,587) $ (4,777) $(7,902) $(10,448) $(18,423) $(2,990) $(5,979)
======= ======== ======= ======== ======== ======= =======
Net loss per common
share--basic and
diluted (4)............ $(80.84) $(154.10) $(10.85) $ (4.87) $ (5.80) $ (1.09) $ (1.54)
======= ======== ======= ======== ======== ======= =======
Shares used in per
common share
calculation--basic and
diluted (4)............ 32 31 728 2,145 3,178 2,740 3,881
======= ======== ======= ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
As of March 31, 1999
-------------------------
Pro Forma
Actual As Adjusted (5)
-------- ---------------
(in thousands)
<S> <C> <C>
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments.... $ 8,307 $57,427
Working capital...................................... 5,974 55,094
Total assets......................................... 10,083 59,203
Mandatorily redeemable convertible preferred stock... 38,137 --
Total stockholders' equity (deficit)................. $(31,697) $55,560
</TABLE>
Be has incurred significant net losses from continuing operations. We
incurred significant net losses of approximately $5.8 million in the three
months ended March 31, 1999. We expect to incur significant additional losses
and continued negative cash flow from operations in 1999. BeOS is our only
product and we will derive all of our revenue for the forseeable future from
sales of BeOS. BeOS may never gain broad market acceptance and we may never
achieve profitability. Notes to this summary financial information appear on
the next page.
7
<PAGE>
- --------
(1) Our cost of revenues for the year ended December 31, 1998 includes a $1.2
million expense attributable to the write-off of capitalized costs relating
to the acquisition of technology no longer useful to the development of
BeOS.
(2) This expense relates to amortization of deferred compensation which was
recorded by us and which represents the difference between the deemed fair
value of our common stock, as determined for accounting purposes, and the
exercise price of options at the date of grant.
(3) The settlement received relates to the resolution of a dispute with a
supplier. In connection with the settlement, the supplier paid us $750,000.
(4) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing net loss per
common share - basic and diluted.
(5) Adjusted to give effect to the sale of 6,000,000 shares of common stock
offered by us at the initial public offering price per share of $9.00 and
the receipt of the estimated net proceeds from this offering. See "Use of
Proceeds" and "Capitalization."
8
<PAGE>
RISK FACTORS
An investment in our common stock involves a high degree of risk. You should
carefully consider the following information about these risks together with
other information contained in this prospectus, before you decide to purchase
our common stock. Many factors could cause the market price of our common stock
to fluctuate substantially. These fluctuations, as well as general economic and
market conditions, may have a material adverse effect on the market price of
our stock. If any of the following risks actually occur, our business would
likely suffer. In such case, the trading price of our common stock could
decline, and you may lose all or part of the money you paid to buy our common
stock.
This prospectus contains forward-looking statements that involve risks and
uncertainties. Many factors, including those described below, may cause actual
results to differ materially from our anticipated results.
Risks Related to Competition and Market Acceptance of BeOS
The market for Internet appliances may not evolve and we may not be able to
compete effectively in this market.
Our business and prospects depend on the development and market acceptance of
Internet appliances and our ability to successfully market BeOS as a viable
operating system for Internet appliances. The market for Internet appliances is
new, unproven and subject to rapid technological change. This market may never
develop or may develop at a slower rate than we anticipate. In addition, our
success in marketing BeOS as a platform for Internet appliances is dependent
upon developing and maintaining relationships with industry-leading computer
and consumer electronics manufacturers, Internet service providers and content
creators. There is already intense competition to offer non-PC devices that
provide access to the Internet and enable digital media content on the
Internet. Companies such as Microsoft Corporation, Oracle Corporation, Apple
Computer, Inc. and Spyglass, Inc. have operating systems that are being used or
may be used for Internet appliances. These companies have an established market
presence, relationships with computer and consumer electronic manufacturers who
will develop and market Internet appliances, and have significantly greater
financial, marketing and technical resources than we do. These companies,
together with a large number of smaller companies who offer operating systems
that may be used for Internet appliances, may capture a larger portion of the
market than we do. Our failure to establish relationships with other companies
that offer Internet appliances and establish BeOS in this market would have a
material adverse effect on our business and prospects.
We have only one product that may never gain broad market acceptance.
BeOS is our only product and we will derive all of our revenue for the
foreseeable future from sales of BeOS. To date, BeOS has been used primarily by
a limited number of enthusiasts and application developers. Our business and
prospects are highly dependent on the broader market acceptance of BeOS as a
viable platform for a wide variety of applications and devices enabling digital
media and Internet-based applications. The ability of BeOS to gain broad
support from developers, enthusiasts and OEMs is unproven. BeOS may never gain
broad market acceptance among consumers and OEMs. At present, a large base of
commercially available software developed for use on BeOS does not exist.
Consumers and OEMs may not perceive any significant advantages over traditional
operating systems such as Microsoft Windows, Apple's Mac OS or the UNIX-based
operating systems. In addition, we may be unable to demonstrate the commercial
viability and cost-effective nature of BeOS. We may also be unsuccessful at
marketing BeOS as the operating system of choice among professional users,
consumers or applications developers. As a result, potential customers may not
purchase BeOS and OEMs may not elect to incorporate BeOS in their products. If
BeOS is not accepted or adopted by an increasing number of developers and OEMs,
our business and prospects will be materially adversely affected.
9
<PAGE>
Traditional or new operating systems could evolve to more effectively address
the digital media requirements of users and OEMs. For example, enhancements and
features could be added to Microsoft's Windows operating system and Apple's Mac
OS which could significantly decrease the differences between BeOS and these
operating systems. As a result, any technical or marketing advantage we may
have had in the market for operating systems could be lost and the demand and
acceptance of BeOS would diminish.
We face intense competition from companies with significantly greater
financial, marketing, and technical resources.
The market for computer operating systems is intensely competitive. This
market is dominated by one company, Microsoft Corporation, which has
significantly greater brand recognition, market presence and financial,
marketing and distribution resources than we do. Other companies that offer
competing operating systems include Apple Computer, Inc., IBM, Oracle
Corporation, Sony Corporation and a number of companies that offer versions of
the UNIX operating system, including SGI, the Hewlett-Packard Company and Sun
Microsystems. In addition, we face competition from a number of smaller
companies developing and marketing UNIX-based operating systems such as Linux.
Many of our current and potential competitors have longer operating histories,
a larger customer base, a greater number of applications, greater brand
recognition, and greater financial, technical, marketing and distribution
resources than we do. As a result, we may have difficulty increasing the number
of BeOS users and attracting OEMs and third party developers to create devices
and software that will use BeOS. See "Business-Competition."
Risks Related to our Business and Operations
Our success depends on our ability to establish and maintain strategic
relationships, and the loss of any of our strategic relationships could harm
our business and have an adverse impact on our revenue.
Our success in increasing the number of BeOS users, particularly in the
Internet appliance market, depends in large part on our ability to establish
and maintain strategic relationships with industry-leading computer and
consumer electronic manufacturers and Internet service and content providers.
We have entered into agreements with one OEM and a number of resellers and
distribution partners. We presently do not have agreements with any US-based
OEM. We cannot be certain that we will be able to reach agreements with
additional partners on a timely basis or at all, or that these partners will
devote adequate resources to promote BeOS. We may be unable to enter into new
agreements with additional partners on terms favorable to us or at all. If we
are unable to develop or maintain relationships with OEMs, we will have
difficulty selling and gaining market acceptance for BeOS and our business and
results of operations will be materially adversely affected.
Sales to one customer accounted for a significant portion of our net revenues,
the loss of this customer could adversely impact our net revenues.
Sales to Plat'Home Co. Ltd., our Japanese distributor, accounted for
approximately 23% of our net revenues for the three months ended March 31, 1999
and approximately 40% of our net revenues for 1998. The loss of Plat'Home or
any key reseller or distributor in the future or failure to enter into new
agreements at commercially reasonable terms, if at all, with key resellers and
distributors could adversely affect our revenues and results of operations.
Our success depends upon availability of third party applications that operate
on BeOS.
Demand and market acceptance for BeOS will significantly depend upon the
availability of an increasing number of third party applications that operate
on the BeOS platform. These applications include video and audio editing
programs, 3D games, creative audio and video content development and
manipulation, and personal productivity applications.
We intend to encourage the development of an increasing number of
applications that operate on BeOS by attracting third party developers to the
BeOS platform and by maintaining our existing developer relationships through
marketing, technical support and financial incentives for third party
developers. However, third party
10
<PAGE>
developers are generally under no obligation to develop applications based on
the BeOS platform. A developer's decision to write applications for BeOS is
based in part on the perception and analysis of the relative technical,
financial and other benefits of developing applications for the BeOS platform
versus writing applications for more popular operating systems such as
Microsoft's Windows or Apple's Mac OS. If we fail to attract a sufficient
number of application developers who develop and market successful applications
on BeOS, the demand for BeOS and our business will suffer. Moreover, any delay
or unsuccessful release of third party applications could have a material
adverse effect on our business and results of operations.
We have limited experience marketing and selling our products, which makes it
difficult to evaluate our business.
We were founded in 1990 and shipped our first commercial product in December
1998. Prior to 1998, our business was primarily focused on research and product
development activities. To date, we have not generated any significant revenues
from sales of BeOS and this makes it difficult to evaluate our business and
prospects. Your evaluation of whether to purchase our common stock must be made
in light of the risks and uncertainties frequently encountered by companies in
an early stage of development and offering products in a market dominated by
Microsoft. Risks faced in this regard include:
. our inability to gain any sustainable level of market share or to
compete with traditional operating systems such as Microsoft's Windows;
. costs and delays in releasing new versions and product upgrades; and
. our inability to manage or adapt to new and evolving trends in digital
media and Internet appliances.
We may not successfully meet any of these challenges. Our failure to meet one
or more of these challenges could materially adversely affect our business and
prospects. It is also difficult to predict the size and future growth rate, if
any, of the market for BeOS. We have limited experience upon which to determine
or predict trends that may emerge and adversely affect our business or
prospects. The market for BeOS may not develop or may develop more slowly than
we anticipate, and may never become economically sustainable.
Our revenues and operating results are subject to significant fluctuations.
Our revenues and operating results will likely vary significantly from period
to period due to a number of factors, many of which are outside our control,
such as new product releases and product enhancements by us and our
competitors. Customer orders may be deferred in anticipation of new product
releases, product enhancements or upgrades by us or by our competitors. In
addition, changes in the pricing policies or marketing efforts of our
competitor and our response to these changes, which could include price
reductions or increased marketing efforts by us, may cause significant
fluctuations in our revenues and operating results. Based on these factors, we
may fail to meet the expectations of the public market in any given period and
our stock price would likely be materially adversely affected.
We may be unable to expand our sales and support organization to increase
sales and market awareness for BeOS.
We must expand our sales force and the number of resellers and distributors
carrying BeOS domestically and internationally. Without this increase we may be
unable to increase sales and market awareness of BeOS. To do this will require
a significant increase in sales and marketing expenses which may not be offset
by any corresponding increase in revenues. In addition, our sales and marketing
efforts aimed at OEMs and Internet service and content providers require a
sophisticated sales force and the commitment of significant financial resources
on our part. We recently hired a senior sales and marketing executive and plan
to hire additional sales and marketing personnel. Competition for qualified
sales personnel is intense, especially those with an understanding of emerging
Internet-based technologies and markets. We may not be able to hire the type
and number of sales personnel that we require on a timely basis or at all.
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We will need to increase our staff to support new customers and the expanding
needs of existing customers. Hiring customer service and support personnel is
very competitive in our industry due to the limited number of people available
with the necessary technical skills and understanding of operating systems and
Internet-based applications. If we cannot hire adequate numbers of qualified
sales, marketing and customer service personnel, our business could suffer
materially.
We are highly dependent on third party development tools.
We are highly dependent on development tools provided by a limited number of
third party vendors. Development tools are software applications that assist
programmers in the development of applications. Together with our application
developers, we primarily rely upon software development tools provided by
Cygnus Solutions and Perforce Software. If Cygnus or Perforce fail to support
or maintain these development tools, we will either have to devote resources to
maintain and support the tools ourselves or transition to another vendor. Any
maintenance or support of the tools by us or the transition could be costly,
time consuming, could delay our product release and upgrade schedule, and could
delay the development and availability of third party applications used on
BeOS. Failure to procure the needed software development tools or any delay in
the availability of third party applications could negatively impact our
ability and the ability of third party application developers to release and
support BeOS and the applications that run on it. These factors could
negatively and materially affect the acceptance and demand for BeOS, our
business and prospects.
We may be unable to adjust expenses in a timely manner to compensate for
revenue shortfalls.
Our expense levels are fixed and based, in part, on our expectations of
future sales. We may be unable to adjust spending in a timely manner to
compensate for any sales shortfall. A significant portion of our expenses
include minimum payments for licensed technology under licensing agreements,
payment obligations under non-cancellable lease arrangements, rent and other
payments that are fixed and do not vary with revenues. We plan to significantly
increase our operating expenses to:
. expand our sales and marketing efforts;
. broaden our customer support capabilities;
. expand our relationship with third party software developers;
. develop new distribution channels; and
. fund greater levels of research and development.
Any delay in generating revenue could cause significant variations in our
operating results from quarter to quarter and could result in substantial
operating losses. If we fail to generate sufficient sales or if our sales are
below expectations, operating results are likely to be materially adversely
affected.
We will forego near-term revenue potential in our effort to increase market
acceptance for BeOS.
In an attempt to increase the number of users and market acceptance of BeOS,
we may choose to forego immediate revenue potential by providing BeOS at little
or no cost. Users, therefore, may be unwilling to pay for any upgrades or new
releases of BeOS. Our decision to forego near-term revenue in expectation of
increasing the number of BeOS users may not yield market acceptance and future
revenues. In addition, we may reduce prices in response to competitive factors
or to pursue new market opportunities.
We expect continued erosion in the average selling prices of our products.
We have experienced erosion in the average selling prices of our products due
to a number of factors, including:
. competitive pricing pressures;
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. rapid technological changes; and
. sales discounts.
We anticipate that the average selling prices of our products will fluctuate
and decrease in the future in response to these factors. We also anticipate
that the average selling price of our products will decrease as we market BeOS
to Internet appliances and other low-cost device manufacturers. Therefore, to
maintain or increase our gross margins, we must develop and introduce new
products and product enhancements on a timely basis. We must also continually
reduce our product costs. In addition, our average selling prices fluctuate
based on changes in the percentage of revenues derived from the different sales
channels used to sell our products. For example, the retail price for sales of
BeOS is generally higher than the wholesale price used for sales to resellers,
distributors and OEMs. As our average selling prices decline, we must increase
our unit sales volume to maintain or increase our revenue. If our average
selling prices decline more rapidly than our costs, our gross margins will
decline, which could seriously harm our business and results of operations.
We have incurred significant net losses and we may never achieve
profitability.
We incurred significant net losses of approximately $7.8 million in 1996,
$10.4 million in 1997 and $16.9 million in 1998. As of March 31, 1999, we had
an accumulated deficit of approximately $54.6 million. We expect to incur
significant additional losses and continued negative cash flow from operations
in 1999 and beyond and we may never become profitable. Due to our financial
position as of December 31, 1998 and absent the raising of additional funds,
our independent accountants have expressed substantial doubt regarding our
ability to continue as a going concern.
We expect to continue to incur significant sales and marketing, research and
development and general and administrative expenses. We will need to generate
significant revenues to achieve profitability and positive operating cash
flows. Even if we do achieve profitability and positive operating cash flow, we
may not be able to sustain or increase profitability or positive operating cash
flow on a quarterly or annual basis.
We will need to raise additional capital that may not be available to us.
We currently believe that our existing capital resources, combined with the
net proceeds of this offering, will be sufficient to meet our presently
anticipated cash requirements for at least the next 12 months. However, we will
need to raise additional capital and we cannot be certain that we will be able
to obtain additional financing on favorable terms, if at all. If we cannot
raise additional capital on acceptable terms, we may not be able to expand our
sales and marketing efforts, further develop or enhance BeOS, take advantage of
future opportunities or respond to competitive pressures or unanticipated
requirements. Any of these events could have a material adverse effect on our
business and results of operations. If additional capital is raised through the
issuance of equity securities, your percentage ownership of the common stock
will be reduced, you may experience dilution in net book value per share, or
the new equity securities may have rights, preferences or privileges senior to
those of the holders of our common stock. Any debt financing, if available, may
involve covenants limiting, or restricting our operations or future
opportunities.
We face risks relating to our product returns and price reduction policies.
We provide most of our distributors and resellers with product return rights
for stock balancing or limited product evaluation. Stock balancing rights
permit distributors to return products to us for credit, subject to some
limitations. We may experience significant returns in the future and our
reserves may be inadequate to cover such returns. We also provide most of our
distributors and resellers with price protection rights. Price protection
rights require that we grant retroactive price adjustments for inventories of
our products held by distributors or resellers if we lower our prices for these
products. Product returns or price protection rights could have a material
adverse effect on business and results of operations.
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<PAGE>
We are dependent on the licensing of enabling technologies from third parties.
The demand and acceptance of our product is also dependent upon our ability
to license key enabling technologies. We license from third parties compression
and decompression algorithms known as "codecs" and communications protocols
that facilitate the movement of rich media data and large files and enables the
connection of consumer products such as digital camcorders or set-top boxes
directly to a personal computer. We may be unable to license these enabling
technologies at favorable terms or at all which may result in lower demand for
BeOS.
International sales of our product account for a significant portion of our
revenue which exposes us to risks inherent in international operations.
We market and sell our products in the United States and internationally.
International sales of our products accounted for approximately 53% and 61% of
total revenues for the year ended December 31, 1998 and for the three month
period ended March 31, 1999, respectively. Sales to Europe and Asia accounted
for approximately 16% and 37%, respectively, of our net revenues for the twelve
month period ended December 31, 1998. For the three month period ended March
31, 1999, sales to Europe and Asia accounted for approximately 37% and 24%,
respectively, of our net revenues. We have a subsidiary in France that markets
and sells our products in Europe. In addition, we may in the future open
offices in other countries to market and sell our products in those countries
and surrounding regions. The expansion of our existing international operations
and entry into additional international markets will require significant
management attention and financial resources. We cannot be certain that our
investments in establishing facilities in other countries will produce desired
levels of revenue. We currently have limited experience in developing localized
versions of our products and marketing and distributing our products
internationally. Additional risks inherent with conducting business in Europe
and Asia include:
. the impact of recessions in economies outside the United States;
. greater difficulty in accounts receivable collection and longer
collection periods;
. seasonal reductions in business activities in some parts of the world,
such as during the summer months in Europe;
. potentially adverse tax consequences, including higher tax rates
generally in Europe;
. costs of localizing our products for foreign markets;
. tariffs, duties, price controls or other restrictions on foreign
currencies or trade barriers imposed by foreign countries;
. unexpected changes in regulatory requirements of foreign countries,
especially those with respect to telecommunications and use of the
Internet;
. impact of currency exchange fluctuations.
Presently all of our international revenues are denominated in US dollars. In
the future, we expect an increasing portion of our international revenues to be
denominated in foreign currencies. We do not currently engage in currency
hedging activities. Future fluctuations in currency exchange rates may
adversely affect revenues from international sales.
We depend on key personnel and attracting qualified employees for our future
success.
Our success depends to a significant degree upon the continued contributions
of our executive management team, including our co-founders Jean-Louis Gassee
and Steve Sakoman, our Chief Executive Officer and Vice President, Engineering
and Chief Technical Officer, respectively, and other senior level financial,
technical, marketing and sales personnel. The loss of these or other members of
our senior management team could have a material adverse effect on our business
and results of operations.
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As of March 31, 1999, we had 93 employees. We anticipate that the number of
employees may increase significantly during the next 12 months as we increase
our research and development activities and sales and marketing efforts. Our
success depends upon our ability to attract and retain additional highly
qualified senior management and technical, sales and marketing personnel to
support growing operations. Competition for qualified employees is intense. The
process of locating and hiring personnel with the combination of skills and
attributes required to carry out our strategy is time-consuming and costly. The
loss of key personnel or our inability to attract additional qualified
personnel to supplement or, if necessary, to replace existing personnel, could
have a material adverse effect on our business and results of operations. See
"Management."
We may be unable to manage any growth that we may experience.
To succeed in the implementation of our business strategy, we must rapidly
execute our sales and marketing strategy, further develop and enhance our
products and product support capabilities, and implement effective planning and
operating processes. To manage any anticipated growth we must:
. establish and manage multiple relationships with OEMs, Internet service
and content providers and other third parties;
. continue to implement and improve our operational, financial and
management information systems; and
. hire, train and retain additional qualified personnel.
Our systems, procedures and controls may not be adequate to support our
operations, and our management may not be able to perform the tasks required to
capitalize on market opportunities for our products and services. If we fail to
manage our growth effectively, our business could suffer materially.
Fluctuations in the exchange rate of foreign currencies could have a negative
impact on our product sales and profitability.
Due to our international operations, we incur expenses in a number of
currencies. A majority of our sales, including international sales, however,
are currently denominated in U.S. dollars. In the future, we expect an
increasing portion of our international revenues to be denominated in local
currencies. Fluctuations in the value of the U.S. dollar and foreign currencies
may make our products more expensive than local product offerings. We do not
currently engage in currency hedging activities to limit the risks of exchange
rate fluctuations. Fluctuations in the value of foreign currencies could have a
negative impact on the profitability of our global operations which would
seriously harm our business, financial condition and results of operations.
Risk Related to our Industry
We may not be able to respond to the rapid technological change in the markets
in which we compete.
The markets in which we participate or seek to participate are subject to:
. rapid technological change;
. frequent product upgrades and enhancements;
. changing customer requirements for new products and features; and
. multiple, competing and evolving industry standards.
The introduction of operating systems that contain new technologies and the
emergence of new industry standards could render BeOS less desirable or
obsolete. In particular, we expect that changes in the Internet-based
technology and digital media enabling technology will require us to rapidly
evolve and adapt our products to be competitive. As a result, the life cycle of
each release of BeOS is difficult to estimate. To be competitive, we will need
to develop and release new products and operating system upgrades that respond
to
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technological changes or evolving industry standards on a timely and cost-
effective basis. We cannot be certain that we will successfully develop and
market these types of products and operating system upgrades or that our
products will achieve market acceptance. If we fail to produce technologically
competitive products in a cost-effective manner and on a timely basis, our
business and results of operations could suffer materially.
Product defects may harm our business and reputation.
Computer operating systems, including BeOS, and related software products
frequently contain errors or bugs. We have detected and may continue to detect
errors and product defects in connection with new release and upgrades of our
operating system and related products. Despite our internal testing and testing
by current and potential customers, errors may be discovered after BeOS or
related software and tools are installed and used by customers. These errors
could result in reduced or lost revenue, delay in market acceptance, diversion
of development resources, damage to our reputation, or increased service and
warranty costs, any of which could materially adversely affect our business and
results of operations.
Our products must successfully integrate with products from other vendors,
such as third party software applications and computer hardware. As a result,
when problems occur in a personal computer or any other device or network using
our products, it may be difficult to identify the source of the problem. The
occurrence of hardware and software errors, whether caused by our products or
another vendor's products, may result in reduced or loss of market acceptance
of our products, and any necessary product revisions may force us to incur
significant expenses. The occurrence of these problems could materially
adversely affect our business and results of operations.
We face risks relating to our online operations.
A significant barrier to widespread use of electronic commerce sites, such as
our BeDepot.com Web site, is concern regarding the security of confidential
information transmitted over public networks. We rely on encryption and
authentication technology licensed from third parties to provide the security
and authentication necessary to effect secure transmission of confidential
information, such as customer credit card numbers. Concerns over the security
of transactions conducted on the Internet and the privacy of users may also
inhibit the growth of online services, especially as a means of conducting
commercial transactions. Our failure to prevent any security breaches may have
a material adverse effect on our business and results of operations.
Despite our efforts to protect the integrity of our Web site and products
sold on it, a party may be able to circumvent our security measures and could
misappropriate proprietary information or cause interruptions in our operations
and damage to our reputation. Any such action could negatively affect our
customers' willingness to engage in online commerce with us. We may be required
to expend significant capital and other resources to protect against these
security breaches or to alleviate problems caused by these breaches. If any
compromise of our security were to occur, it could materially adversely affect
our reputation and business.
Our success is dependent on the continued growth and improvement of the
Internet.
Our future success depends on the continued growth and reliance by consumers
and businesses on the Internet, particularly in the Internet appliance market.
Use and growth of the Internet will depend in significant part on continued
rapid growth in the number of households and commercial, educational and
government institutions with access to the Internet. The use and growth of the
Internet will also depend on the number and quality of products and services
designed for use on the Internet. Because use of the Internet as a source of
information, products and services is a relatively recent phenomenon, it is
difficult to predict whether the number of users drawn to the Internet will
continue to increase and whether any significant market for commercial use of
the Internet will continue to develop and expand. Either Internet use patterns
may decline as the novelty of the medium recedes or the quality of products and
services offered online may not support continued or increased use.
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The rapid rise in the number of Internet users and the growth of electronic
commerce and applications for the Internet has placed increasing strains on the
Internet's communications and transmission infrastructure. This could lead to
significant deterioration in transmission speeds and the reliability of the
Internet as a commercial medium and could reduce the use of the Internet by
businesses and individuals. The Internet may not be able to support the demands
placed upon it by this continued growth. Any failure of the Internet to support
growth due to inadequate infrastructure or for any other reason would seriously
limit its development as a viable source of commercial and interactive content
and services. This could impair the development and acceptance of Internet
appliances which could in turn materially adversely affect our business and
prospects.
Problems related to the "Year 2000 Issue" could adversely affect our business.
The "Year 2000 Issue" is typically the result of limitations of certain
software written using two digits rather than four digits to define the
applicable year. If software with date-sensitive functions are not Year 2000
compliant, they may recognize a date using "00" as the year 1900 rather than
the year 2000.
We believe that our principal product, BeOS, has been designed to avoid the
Year 2000 Issue. However, if for any reason, BeOS is not Year 2000 compliant,
we could face unexpected expenses redesigning BeOS which could harm our
business and reputation and delay any market acceptance for BeOS. We are
presently unable to predict to what extent our business may be affected if
hardware systems or software applications and tools that operate in conjunction
with our operating system experience the Year 2000 Issue. Known or unknown
errors or defects that affect the operation of BeOS, when used in conjunction
with other hardware or software could result in delay or loss of revenue,
interruption of our Web site product distribution, damage to our reputation and
possible litigation, any of which could materially adversely affect our
business and results of operations.
Our internal review of our information systems, including software programs
used in our accounting and financial reporting functions, has been preliminary
and is not expected to be completed until the third quarter of 1999. While we
believe our future Year 2000 compliance costs will not be significant, we have
no way of ascertaining this until our testing is complete and key vendors and
suppliers are contacted. We may not be able to completely evaluate whether our
systems will need to be revised or replaced and the costs associated with such
efforts. If our efforts to address Year 2000 risks are not successful, or if
suppliers or other third parties with whom we conduct business do not
successfully address such risks, it could have a material adverse effect on our
business.
In addition, any disruption in our Web site operations or our electronic
commerce site due to the Year 2000 Issues could result in loss of revenues and
could harm our reputation and business. Also, Year 2000 compliance efforts may
involve significant time and expense, and uncorrected problems could materially
adversely affect our business.
We have not yet fully developed a comprehensive contingency plan to address
situations that may result if we are unable to achieve Year 2000 readiness of
our critical operations. Our failure to develop and implement, in a timely
manner, an appropriate contingency plan could materially adversely affect our
business and results of operations.
Our success depends on our ability to protect and enforce our proprietary
rights.
Our success depends significantly on our ability to protect our proprietary
rights to technologies used in our products. We rely primarily on a combination
of copyright, trademark and trade secret laws, as well as confidentiality
procedures and contractual provisions to protect our proprietary rights. To
date, we have no patents and existing copyright laws afford only limited
protection for our software. A substantial portion of our sales are derived
from the licensing of products under "shrink wrap" license agreements that are
not signed by licensees and, therefore, may be unenforceable under the laws of
certain jurisdictions. Despite any measures taken to protect our proprietary
rights, attempts may be made to copy aspects of BeOS or to obtain and use
information that we regard as proprietary which could harm our business. In
addition, the laws of some foreign
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countries do not protect our intellectual property to the same extent as U.S.
laws. Finally, our competitors may independently develop similar technologies.
The loss or misappropriation of any material trademark, trade name, trade
secret or copyright could have a material adverse effect on our business and
results of operations.
The software industry is characterized by the existence of a large number of
patents and frequent litigation based on allegations of patent infringement. As
the number of entrants into our market increases, the possibility of an
infringement claim against us grows. For example, we may be inadvertently
infringing on a patent. In addition, because patent applications can take many
years to issue, there may be a patent application now pending of which we are
unaware upon which will be infringing when it issues in the future. Although we
do not believe that our products infringes on the rights of third parties,
third parties may still assert infringement claims against us in the future and
this could result in costly litigation and distraction of management. To
address such patent infringement claims, we may have to enter into royalty or
licensing agreements. Licenses may not be available on reasonable terms or at
all which could have a material adverse effect on our business and results of
operations.
Risks Related to our Common Stock
The market price of our common stock will fluctuate.
Prior to this offering, there has been no public market for our common stock.
The initial public offering price will be determined by negotiations between
the representatives of the underwriters and us and may not be indicative of the
market price for the common stock that may develop after this offering. We do
not know the extent to which investor's interest will lead to the development
of an active public market. Investors may not be able to resell our common
stock at or above the initial public offering price. In addition, many factors
could cause the market price of our common stock to fluctuate substantially,
including:
. announcement by us or our competitors of significant strategic
partnerships, joint ventures, significant contracts, or acquisitions;
. announcement by us of loss of significant strategic partnerships, joint
ventures, significant contracts or acquisitions;
. announcements by us or our competitors concerning software errors or
delays in product releases; and
. availability of key software applications developed for our products or
our competitor's products.
Specifically, certain market segments such as the computer software industry
have experienced dramatic price and volume fluctuations from time to time.
These fluctuations may or may not be based upon any business or operating
results. Our common stock may experience similar or even more dramatic price
and volume fluctuations which may continue indefinitely.
In the past, securities class action litigation has often been brought
against a company following price declines. We may in the future be the target
of similar litigation. Securities litigation could result in substantial costs
and diversion of management attention and resources, all of which could
materially harm our business and results of operation.
Future sales of our common stock may depress our common stock price.
The market price of our common stock could drop as a result of sales of a
large number of shares of common stock in the market after this offering or in
response to the perception that sales of large number of shares could occur. No
prediction can be made about the effect that future sales of common stock will
have on the market price of such shares. Upon completion of the offering, we
will have 33,642,574 shares of common stock outstanding (34,542,574 shares if
the underwriters' over-allotment option is exercised in full). Immediately upon
effectiveness of this offering, the shares offered (plus any shares issued upon
exercise of the underwriters' over-allotment option) will be freely tradable.
Of the remaining shares, are subject to
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lock-up agreements under which the holders of these shares have agreed not to
sell or otherwise dispose of their shares for a period of 180 days after the
date of effectiveness of this offering without the prior written consent of
Volpe Brown Whelan & Company, LLC. Of the shares outstanding prior to the
offering, all of these shares will be shares of "restricted" common stock as
the term is defined under Rule 144 promulgated under the Securities Act. In
addition, options to purchase up to 5,910,347 shares of common stock from us
are outstanding as of March 31, 1999 under our 1992 Stock Option Plan, 1999
Stock Incentive Plan and 1999 Non-Employee Directors' Stock Option Plan.
Following this offering, it is expected that the shares underlying these
options will be registered. Also, 1,538,462 shares of common stock are issuable
pursuant to the exercise of a warrant held by Intel Corporation. Instead of
paying cash, Intel may elect to use some of the shares covered by this warrant
to pay for the exercise price. See "Management," "Shares Eligible for Future
Sale," and "Underwriting."
Purchasers of common stock in this offering will suffer immediate and
substantial dilution.
The initial public offering price is substantially higher than the book value
per share of our common stock. As a result, you will experience immediate and
substantial dilution of $7.37 in the pro forma as adjusted net tangible book
value per share at an assumed public offering price of $9.00 per share. This
dilution is in large part because the earlier investors in Be paid
substantially less than the initial public offering price in this offering when
they purchased their shares of common stock. You will also experience dilution
upon the exercise of a warrant by Intel Corporation to purchase 1,538,462
shares of our common stock for an exercise price per share of $3.25. Instead of
paying cash to exercise this warrant, Intel has the option to use some of
shares covered under the warrant to pay for the exercise price. You will
experience additional dilution upon exercise of outstanding stock options and
warrants. See "Dilution."
Management has broad discretion on how to use the proceeds from this offering.
Management will have broad discretion with respect to the expenditure of the
net proceeds from this offering. The proceeds have not been allocated for
specific purposes, but a portion of the net proceeds we receive in connection
with this offering will be for working capital and general corporate purposes.
You will be entrusting your funds to our management, upon whose judgment you
must depend, with limited information concerning the specific working capital
requirements and general corporate purposes to which the funds will ultimately
be applied. We may not be able to yield a significant return on any investment
of the proceeds. See "Use of Proceeds."
We may engage in acquisitions that may harm our results, dilute our
stockholders and cause us to incur debt or assume contingent liabilities.
As part of our business strategy, we may make investments in complementary
companies, products or technologies that we believe would be advantageous to
the development of our business. While we currently have no formal discussions,
agreements or negotiations underway with respect to any such acquisition, we
may acquire businesses, products or technologies in the future. If we buy a
company, we could have difficulty in assimilating that company's personnel and
operations. In addition, the key personnel of the acquired company may decide
not to work for us. If we make other types of acquisitions, we could have
difficulty in assimilating the acquired technology or products into our
operations. These difficulties could disrupt our ongoing business, distract our
management and employees and increase our expenses. Furthermore, we may be
required to incur debt or issue equity securities to pay for any future
acquisitions, the issuance of which could be dilutive to our existing
stockholders.
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Our Amended and Restated Certificate of Incorporation, bylaws and Delaware law
contain provisions that could discourage a third party from acquiring us and
consequently decrease the market value of our common stock.
Our Amended and Restated Certificate of Incorporation grants our board of
directors the authority to issue up to 2,000,000 shares of preferred stock and
to determine the price, rights, preferences, privileges and restrictions,
including voting rights of these shares without any further vote or action by
the stockholders. Since the preferred stock could be issued with voting,
liquidation, dividend and other rights superior to those of the common stock,
the rights of the holders of common stock will be subject to, and may be
adversely affected by, the rights of the holders of any preferred stock that
may be issued. The issuance of preferred stock could have the effect of making
it more difficult for a third party to acquire a majority of our outstanding
voting stock which could decrease the market value of our stock. Further,
provisions in our Amended and Restated Certificate of Incorporation and bylaws
and of Delaware law could have the effect of delaying or preventing a third
party from acquiring us, even if a change in control would be in the best
interest of our stockholders. These provisions include the inability of
stockholders to act by written consent without a meeting and procedures
required for director nomination and stockholder proposal. See "Description of
Capital Stock."
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USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of the 6,000,000 shares
of common stock offered by us will be approximately $49,120,000, assuming an
initial offering price of $9.00 per share and after deducting the estimated
underwriting discounts and commissions and estimated offering expenses payable
by us. If the underwriter's over-allotment option is exercised in full, we
estimate that the net proceeds will be approximately $56,653,000.
We currently have no specific plans for the net proceeds of this offering.
However, the principal reasons for conducting this offering are to raise
capital to fund:
.increased sales and marketing activities;
.expansion of research and development efforts; and
.other working capital and general corporate purposes.
Pending these uses, we intend to invest the net proceeds from this offering
in investment grade, interest-bearing marketable securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain our future earnings, if any, for use in the
operation and expansion of our business and do not anticipate paying any cash
dividends in the foreseeable future.
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CAPITALIZATION
The following table sets forth our total capitalization as of March 31, 1999:
. on an actual basis;
. on a pro forma basis to reflect the automatic conversion of all
outstanding shares of preferred stock into common stock; and
. on a pro forma as adjusted basis to give effect to the receipt by us of
the estimated net proceeds from the sale of 6,000,000 shares of our
common stock at an assumed initial public offering price of $9.00 from
this offering. This information should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results
of Operations" and the financial statements and the attached notes
included elsewhere in this prospectus.
<TABLE>
<CAPTION>
As of March 31, 1999
--------------------------------
Pro Forma
Actual Pro Forma as Adjusted
-------- --------- -----------
(in thousands)
<S> <C> <C> <C>
Long-term obligations, less current portion.... $ 601 $ 601 $ 601
Mandatorily redeemable convertible preferred
stock: $0.001 par value, 22,500,000 shares
authorized on an actual basis; no shares
authorized on a pro forma basis and pro forma
as adjusted basis; 22,498,874 shares issued
and outstanding on an actual basis; no shares
issued outstanding on a pro forma basis and
pro forma as adjusted basis................... 38,137 - -
Stockholders' equity (deficit):
Preferred Stock, $0.001 par value, no shares
authorized on an actual basis; 2,000,000
shares authorized on an as adjusted basis
and pro forma as adjusted basis, no shares
outstanding................................. - - -
Common stock, $.001 par value, 40,000,000
shares authorized, on an actual basis;
5,143,700 shares issued and outstanding on
an actual basis; 78,000,000 shares
authorized on a pro forma basis; 27,642,574
shares issued and outstanding on a pro forma
basis; 78,000,000 shares authorized on a pro
forma as adjusted basis, 33,642,574 shares
issued and outstanding on a pro forma as
adjusted basis.............................. 5 28 34
Additional paid-in capital................... 32,956 71,070 120,184
Deferred stock compensation.................. (10,095) (10,095) (10,095)
Accumulated deficit.......................... (54,563) (54,563) (54,563)
-------- -------- -------
Total stockholders' equity..................... $(31,697) $ 6,440 $55,560
-------- -------- -------
Total capitalization (deficit)............. $ 7,041 $ 7,041 $56,161
======== ======== =======
</TABLE>
The share numbers above exclude:
. up to 900,000 shares of common stock issuable pursuant to the
underwriters' over-allotment option;
. 5,910,347 shares of common stock reserved for issuance upon the exercise
of stock options outstanding as of March 31, 1999 under our 1992 Stock
Option Plan, 1999 Equity Incentive Plan, and 1999 Non-Employee
Directors' Plan;
. 3,589,653 shares of common stock available for future grant or issuances
under our 1992 Stock Option Plan, 1999 Equity Incentive Plan, and 1999
Non-Employee Directors' Plan; and
. 2,870,975 shares of common stock issuable upon the exercise of warrants
outstanding as of March 31, 1999.
22
<PAGE>
DILUTION
Our pro forma net tangible book value as of March 31, 1999 was approximately
$5.8 million or $0.21 per share of common stock. After giving effect to the
receipt by us of the estimated net proceeds from the sale of the 6,000,000
shares of common stock offered by us at an assumed initial public offering
price of $9.00 per share, we had a pro-forma as adjusted net tangible book
value of approximately $54.9 million, or $1.63 per share of common stock. Net
tangible book value per share, as adjusted, represents the amount of total
tangible assets less total liabilities, divided by the number of shares of
common stock outstanding. This represents an immediate increase in the net
tangible book value of $1.42 per share to existing stockholders and an
immediate dilution of $7.37 per share to new investors. The following table
illustrates this per share dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share................ $9.00
Pro forma net tangible book value per share.................. $0.21
Increase per share attributable to new investors............. 1.42
-----
Pro forma as adjusted net tangible book value per share after
this offering................................................. 1.63
-----
Pro forma dilution per share to new investors.................. $7.37
=====
</TABLE>
The following table sets forth, on a pro forma basis as of March 31, 1999,
after giving effect to the automatic conversion of all outstanding preferred
stock into common stock, the difference between the number of shares of common
stock purchased from us, the total consideration paid to us and the average
price per share paid by the existing stockholders and by new investors
purchasing shares in this offering, before deducting estimated underwriting
discounts and commissions and offering expenses payable by us at an assumed
public offering price of $9.00 per share.
<TABLE>
<CAPTION>
Shares Purchased Total Consideration
------------------ -------------------- Average Price
Number Percent Amount Percent Per Share
---------- ------- ------------ ------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders... 27,642,574 82.2% $ 53,149,341 49.6% $1.92
New investors........... 6,000,000 17.8 $ 54,000,000 50.4 9.00
---------- ---- ------------ ---- -----
Total................. 33,642,574 100% $107,149,341 100%
========== ==== ============ ====
</TABLE>
The table and calculations above exclude:
. options outstanding as of March 31, 1999, to purchase a total of
5,910,347 shares of common stock, with a weighted average exercise price
of $3.45 per share;
. warrants outstanding as of March 31, 1999 to purchase a total of
2,870,975 shares of common stock, with a weighted average exercise price
of $2.31 per share; and
. an aggregate of 9,500,000 shares of common stock reserved for issuance
under our 1992 Stock Option Plan, 1999 Equity Incentive Plan, and 1999
Non-Employee Directors' Stock Option Plan.
23
<PAGE>
SELECTED FINANCIAL DATA
The tables that follow present portions of our consolidated financial
statements and are not complete. You should read the following selected
financial information in conjunction with our Consolidated Financial Statements
and related Notes and with "Management Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere in this prospectus. The
consolidated statement of operations data for the years ended December 31,
1996, 1997 and 1998, and the consolidated balance sheet data as of December 31,
1997 and 1998, are derived from and are qualified in their entirety by our
Consolidated Financial Statements that have been audited by
PricewaterhouseCoopers LLP, independent accountants, which are included
elsewhere in this prospectus. The consolidated statement of operations data for
the years ended December 31, 1994 and 1995 and the consolidated balance sheet
data as of December 31, 1994, 1995 and 1996 are derived from audited
consolidated financial statements that are not included in this prospectus. The
historical results presented below are not necessarily indicative of the
results to be expected for any future fiscal year. The consolidated statement
of operations for the three months ended March 31, 1998 and 1999 and the
consolidated balance sheet data as of March 31, 1999 are derived from unaudited
consolidated financial statements included elsewhere in this prospectus. In the
opinion of management, the unaudited consolidated financial statements include
all adjustments, consisting only of normal recurring adjustments that we
consider necessary for a fair presentation of the financial position and
results of operations for the period. See "Management's Discussion and Analysis
of Financial Condition and Results of Operations."
<TABLE>
<CAPTION>
Three Months
Year Ended December 31, Ended March 31,
---------------------------------------------- ----------------
1994 1995 1996 1997 1998 1998 1999
------- -------- ------- -------- -------- ------- -------
(in thousands, except per share data)
<S> <C> <C> <C> <C> <C> <C> <C>
Consolidated Statement
of Operations Data:
Net revenues............ $ - $ - $ - $ 86 $ 1,199 $ 64 $ 309
Cost of revenues (1).... - - - 84 2,161 143 85
------- -------- ------- -------- -------- ------- -------
Gross profit (loss)..... - - - 2 (962) (79) 224
Operating expenses:
Research and
development.......... 2,004 2,268 3,039 4,422 5,792 1,075 1,887
Sales and marketing... 447 1,558 2,711 4,032 4,496 856 1,754
General and
administrative....... 939 927 1,292 1,694 2,310 451 865
Amortization of
deferred stock
compensation (2)..... - - 955 867 3,881 537 1,665
------- -------- ------- -------- -------- ------- -------
Total operating
expenses........... 3,390 4,753 7,997 11,015 16,479 2,919 6,171
------- -------- ------- -------- -------- ------- -------
Loss from operations.... (3,390) (4,753) (7,997) (11,013) (17,441) (2,998) (5,947)
Other income (expense),
net.................... 53 (24) 220 580 580 74 101
Settlement received
(3).................... 750 - - - - - -
------- -------- ------- -------- -------- ------- -------
Net loss................ $(2,587) $ (4,777) $(7,777) $(10,433) $(16,861) $(2,924) $(5,846)
======= ======== ======= ======== ======== ======= =======
Net loss attributable to
common stockholders.... $(2,587) $ (4,777) $(7,902) $(10,448) $(18,423) $(2,990) $(5,979)
======= ======== ======= ======== ======== ======= =======
Net loss per common
share--basic and
diluted (4)............ $(80.84) $(154.10) $(10.85) $ (4.87) $ (5.80) $ (1.09) $ (1.54)
======= ======== ======= ======== ======== ======= =======
Shares used in per
common share
calculation--basic and
diluted (4)............ 32 31 728 2,145 3,178 2,740 3,881
======= ======== ======= ======== ======== ======= =======
</TABLE>
<TABLE>
<CAPTION>
As of December 31, As of
----------------------------------------- March 31,
1994 1995 1996 1997 1998 1999
------ ------- ------ -------- -------- ---------
(in thousands)
<S> <C> <C> <C> <C> <C> <C>
Consolidated Balance
Sheet Data:
Cash, cash equivalents
and short-term
investments............. $ 712 $ 340 $6,670 $ 899 $ 11,648 $ 8,307
Working capital.......... 872 401 6,222 (3,206) 9,702 5,974
Total assets............. 1,123 7,140 7,385 1,303 13,634 10,083
Mandatory redeemable
convertible preferred
stock................... - - 14,037 14,052 38,005 38,137
Total stockholders'
equity (deficit)........ $1,040 $(1,215) $6,467 $(16,978) $(27,900) $(31,697)
</TABLE>
- -------
(1) Our cost of revenues for the year ended December 31, 1998 includes a $1.2
million expense attributable to the write-off of capitalized costs relating
to the acquisition of technology no longer useful to the development of
BeOS.
(2) This expense relates to amortization of deferred compensation which was
recorded by us and which represents the difference between the deemed fair
value of our common stock, as determined for accounting purposes and the
exercise price of options at the date of grant.
(3) The settlement received relates to the resolution of a dispute with a
supplier. In connection with the settlement, the supplier paid us $750,000.
(4) See Note 2 of Notes to Consolidated Financial Statements for an explanation
of the determination of the number of shares used in computing net loss per
common share--basic and diluted.
24
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Except for historical information, the discussion in this prospectus contains
forward-looking statements that involve risks and uncertainties. These forward-
looking statements include, among others, those statements including the words,
"expects", "anticipates", "intends", "believes", and similar language. Our
actual results could differ materially from those discussed below. Factors that
could cause or contribute to these differences include, but are not limited to,
those discussed in the sections titled "Risk Factors" and "Business" in this
prospectus.
Overview
Be was founded in 1990. We develop and sell BeOS, an operating system
designed for digital media applications and Internet appliances. Prior to 1997,
we had no revenues and our operations consisted primarily of research and
development. In December 1998, we shipped the first version of BeOS that was
targeted primarily to end users. Prior releases were targeted primarily to
software developers.
Our revenues are generated primarily from the following sources: sale of BeOS
to resellers and distributors, and direct sales of BeOS to end users through
our BeDepot.com Web site. We also generate revenue by collecting commission
from sales of third party software through our BeDepot.com Web site. In the
future, we also expect our revenues to be generated from royalties received
from OEMs bundling BeOS on their products. In an attempt to increase the number
of BeOS users and increase market acceptance of BeOS, we may choose to forego
immediate revenue potential by providing BeOS at little or no cost.
Our agreements with third party software vendors provide that we will sell
and, if desired by the customer, electronically distribute software that has
been written for BeOS. We do not carry inventory in connection with the third
party software sold through our Web site.
We defer revenues from sales to distributors and resellers. We also defer an
allocated portion of revenues attributable to free product upgrades. We
recognize revenues from sales to distributors and resellers when we have
evidence that our product has been sold to end users. For example, we typically
recognize revenue when we receive confirmation from the distributor or reseller
of sales to end users. Revenues deferred due to free product upgrades are
recognized as upgrades are shipped. As of March 31, 1999, we had $747,000 in
deferred revenues.
Our cost of revenues consist primarily of the cost of packaging, software
duplication, documentation, translation and product fulfillment. We use a third
party fulfillment house to store, package and ship BeOS in retail channels. We
also include in the cost of revenues the amortized costs relating to the
license of third party technology used in the development of BeOS.
Our research and development expenses consist primarily of compensation and
related costs for research and development personnel. We also include in
research and development expenses the costs relating to licensing of
technologies and amortization of costs of software tools used in the
development of BeOS. Costs incurred in the research and development of new
releases and enhancements of BeOS are expensed as incurred. These costs include
cost of licensing technology that is incorporated into a product or an
enhancement which is still in preliminary development and technological
feasibility has not been established. Once the product is further developed and
technological feasibility has been established, development costs are
capitalized until the product is available for general release. To date,
products and enhancements have generally reached technological feasability and
have been released for sale at substantially the same time. We expect that
research and development expenses will increase substantially in the future as
we further develop and enhance BeOS and develop new products including those
intended for the Internet appliances market.
Our sales and marketing expenses consist primarily of compensation and
related costs for sales and marketing personnel, marketing programs, public
relations, promotional materials, travel and related
25
<PAGE>
expenses for attending trade shows. We also include costs relating to third
party application developers, including partial funding of their development
costs and cost of technical support provided to them in our sales and marketing
expenses.
In 1996 and 1997, we developed and shipped the "BeBox," a multiprocessor
hardware platform installed with initial versions of BeOS. The BeBox was
developed primarily for the purpose of promoting development of applications
for BeOS. We shipped the BeBox to software developers who would then write
applications to run on BeOS. When third party hardware platforms suitable for
development of BeOS applications became available at the beginning of 1997, we
stopped shipping the BeBox. We subsidized the cost of BeBoxes purchased by the
development community. Cash received from developers resulting from shipment of
BeBoxes was netted against the cost of manufacturing the BeBoxes, and the
resulting expense was charged to sales and marketing.
We expect our sales and marketing expenses to increase substantially as we
promote awareness of BeOS. We plan to initiate an advertising and a direct
marketing campaign, by increasing print and Internet-based advertising,
distributing demonstration copies of BeOS to targeted potential customers, and
hiring additional sales and marketing personnel. We expect that sales and
marketing expenses will also increase as we expand our domestic and
international distributor and reseller channel and hire new personnel,
establish new facilities and increase distributor and reseller promotions.
Sales and marketing expenses will also increase as we further develop and
expand our relationships with third party application developers including
providing developers technical support and financial incentives by partially
funding their development costs.
General and administrative expenses consist primarily of compensation and
related expenses for finance and accounting personnel, professional services
and related fees, occupancy costs and other expenses. General and
administrative expenses may increase in the future as we expand our existing
facilities or relocate to new facilities that better address any growth that we
may experience. We also expect general and administrative expenses to increase
as we hire additional personnel and incur costs related to the anticipated
growth in our business and cost of operating as a public company.
We market and sell our products in the United States and internationally.
International sales of products accounted for approximately 53% and 61% of
total revenues for the year ended December 31, 1998 and the three month period
ended March 31, 1999, respectively. We have a subsidiary located in France to
market and sell our products in Europe. In addition, we may in the future open
new offices in other countries to market and sell in those countries and
surrounding regions. The expansion of our existing international operations and
entry into additional international markets will require significant management
attention and financial resources and we cannot be certain that our investments
in establishing offices in other countries will produce desired levels of
revenues. While the majority of our international revenues are presently
denominated in US dollars, we expect an increasing portion of our international
revenues to be denominated in local currencies. We do not currently engage in
currency hedging activities. Although exposure to currency fluctuations to date
has been insignificant, future fluctuations in currency exchange rates may
adversely affect revenues from international sales.
From time to time in the past, we have granted stock options to employees,
consultants and non-employee directors and expect to continue to do so in the
future. As of March 31, 1999, we had recorded deferred compensation related to
these options in the total amount of $17.5 million representing the difference
between the deemed fair value of our common stock, as determined for accounting
purposes, and the exercise price of option at the date of grant. Of this
amount, $955,000 had been amortized in 1996, $867,000 amortized in 1997,
$3.9 million in 1998 and approximately $1.7 million in first quarter of 1999.
Future amortization of expense arising out of options granted through March 31,
1999 is estimated to be $4.9 million for the remaining nine months of 1999,
$3.4 million for the year ended 2000, $1.4 million for the year ended 2001, and
$387,000 for the year ended 2002. We amortize the deferred compensation charge
monthly over the vesting period of the underlying option.
26
<PAGE>
Comparison of the Three Month Period ended March 31, 1999 to the Three Month
Period Ended March 31, 1998
Net Revenues. Net revenues increased $245,000 to $309,000 for the three month
period ended March 31, 1999 from $64,000 for the three month period ended in
March 31, 1998. This increase is primarily attributable to sales of the first
version of BeOS targeted primarily to end users.
Cost of Revenues. Cost of revenues decreased $58,000, or 41%, to $85,000 for
the three month period ended March 31, 1999 from $143,000 for the three month
period ended March 31, 1998. The cost of revenues for the three month period
ended March 31, 1998 includes $68,000 of amortized costs associated with
licensed technology incorporated in BeOS which are not present in the three
month period ended March 31,1999.
Research and Development. Research and development expenses increased
$812,000, or 76%, to $1.9 million for the three month period ended March 31,
1999 from $1.1 million for the three month period ended March 31, 1998. The
increase is primarily attributable to the hiring of additional research and
development personnel and increased costs of licensing third party technology
used in the development of BeOS.
Sales and Marketing. Sales and marketing expenses increased $1 million to
$1.9 million for the three month period ended March 31, 1999 from $856,000 for
the three month period ended March 31, 1998. This increase is primarily
attributable to hiring of additional sales and marketing personnel and to the
costs relating to our third party developer programs including financial
incentives in the form of partial funding of developers' costs and technical
support provided to developers. Sales and marketing expenses also increased due
to amortization of purchased technology related to the acquisition of StarCode,
a software development company. Amortization expense related to the acquisition
of StarCode for the three month period ended March 31, 1999 was $91,000.
General and Administrative. General and administrative expenses increased
$286,000, or 63%, to $737,000 for the three month period ended March 31, 1999
from $451,000 for the three month period ended March 31, 1998. This increase
was primarily attributable to increases in professional services and related
fees, increased personnel and related costs, and expansion of leased
facilities.
Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation increased $1.1 million to $1.7 million for the three month period
ended March 31, 1999, from $537,000 for the three month period ended in March
31, 1998. These amounts represent the allocated portion of the difference
between the deemed fair value of our common stock and the exercise price of
stock options granted by us to employees, consultants and non-employee
directors.
Other Income (Expense), Net. Net other income increased $27,000, or 36%, to
$101,000 for the three month period ended March 31, 1999 from $74,000 for the
three month period ended March 31, 1998. The increase is primarily attributable
to increased interest income on the investment of net proceeds from the sale of
our preferred stock in 1998.
Comparison of the Year Ended December 31, 1998 to the Year Ended December 31,
1997
Net Revenues. Net revenues increased $1.1 million to $1.2 million for the
year ended December 31, 1998 from $86,000 for the year ended December 31, 1997.
The increase is attributable to sales of the version of the BeOS targeted
primarily to end users. During 1998, we established a distribution channel of
resellers to distribute BeOS to end users. As a result of sales to this
channel, sales in Asia accounted for approximately 37% of our net revenues for
the year ended December 31, 1998.
Cost of Revenues. Cost of revenues increased $2.1 million to $2.2 million for
the year ended December 31, 1998 from $84,000 for the year ended December 31,
1997. Our cost of revenues for the year ended December 31, 1998 include $1.2
million attributable to a one-time, non-cash write-off of costs relating to
acquisition of technology which was used with BeOS. This write-off relates to
the cost of licensing a development tool which compiled software for use in
versions of BeOS for two microprocessor architectures.
27
<PAGE>
However, the performance characteristics of this tool on one of the
microprocessor architectures did not meet its requirements as a development
tool for BeOS on this architecture. In addition, the manufacturer of systems
based on the other microprocessor architecture announced that it would not
release details of any of its future systems. As a result, the cost of
licensing this technology was no longer recoverable from future forecasted
revenues and a $1.2 million non-cash write-off was taken.
Research and Development. Research and development expenses increased $1.4
million, or 31%, to $5.8 million for the year ended December 31, 1998 from $4.4
million for the year ended December 31, 1997. The increase is primarily
attributable to hiring of additional research and development personnel and
increased costs of licensing third party technology used in the development of
BeOS.
Sales and Marketing. Sales and marketing expenses increased $464,000, or 12%,
to $4.5 million for the year ended December 31, 1998 from $4.0 million for the
year ended December 31, 1997. The increase is primarily attributable to hiring
additional sales and marketing personnel in advance of the first version of
BeOS targeted primarily to end-users. The increase in sales and marketing is
also attributable to amortization of purchased technology related to the
acquisition of StarCode and costs relating to establishing our developer
programs, including technical and financial incentives to third party
developers. In May 1998, we purchased StarCode for $567,000 in cash. The cost
of the StarCode acquisition was capitalized and is amortized as purchased Web
site technology and will be expensed through the end of 1999. Amortization
expense related to the acquisition of StarCode for the year ended December 31,
1998 was $242,000.
General and Administrative. General and administrative expenses increased
$616,000, or 36%, to $2.3 million for the year ended December 31, 1998 from
$1.7 million for the year ended December 31, 1997. The increase was primarily
attributable to an increase in professional services and legal fees relating to
various licensing and technology acquisition activities, expansion of our
leased facilities, and hiring of additional administrative personnel.
Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation increased $3.0 million to $3.9 million in 1998 from $867,000 in
1997. These amounts represent the allocated portion of difference between the
deemed fair value of our common stock and the exercise price of stock options
granted by us to employees, consultants, and non-employee directors.
Other Income (Expense), Net. We had net other income of $580,000 for each of
the years ended December 31, 1998 and December 31, 1997. The other income in
1998 was primarily attributable to $650,000 in net interest income generated by
the investment of proceeds from the sale of Series 2 Preferred Stock in 1998,
as compared to $89,000 in net interest income for the year ended December 31,
1997. We also realized income of $550,000 in 1997 related to a feasibility
study we performed for a third party.
Comparison of the Year Ended December 31, 1997 to the Year Ended December 31,
1996
Net revenues. Net revenues were $86,000 for the year ended December 31, 1997.
We recognized no revenues for the year ended December 31, 1996. Prior to 1997,
our operations consisted primarily of research and development activities. We
began recognizing revenue on shipments of BeOS in July 1997.
Cost of Revenues. Cost of revenues was $84,000 for the year ended December
31, 1997. We had no revenues and as a result, no cost of revenues for the year
ended December 31, 1996.
Research and Development. Research and development expenses increased $1.4
million, or 46%, to $4.4 million for the year ended December 31, 1997 from $3.0
million for the year ended December 31, 1996. The increase is primarily
attributable to hiring of additional research and development personnel and
costs related to licensing of technologies and amortization of software tools
used for the development of BeOS.
Sales and Marketing. Sales and marketing expenses increased $1.3 million, or
49%, to $4.0 million for the year ended December 31, 1997 from $2.7 million for
the year ended December 31, 1996. The increase is primarily attributable to
hiring of additional sales, marketing and customer support personnel to promote
BeOS,
28
<PAGE>
increased participation at trade shows, and preparation and distribution of
promotional material. Included in sales and marketing expenses for the year
ended in 1996 and 1997 is $715,000, and $857,000, respectively, relating to
expenses of developing, manufacturing and selling the BeBox, net of any
proceeds received from the sale of the BeBox. We stopped shipping the BeBox in
early 1997 and, as a result, did not have sales and marketing expenses relating
to the BeBox in 1998.
General and Administrative. General and administrative expenses increased
$402,000, or 31%, to $1.7 million for the year ended December 31, 1997 from
$1.3 million for the year ended December 31, 1996. The increase was primarily
attributable to an increase in professional services and related fees arising
from increased licensing activities and recruiting efforts.
Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation decreased $88,000, or 9%, to $867,000 in 1997 from $955,000 in
1996. These amounts represent the allocated portion of the difference between
the deemed fair value of our common stock and the exercise price of stock
options granted by us to employees and consultants.
Other Income (Expense), Net. Net other income increased approximately
$360,000 to $580,000 for the year ended December 31, 1997 from $220,000 for the
year ended December 31, 1996. This income was primarily attributable to
miscellaneous income of $550,000 from a feasibility study performed for a third
party.
Selected Quarterly Results of Operations
The following table sets forth certain unaudited statements of operations
data for the five quarters ended March 31, 1999. This data has been derived
from unaudited financial statements that, in the opinion of our management,
include all adjustments consisting only of normal recurring adjustments that we
consider necessary for a fair presentation of the information when read in
conjunction with our audited financial statement and the attached notes. The
operating results for any quarter are not necessarily indicative of the results
for any future period.
<TABLE>
<CAPTION>
Quarter Ended
---------------------------------------------------------
March 31, June 30, September 30, December 31, March 31,
1998 1998 1998 1998 1999
--------- -------- -------------- ------------ ---------
(in thousands)
<S> <C> <C> <C> <C> <C>
Net revenues............ $ 64 $ 602 $ 226 $ 307 $ 309
Cost of revenues........ 143 1,620 99 299 85
------- ------- ------- ------- -------
Gross profit (loss)..... (79) (1,018) 127 8 224
Operating expenses:
Research and
development.......... 1,075 1,951 1,270 1,496 1,887
Sales and marketing... 856 1,027 887 1,726 1,882
General and
administrative....... 451 678 549 632 737
Amortization of
deferred stock
compensation......... 537 1,078 1,097 1,169 1,665
------- ------- ------- ------- -------
Total operating
expenses........... 2,919 4,734 3,803 5,023 6,171
------- ------- ------- ------- -------
Loss from operations.... (2,998) (5,752) (3,676) (5,015) (5,947)
Other income (net)...... 74 195 148 163 101
------- ------- ------- ------- -------
Net loss................ $(2,924) $(5,557) $(3,528) $(4,852) $(5,846)
======= ======= ======= ======= =======
Net loss attributable to
common stockholders.... $(2,990) $(5,654) $(3,625) $(6,154) $(5,979)
======= ======= ======= ======= =======
</TABLE>
In the first quarter of 1998, we released an enhanced version of BeOS. Sales
of this version of BeOS, as well as the launch of our BeDepot.com Web site,
which enabled customers to purchase BeOS directly from us, resulted in
increased revenues of $602,000 for the second quarter of 1998.
29
<PAGE>
Our net revenues in the third quarter of 1998 decreased to $226,000 due to,
we believe, potential customers deferring their purchases in anticipation of
the release in fourth quarter of 1998 of the first version of BeOS targeted
primarily to end users. In December 1998, we released version 4.0, the first
version of BeOS targeted primarily to end users and had revenues of $307,000 in
the quarter that ended December 31, 1998. Net revenues in the fourth quarter
were net of $332,000 in deferred revenues relating to sales made to
distributors and resellers and revenue which was deferred due to free upgrades
provided to retail customers who purchased the version 4.0 of BeOS. Revenues
deferred from sales to resellers and distributors are generally recognized when
we have evidence that our product has been sold by the reseller or distributor
to end users. For example, when we receive confirmation from the reseller or
distributor of the sale to the end user. Revenues deferred due to free product
upgrades are recognized when BeOS upgrades are shipped. Net revenues increased
slightly to $309,000 for the first quarter of 1999. We recorded deferred
revenue of $355,000 in the first quarter of 1999 relating to shipments to
resellers and distributors and free upgrades of BeOS for retail purchasers of
BeOS. Our first quarter 1999 net revenues included $125,000 of revenues related
to a distributor, which were previously deferred and which were recognized by
confirmation of sales by the distributor to end users.
Amortization of licensed or acquired technology in the amount of $113,000 was
charged in the first quarter of 1998. In the second quarter of 1998, we
amortized $157,000 of costs relating to licensed technology and wrote-off $1.2
million of costs relating to technology which was used with BeOS, the cost of
which was no longer recoverable from forecasted revenues.
Quarterly fluctuations in sales and marketing expenses relate primarily to
increased sales and marketing personnel and related costs, attendance at trade
shows and costs relating to our developer programs. Sales and marketing
expenses may fluctuate in the quarter as we increase our advertising and
promotional efforts prior to product releases and upgrade introductions and
participate in various trade shows and developer conferences. Our sales and
marketing expenses in the second quarter of 1998 increased primarily due to
additional sales and marketing personnel and related costs, increased costs
relating to trade show attendance, and costs of establishing our third party
developer programs. In the second quarter of 1998, we began amortizing the
acquisition costs of purchased Web site technology from the acquisition of
StarCode.
Quarterly fluctuations in research and development expenses relate primarily
to costs associated with increased personnel and related costs and the costs of
licensing technology used for development of BeOS. Research and development
expenses increased in the second quarter of 1998 primarily due to the costs of
licensing software tools used in the development of BeOS.
Our quarterly and annual operating results will likely vary significantly
from quarter to quarter in the future due to a number of factors, many of which
are outside our control, including:
. demand for and acceptance of our operating system;
. deferral of customer orders in anticipation of new products, product
enhancements or upgrades by us or by our competitors;
. the timing and availability of key applications developed by third
parties to be used in BeOS;
. delays and defects in BeOS;
. ability to attract and retain key strategic partners, including OEMs and
third party application developers;
. new product releases and product enhancements by us and our competitors;
. changes in our pricing policies or the pricing policies of our
competitors;
. the mix of sales channels through which our products and services are
sold;
. the mix of domestic and international sales;
. risks inherent in international operations, including foreign currency
fluctuations;
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. potential acquisitions and integration of technology or businesses;
. changes in accounting standards, including standards relating to revenue
recognition, business combinations and stock-based compensation; and
. impact of any Year 2000 issues.
Any one or all these factors could materially adversely affect our business
and results of operations.
Liquidity and Capital Resources
Since our inception, we have financed our operations primarily through the
sale of our equity securities and through borrowing arrangements. As of March
31, 1999, we had $8.3 million in cash and cash equivalents and short-term
investments.
Cash and cash equivalents and short-term investments increased $10.7 million
to $11.6 million at December 31, 1998, from $899,000 at December 31, 1997. This
increase is primarily attributable to net proceeds from the sale of Series 2
convertible preferred stock.
Cash used in operating activities increased $1.3 million to $9.9 million for
the year ended December 31, 1998 as compared to $8.6 million for the year ended
December 31, 1997. This increase is primarily attributable to increase in net
loss during the year ended 1998 and an increase in accounts receivable.
Cash used in investing activities increased approximately $14.8 million to
$10.3 million for the year ended December 31, 1998 as compared to cash provided
from investing activities of $4.5 million for the year ended December 31, 1997.
This increase is primarily attributable to purchases of short-term investments
from proceeds of the sale of Series 2 convertible preferred stock, acquisition
of licensed technology, purchase of StarCode, and acquisition of computer
hardware, software and other equipment.
Cash provided by financing activities increased $19.9 million to
approximately $22.9 million for the year ended December 31, 1998 as compared to
$3.0 million for the year ended December 31, 1997. This increase is primarily
attributable to net proceeds received from the sale of Series 2 convertible
preferred stock.
We require substantial working capital to fund our operations. We expect to
continue to experience losses from operations and negative cash flows for at
least the next twelve month period. The proceeds of this offering will be used
for working capital and general corporate purposes, including any expansion of
our sales and marketing efforts, increase in research and development
activities, and license and acquisition of new technologies.
Since inception, we have experienced losses and negative cash flow from
operations and expect to continue to experience significant negative cash flow
in the foreseeable future. While our current lack of adequate financial
resources raises substantial doubt regarding our ability to continue as a going
concern, we believe that upon the closing of this offering and the receipt of
the net proceeds of this offering, we will have sufficient cash to meet our
presently anticipated cash needs for at least the next 12 months. There is no
guarantee that this offering can be closed. Absent the closing of this
offering, any other sale of our capital stock, borrowing, or other arrangement
that would generate adequate funds, none of which may be available to us or are
certain to occur, we will be unable to meet our presently anticipated cash
needs during the next 12 month period. In addition, even if we raise sufficient
funds to meet our anticipated cash needs during the next 12 month period, in
the future, we may need to raise additional capital and we cannot be certain
that we will be able to obtain additional financing on favorable terms, if at
all. If we cannot raise additional capital on acceptable terms, if and when
needed, we may not be able to further develop or enhance BeOS, take advantage
of future opportunities or respond to competitive pressures or unanticipated
requirements, any of which could have a material adverse effect on our business
and results of operations.
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Year 2000 Issue
The "Year 2000 Issue" is typically the result of limitations of certain
software written using two digits rather than four digits to define the
applicable year. If software with date-sensitive functions are not Year 2000
compliant, they may recognize a date using "00" as the year 1900 rather than
the year 2000.
Risks
We believe that our principle product, BeOS, has been designed to avoid the
Year 2000 Issue. However, if for any reason, BeOS is not Year 2000 compliant,
we could face unexpected expenses redesigning BeOS, which could harm our
business and reputation and delay any market acceptance for BeOS.
In addition, our operating system operates in complex network environments
and directly and indirectly interacts with a number of other hardware and
software systems and applications. These hardware system and software
applications may contain errors or defects associated with the Year 2000 Issue.
We are presently unable to predict to what extent our business may be affected
if hardware systems or software applications and tools that operate in
conjunction with our operating system experience the Year 2000 Issue. Known or
unknown errors or defects that affect the operation of BeOS, when used in
conjunction with other hardware or software, could result in delay or loss of
revenue, interruption of our Web site product distribution, damage to our
reputation and possible litigation, any of which could materially adversely
affect our business and results of operations.
We also depend on the Internet and more specifically on our BeDepot.com Web
site for release and distribution of BeOS and related support tools and
applications. The Internet is a medium which is susceptible to the Year 2000
Issues. The Year 2000 Issue could result in a system failure or miscalculations
causing significant disruption of our Web site operations, including, among
other things, interruptions in the distribution of BeOS and related support
tools and applications over the Internet. This could also include disruption in
the distribution of third party software applications over our electronic
commerce Web site. It is possible that this disruption will continue for an
extended period of time. Any disruption in our Web site operations or our
electronic commerce site could result in loss of revenues and could harm our
reputation and business. Also, Year 2000 compliance efforts may involve
significant time and expense, and uncorrected problems could materially and
adversely affect our business.
Readiness
We have initiated an internal review of our information systems including
software programs used in our accounting and financial reporting functions.
Based on our review to date and preliminary information gathered from third
party vendors, we do not believe that there are any significant Year 2000
Issues relating to our information systems. However, our review to date has
been preliminary and is not expected to be completed until the third quarter of
1999. We will continue to request vendors of the material hardware and software
components of our information systems to provide assurances of their Year 2000
compliance. We plan to complete this process during the third quarter of 1999.
We are currently assessing our material non-information technology systems and
will seek assurances of Year 2000 compliance from providers of these systems.
Our costs incurred to date with respect to Year 2000 compliance have not been
significant. While we believe our future Year 2000 compliance costs will not be
significant, we have no way of ascertaining this until our testing is complete
and key vendors and suppliers are contacted. We may not be able to completely
evaluate whether our systems will need to be revised or replaced and the cost
associated with such efforts. If our efforts to address Year 2000 risks are not
successful, or if suppliers or other third parties with whom we conduct
business do not successfully address such risks, it could have a material
adverse effect on our business.
Contingency Plans
We have not yet fully developed a comprehensive contingency plan to address
situations that may result if we are unable to achieve Year 2000 readiness of
our critical operations. Development of contingency plans is
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in progress and is expected to be developed in detail and expanded during the
second half of 1999. We may not be able to develop a contingency plan that will
adequately address all Year 2000 issues. Our failure to develop and implement,
if necessary, an appropriate contingency plan could materially adversely affect
our business and results of operations.
Quantitative and qualitative disclosures about market risk
We considered the provision of Financial Reporting Release No. 48 "Disclosure
of Accounting Policies for Derivative Financial Instruments and Derivative
Commodity Instruments, and Disclosure of Quantitative and Qualitative
Information about Market Risk Inherent in Derivative Financial Instruments,
Other Financial Instruments and Derivative Commodity Instruments." We had no
holdings of derivative financial or commodity instruments at March 31, 1999.
However, we are exposed to financial market risks, including changes in foreign
currency exchange rates and interest rates. Much of our revenue and capital
spending is transacted in U.S. dollars. However, the expenses and capital
spending of our French subsidiary are transacted in French francs. Results of
operations from our French subsidiary are not material to the results of our
operations, therefore, we believe that foreign currency exchange rates should
not materially adversely affect our overall financial position, results of
operations or cash flows. We believe that the fair value of our investment
portfolio or related income would not be significantly impacted by increases or
decreases in interest rates due mainly to the short-term nature of our
investment portfolio. However, a sharp increase in interest rates could have a
material adverse effect on the fair value of our investment portfolio.
Conversely, sharp declines in interest rates could seriously harm interest
earnings of our investment portfolio.
The table below presents principal amounts by expected maturity (in U.S.
dollars) and related weighted average interest rates by year of maturity for
our investment portfolio.
<TABLE>
<CAPTION>
1999 Thereafter Total
---------- ---------- ----------
<S> <C> <C> <C>
Federal Government Obligations............ $5,264,000 $ -- $5,264,000
Weighted Average Interest Rate........... 5.53% -- 5.53%
Corporate Debt Obligation................. $2,990,000 -- $2,990,000
Weighted Average Interest Rate........... 6.86% -- 6.86%
---------- ---- ----------
Total Portfolio, excluding equity
securities .............................. $8,254,000 $ -- $8,254,000
========== ==== ==========
</TABLE>
Recent Accounting Pronouncements
In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position No. 98-1 or SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on accounting for the cost of computer software developed or obtained
for internal use. SOP 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998. We are currently evaluating the impact
of SOP 98-1 on our financial statements and related disclosures.
In December 1998, AcSEC released Statement of Position 98-9 or SOP 98-9,
Modification of SOP 97-2, "Software Revenue Recognition." SOP 98-9 amends SOP
97-2 to require that an entity recognized revenue for multiple element
arrangements by means of the "residual method" when:
. there is no vendor-specific objective evidence ("VSOE") of the fair
values of all the undelivered elements that are not accounted for by
means of long-term contract accounting;
. VSOE of fair value does not exist for one or more of the delivered
elements;
. VSOE of fair value does not exist for one or more of the delivered
elements; and
. all revenue recognition criteria of SOP 97-2 (other than the requirement
for VSOE) of the fair value of each delivered element are satisfied.
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The provisions of SOP 98-9 that extend the deferral of certain paragraphs of
SOP 97-2 became effective December 15, 1998. These paragraphs of SOP 97-2 and
SOP 98-9 will be effective for transactions that are entered into in fiscal
years beginning after March 15, 1999. Retroactive application is prohibited. We
are currently evaluating the impact of the requirements of SOP 98-9 and the
effects, if any, on our current revenue recognition policies.
In April 1998, the AcSEC issued Statement of Position 98-5, or SOP 98-5,
"Reporting on the Costs of Start-Up Activities." This standard requires
companies to expense the costs of start-up activities and organization costs as
incurred. In general, SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. We believe the adoption of SOP 98-5 will not have a material
impact on our results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that
exists. SFAS 133 will be effective for fiscal years beginning after June 15,
1999. We do not currently hold derivative instruments or engage in hedging
activities.
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BUSINESS
Overview
We offer BeOS, an operating system designed for digital media applications
and Internet appliances. BeOS is capable of providing faster and more
predictable processing times for digital media applications than traditional
desktop operating systems. BeOS can run on a wide range of devices including
Internet appliances, desktop PCs and high-performance multiprocessor
workstations. BeOS allows users to simultaneously operate multiple audio,
video, image processing and Internet-based software applications while
maintaining system stability, media quality and processor performance. BeOS
provides professional users and enthusiasts with an environment to quickly and
easily develop applications and digital content such as audio, video, animation
and images, and is designed to facilitate the integration of new technologies.
BeOS is also architected to address the market-specific requirements of PC
OEMs, Internet appliance and consumer electronic manufacturers. The modular
nature of BeOS allows OEMs to incorporate only those features of our operating
system that are required for a particular device, to deliver specific content
and to meet the cost target for that device. Using BeOS, OEMs can develop
products and services tailored to specific markets without compromising the
quality, stability and performance of digital media applications delivered to
the user. The combination of an efficient, new operating system designed for
fast performance and rich digital media applications make BeOS an ideal
solution for a broad range of devices from high performance desktop computers
to devices primarily used to access the Internet.
Industry Background
The Evolution of Operating Systems
Operating systems are software programs that control the functionality of
computers and consumer electronic devices. Operating systems manage the user
interface, coordinate the operation of software applications, hardware and
peripheral devices, and provide tools that enable the development of software
applications.
A variety of desktop operating systems are in use today such as Microsoft
Windows (including Windows 98, Windows CE and Windows NT), Apple Mac OS, UNIX,
Linux and IBM's OS/2. These traditional operating systems are based largely on
design concepts pioneered in the 1970s and 1980s to support text-intensive
software applications like word processing, basic spreadsheet and database
operations. Due to the cost and technical limitations of computer hardware
during this time, operating systems and applications were not originally
architected to support the demanding needs of applications that utilize audio,
video, image, and 3D animation.
Technical advances and the declining price of computer hardware have helped
to dramatically increase the number of personal computer users. Operating
systems also improved and increased the ease of use and functionality of
personal computers. For example, operating systems such as Apple Mac OS and
Microsoft's Windows operating systems began to incorporate intuitive, icon-
driven graphical user interfaces, supplanting the complicated set of text-based
commands used in older systems. These easier-to-use interfaces have helped
encourage the growth of office productivity applications like enhanced word
processing and spreadsheet applications, presentation graphics and electronic
mail. In most cases, however, these improved user interfaces were layered on
top of older operating system architectures.
The Growth of Digital Media
Advances in computing technologies have led to the creation of software
applications and devices that can capture, synthesize, manipulate and store
images and sounds in a digital format. These images and sounds, often called
"digital media," are used by professionals and consumers alike on a wide
variety of computer and entertainment platforms.
The music industry initially embraced digital technology in the 1980s by
introducing CDs for audio playback. Later, the application of digital
technologies expanded to include video and graphics images,
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enabling a variety of devices that are capable of capturing and displaying
digital images. Today, these devices include digital cameras, digital video
camcorders, direct satellite receivers, digital TV and DVDs. Digital media
allows users to create, edit and deliver a full range of audio, video, images
and animation for use in games, film, television and the Internet. Many of
today's feature films, advertisements, video programming and games include
realistic animation, audio and video streams and still images, all created,
combined and distributed using digital technologies.
As users have embraced digital media, they have come to expect richer
content, high resolution audio, video and images when using personal computers,
consumer electronic devices and software applications. With the growth of the
Internet, many users are also demanding the same level of high resolution
audio, real-time video and detailed 3D graphics and animation delivered over
the Internet. However, existing operating system architectures have
increasingly become a key limiting factor in meeting these demands. For
example, layer upon layer of legacy programming and an increasingly larger code
base interfere with the ability of modern processors to efficiently run
multiple high-bandwidth applications and files. File systems designed for word
processing documents and spreadsheets are not easily adaptable to the
significant storage and bandwidth requirements of digital video and audio. To
access and manipulate this content, users have generally had to purchase high-
performance computers, sophisticated software applications and other third-
party hardware. These systems are hard to integrate, costly and not intended
for the mainstream consumer. Even with these systems, users are often unable to
experience the full potential of digital media due to the design limitations
inherent in the operating systems serving as the platform for these systems.
An increasing number of telecommunication companies are introducing high
speed communication services, referred to as broadband services. As a result,
broadband capabilities are becoming more readily available and leading
developers are placing increasing focus on how to provide enhanced digital
media content to users. Developers, however, face significant obstacles in
creating applications to provide this media-rich content to users within
constraints of traditional operating systems. Although traditional operating
systems support the ability to run multiple applications simultaneously, they
can often become unstable and non-responsive when using applications that
demand significant processing or memory resources, such as digital media.
Applications running on traditional operating systems are also limited in their
ability to decode digital audio and video streams due to the operating systems'
inability to allocate processor capacity efficiently and prioritize tasks.
While a variety of technologies have improved the user's Internet experience by
accelerating data transmission rates and broadening the array of content
delivered online, the underlying operating system technology has remained
relatively static.
Increase in Digital Media Content on the Internet
The Internet has evolved from a mass of static, text-oriented Web pages and
basic email services to a richer environment, with a growing ability to deliver
interactive digital media content to users. For example, new streaming media
and other technologies have enabled users to play live and recorded audio and
video clips, enjoy Internet-based animation and download applications while
online.
The proliferation of digital media content on the Internet and the declining
price of PCs has enabled people worldwide to electronically share information,
communicate, conduct business and be entertained. International Data
Corporation ("IDC") estimates that the number of Internet users will grow from
approximately 100 million worldwide in 1998 to approximately 319 million
worldwide by the end of 2002. This growth is expected to be driven in part by
the large and growing number of PCs installed in homes and offices and easier,
faster and less expensive access to broadband technologies such as cable modems
and Digital Subscriber Lines, or "DSL," a new digital telecommunication
protocol designed to allow high speed communication over existing copper
telephone lines. Though the price/performance of PCs has substantially
improved, their cost and complexity remains a limiting factor in making the
Internet as ubiquitous as televisions or telephones.
Emergence of the Internet Appliance
Access to the Internet today is primarily accomplished using PCs. As new
users seek access to the Internet, hardware manufacturers have recognized the
need to create a class of low-cost, easy to use devices
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often referred to as "Internet appliances." Internet appliances are any device
primarily used for accessing the Internet and using Internet-based content,
services and applications. Internet appliances are generally expected to
provide ease of use and affordability similar to widely used consumer
electronic devices such as television. Excluding PCs, IDC currently projects:
. worldwide shipments of Internet appliances will grow from 5.9 million
units in 1998 to over 55.7 million in 2002;
. worldwide value of Internet appliance shipments will grow from $2.2
billion in 1998 to more than $15.3 billion in 2002; and
. more than 151 million Internet appliances installed worldwide by 2002.
While customers and OEMs desire low-cost Internet appliances,
traditional operating systems are unable to deliver the required
functionally in a low-cost manner.
Constraints Imposed by Traditional Operating Systems
The growing demand for richer content, audio and video editing and processing
capabilities, 3D graphics, and Internet-delivered digital media is placing
considerable strain on traditional operating systems. While digital
technologies enable the delivery of richer media to professionals, enthusiasts
and consumers, currently these users must invest in expensive computers and
applications to fully enjoy this media and to develop applications and content.
Even when using expensive computing systems, the applications incorporating
digital media often disrupt the reliability and usability of traditional
operating systems. As a result, the range of digital media capabilities are
often limited on basic PC configurations, and traditional operating systems are
often challenged in extending and managing the full range of digital audio,
video, image and graphics capability to all users. Existing computer systems
and new devices, such as Internet appliances, require flexible operating
systems that can address a growing range of digital media content without
sacrificing system stability, media quality or processor performance.
Furthermore, new classes of devices, such as Internet appliances, will require
an operating system that electronic manufacturers can adapt to fit their cost,
hardware, ease of use, performance and market requirements.
The Be Solution
We offer BeOS, an operating system designed for digital media applications
and Internet appliances. BeOS is capable of providing faster and more
predictable processing times for digital media applications than traditional
desktop operating systems. BeOS can run on a wide range of devices including
Internet appliances, desktop PCs and high-performance multiprocessor
workstations. BeOS offers several advantages over traditional operating
systems. It allows users to simultaneously operate multiple audio, video, image
processing and Internet-based software applications while maintaining system
stability, media quality and processor performance. BeOS provides professional
users with an environment to quickly and easily develop applications and
content, and it is designed to facilitate the integration of new technologies.
The modular nature of BeOS allows OEMs to incorporate only those features of
our operating system that are required for a particular device, allowing them
to deliver specific content while meeting the cost targets for that device.
Using BeOS, OEMs can develop products and services tailored to specific markets
without compromising the quality, stability and performance of digital media
applications delivered to the user. The combination of an efficient, new
operating system designed for fast performance and rich digital media
applications make BeOS an ideal solution for a broad range of devices from high
performance desktop computers to devices primarily used to access the Internet.
Key elements of BeOS include:
Optimized Design for Digital Media Applications. BeOS is designed
specifically to enable high-performance audio and video applications on a wide
range of devices. BeOS is optimized for media manipulation and playback and
employs features that provide a stable, accessible environment for the use and
development of digital media applications and content. BeOS also employs an
advanced, 64-bit file system to meet the file size and bandwidth requirements
of digital video applications.
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Support for Simultaneous Execution of Multiple Applications. BeOS allows
software applications to be partitioned into several smaller tasks called
"threads" and allows these threads to be automatically executed as required by
the application and system load. BeOS is able to distribute these threads among
one or more processors, giving priority to media tasks performed on the system.
This, together with the other features of BeOS, allows simultaneous use of
multiple applications that demand significant processing resources, editing and
playback of uncompressed, high-resolution video and audio files, and increased
efficiency and performance of all applications running on the system.
System Performance and Stability. BeOS is designed to reduce operating system
overhead to a minimum. It makes extensive use of shared code, resulting in the
creation of smaller, faster applications. A key element of BeOS' performance
and stability is its journaled file system. This file system provides added
levels of protection against corrupted files. This feature is not offered by
traditional desktop operating systems and results in reduced start-up time for
BeOS. Furthermore, BeOS provides fully protected memory which increases
operating system stability and helps prevent a crashing application from
affecting other applications running on the system.
Modular, Flexible Architecture. BeOS is based on a modular design that allows
new software features, such as drivers, audio and video compression and
depression algorithms, known as "codecs," and additional file system support to
be used immediately after downloading these features onto the system. Using
BeOS, manufacturers and users can update and reconfigure their systems through
the Internet or other networks without the need to "re-boot" the system. This
modular approach also allows OEMs to incorporate only those elements of BeOS
needed for a particular application or device, facilitating the creation of new
devices such as Internet appliances and allowing OEMs to address specific price
points and markets.
Scaleable Architecture Allows Use of BeOS on a Wide Range of Systems. BeOS
delivers optimized performance on hardware with one to eight processors,
ranging from Internet appliances and personal computers priced as low as $295
to sophisticated multi-processor workstations costing more than $50,000. This
benefit allows computer and consumer electronic manufacturers to develop
products to address multiple market segments using BeOS.
Strategy
Our objective is to establish BeOS as the premier operating system for
professionals, enthusiasts and consumers demanding media-rich content on any
hardware platform. Key elements of our strategy include the following:
Establish Relationships with Key Industry Partners. We intend to establish
relationships with industry-leading personal computer and consumer electronic
manufacturers, Internet service and content providers. Our goal is to have BeOS
used on a wide range of personal computers, devices, applications and systems.
By leveraging the established sales, marketing and distribution channels and
brand recognition of these key industry partners, we expect to increase the
number of BeOS users and encourage the development of applications and devices
that enable rich content, capability and Internet access to consumers.
Expand Base of Application Developers. We intend to increase the number and
range of applications that use BeOS, in particular, widely accepted audio,
video and game applications. To do this, we will provide application developers
financial incentives as well as development, technical and marketing support to
encourage the use of BeOS as their operating system of choice. We believe that
the capabilities of BeOS make it an ideal choice for application developers,
digital media content creators, and Internet-based application and Internet
appliance developers.
Focus on Internet Appliance Applications. We believe the continued growth of
the Internet and emergence of Internet appliances provide a significant market
opportunity to increase the number of BeOS users. BeOS provides an ideal
environment for application developers to create and distribute applications
that
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deliver richer digital media on the Internet. We are establishing an Internet
appliance reference model and intend to establish key partnerships with
industry-leading Internet appliance developers to embed BeOS in such systems to
provide ready Internet access to end users.
Pursue "Be Everywhere" Marketing Campaign. We expect to aggressively promote
BeOS as the operating system of choice among professional digital media content
creators, developers of Internet applications and Internet appliances. To do
this, we intend to increase print-based and Internet-based advertising and
initiate a direct mail campaign. We also intend to identify segments of the
computer enthusiast, consumer and professional digital media markets and target
tailored promotions to these groups. These promotions will include bundling
BeOS with third party applications and distributing demonstration copies of
BeOS to targeted potential customers to encourage use and increase awareness of
BeOS. We believe that acceptance by these segments provides the best
opportunity to capture and maintain a growing customer base of BeOS.
Leverage Our Technology and Capabilities. We developed BeOS over the course
of eight years and have developed a significant body of technical expertise
relating to the challenges of handling rich media types and Internet
applications. We will leverage this investment to enhance BeOS to deliver
optimized performance for next-generation computing platforms. Some of these
innovations include the implementation of additional modular functionality,
broader device driver support and portability to new computing platforms. To
rapidly deliver this functionality to users and applications developers, we
intend to release new versions of BeOS at least annually. We believe that this
commitment to frequent upgrades and extensions of BeOS will facilitate our
ability to better meet the new product development cycle requirements of our
customers.
Promote BeOS as the Standard for Digital Media and Internet
Computing. Differentiating it from existing operating systems that are designed
primarily to support enterprise productivity applications, we intend to promote
BeOS as the optimal operating system for audio, video, animation and for
broadband communications applications. We also will promote the flexibility of
BeOS as a logical choice for new classes of computing devices whose primary
function is related to the Internet or entertainment rather than business or
engineering. Through product differentiation and targeted marketing, we intend
to position BeOS as an open, flexible and stable standard for a broad class of
applications.
Products and Technologies
BeOS
We offer BeOS, an operating system designed for digital media applications
and Internet appliances. BeOS was created to support applications that require
real-time display of images, video, graphics and other digital media. BeOS
enables users to simultaneously operate multiple audio, video, image processing
and Internet-based software applications on single or multiple-processor
platforms and to access, manipulate and distribute rich media content over the
Internet and other networks. Applications currently running on BeOS include
music production, digital signal processing, medical imaging and computer-based
education applications. End users running BeOS can be large corporate users who
require, real-time response to digitally-intensive media applications, audio
and video studio professionals, and consumers wishing to edit their family
movies and use Internet applications.
BeOS is packaged in a variety of ways to meet specific market and customer
needs. BeOS is available either for retail sales or as a customized version for
specific high volume OEMs. For the retail market, BeOS is supplied shrink-
wrapped with or without manuals. The manuals are available in English, French,
German and Japanese with other language versions planned for the future. To
meet the specific needs of the OEM markets, we sell a version without the
retail packaging. Support for the product is available through our Web site via
email and by direct telephone support.
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BeOS is sold on a per-license basis to customers who purchase the product
through retail outlets. OEM customers will be able to purchase BeOS according
to individual volume-based agreements between us and the OEM. In addition, OEM
customers may pay us a fee for custom development work performed by us to
tailor BeOS to an OEM's specific product. We intend to sell specific modules of
BeOS to Internet appliance developers. We believe OEMs will appreciate BeOS'
modular feature which allows them to purchase and incorporate only those
aspects of BeOS required for their devices. This modularity allows them to
achieve their desired level of functionality without being required to buy or
install a full version of BeOS.
Key Technologies
Key technologies of BeOS include:
. Pervasive Multithreading. On BeOS, an application comprises a group of
separate execution units known as "threads." BeOS is heavily
multithreaded, from the lowest level of the OS to the applications
themselves. Pervasive multithreading enables users to perform a number
of different tasks at the same time without facing the system delays and
freezes exhibited by other operating systems.
. Symmetric Multiprocessing. BeOS is optimized to take advantage of
hardware with more than one processor. To achieve the maximum
performance from all of the processors on the platform, BeOS distributes
threads intelligently across the processors while the application is
running. The heightened performance achievable on multi-processor
systems running on BeOS is especially evident in computationally
intensive applications such as 3D modelers, video editors, and audio
effects programs.
. Protected Memory. On BeOS, each application has its own protected memory
independent of other applications and BeOS itself. BeOS is designed so
that if an application crashes, it does not affect the operation of
other applications or the system itself. As a result, users experience
significantly better overall system stability as compared to traditional
operating systems.
. 64-bit Journaled File System. BeOS uses a 64-bit file system that
enables it to utilize extremely large files thus improving performance
of media applications. Since massive data files often associated with
digital media do not have to be divided into smaller files, programming
is easier and data throughput--integral to any media application--is
increased. In addition, the file system is "journaled," which means that
the file system remains intact even if the computer was abruptly shut
down, for example due to a power failure.
. Extensive Graphics and Media Libraries. BeOS features a number of
components that makes programming simpler. These components, known as
"kits," include the Media Kit, for recording, playing, and processing
audio and video data; the Interface Kit, which provides tools for
building a graphical user interface; the Game Kit, for direct access to
graphics hardware, which is essential for creating realistic computer
games; and the Network Kit, an object-oriented tool box for the network
and Internet access applications. BeOS also provides an implementation
of the industry-standard OpenGL 3D graphics library.
. Modular Architecture. BeOS promotes programming modularity throughout
the system, from the device driver level up to the applications
themselves. Modularity makes the application designer's job easier since
improvements to an application can be "plugged in," rather than
requiring that the user install a completely new version of the
application. Modularity also gives the users and OEMs a much broader
range of application modules that can be mixed and matched. Also,
because of modularity at the driver level, a user can install and run a
new device driver without rebooting the machine.
. Internet services. BeOS file sharing is based on standard Internet
protocols, allowing users to transfer files to and from users on
Windows, UNIX, MacOS, or any other system connected to the Internet.
BeOS also includes NetPositive, a BeOS Web browser. Additional services
include an Internet mail client that can be extended or replaced by
third party developers.
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<PAGE>
. Internationalization. BeOS recognizes multibyte Unicode text and fonts,
and provides Unicode utilities, thus allowing localization of the
operating system to meet the demands of non-English applications.
Underlying these key features are BeOS components which include the kernel,
the servers, and the kits. The kernel is the lowest level and most essential
part of BeOS. It is responsible for, among other things, managing system
resources and is the only level that interfaces directly with the system
hardware. Above the kernel is a wide array of servers which provide higher
level services to application processes and to the operating system itself.
Finally, the object-oriented set of software kits provides the programmer's
interface to the operating system. In addition, the kits combine the functions
of the various servers into more complex capabilities. This array of BeOS
software provides a wide range of classes and functions that applications can
draw upon to deliver broad band media rich capabilities. We intend to
continuously extend and improve these components in each release of BeOS.
Future Products
We currently plan to ship new versions of BeOS at least annually. Our next
release of BeOS is scheduled for the summer of 1999. This new version will
offer broader hardware support, improved media services, and a reduced memory
footprint. Key features of this new release include support for hardware
expansion via Universal Serial Bus and PC Card and a new Media Player with
system level support for standard audio and video file formats such as AVI,
QuickTime, and MPEG as well as a broad range of audio and video codecs.
We intend for future versions of BeOS to include support for new hardware,
enhancements to performance and reliability, and new features as may be
required by OEM partners, Internet appliance manufacturers and market demands.
Marketing, Sales and Distribution
We market and sell BeOS through three principle channels:
. personal computer and consumer electronics manufacturers and other OEMs
who install BeOS on a variety of systems;
. retail channels such as distributors and resellers; and
. directly to end users through our Web site. Our sales and marketing
group consists of approximately 35 people and is located at our
corporate headquarters in Menlo Park, California and at our regional
office in Paris, France.
Our sales and marketing group is dedicated to four principal tasks:
. increasing the number of BeOS users;
. increasing available third-party applications developed for BeOS;
. expanding sales to the reseller and distribution channel; and
. increasing partnerships with OEMs and Internet appliance manufacturers.
The target end user markets for BeOS are Internet appliance customers, PC
customers using digital media applications, and professional and enthusiast
digital media content creators. We are actively pursuing sales in the audio and
video professional market, where BeOS delivers a significantly lower cost
platform for real-time media editing. We intend to work with key equipment,
audio and video suppliers to have BeOS installed on their audio and video
creation and editing solutions. We also intend to aggressively pursue the
market for digital media-enabled PCs. This market sector is characterized by
consumers who want to access, manipulate or edit audio and video content and
play electronic games. We intend to create awareness for BeOS through a "Be
Everywhere" marketing campaign, including aggressive print and Internet-based
advertising campaigns. These campaigns will be executed in conjunction with our
channel partners which include both resellers as well as PC manufacturers.
We also intend to promote BeOS as the operating system of choice for Internet
appliances. Based on recent announcements from a number of companies, including
Sony Corporation, Phillips Electronics N.V.,
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Sun Microsystems Inc., and Intel Corporation, we believe that OEMs and consumer
electronic companies are actively pursuing this market and that the demand for
Internet appliances will grow rapidly as an increasing number of people use and
depend on the Internet in their day to day activities. We believe that our
operating system's digital media capabilities, scalable nature, modular
features and ease of use positions it to address the emerging needs of OEMs and
consumer electronic companies offering Internet appliances. Also the initial
software requirements of core Internet software applications such as Web
browsers, email and easy to use productivity applications are all available on
BeOS today, facilitating rapid product roll-out.
PC Manufacturers and OEMs
We have announced strategic relationships with Hitachi, Ltd. and Fujitsu
Computers. Hitachi announced its support of BeOS in November 1998, and began
shipping the first two BeOS-equipped models of its FLORA Prius series machines
in Japan. These machines are single-processor systems, one of which includes an
integrated LCD monitor, and are targeted at the enthusiast market in Japan.
In March 1999, Fujitsu Computers announced that it would soon begin shipments
of three BeOS-equipped models of its Silverline series PCs in Europe. The
Silverline series PCs are high-end configurations: one single-processor version
and two dual-processor versions, all based on Pentium III processors. Fujitsu
is targeting the Silverline series PCs at both professional media authors and
enthusiasts in Europe, with a particular focus on Germany and Scandinavia.
Retail Outlets
We work with distributors and resellers to sell BeOS in retail outlets in
North America, Europe, Japan and other selected countries. While we have only
recently begun selling our products through this channel, BeOS can already be
found in the United States in selected stores. In Europe, we are developing a
network of distributors and resellers covering most of the European Union. In
Japan, we distribute our products through Plat'Home, a distributor and reseller
of computer hardware and software. Sales to Plat'Home accounted for
approximately 37% of our net revenues for year ended December 31, 1998 and
approximately 23% of our net revenues for the three month period ended March
31, 1999. No other customer, including reseller or distributor, individually
accounted for over 10% of our net revenues in 1998 or the three month period
ended March 31, 1999.
We also sell BeOS through specialty resellers who specialize in the audio and
video content creation market, such as Digital Edge in the United States. As
new applications are developed for BeOS, we intend to extend the distribution
network to include more broad based distributors. We have already initiated key
target audience awareness campaigns, including attendance at various industry
trade shows.
BeDepot.com Web site
We believe that one area that differentiates us from other operating system
vendors is the total solution approach we take in marketing third party
applications. One aspect of this approach is to provide a "one-stop-shop" for
users where they can select and order third party applications as well as BeOS
itself. We provide this through our BeDepot.com Web site. In addition to
providing an electronic shopping mall for end users, the BeDepot.com Web site
provides application developers with an electronic commerce forum where they
can quickly and inexpensively market their products without having to incur
inventory and related inventory costs. We charge the developers a commission on
each license of software sold on BeDepot.com. End users can enter our Web site,
order products and receive them via electronic or physical delivery. As updates
and upgrades are made available, we notify BeDepot.com customers and can update
their software automatically.
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Strategic Relationships
We believe that strategic relationships provide us with significant
opportunities to gain market acceptance for BeOS and increase the overall
number of BeOS users. We maintain strategic relationships with the following
companies:
Intel Corporation. Intel has provided us with assistance in the development
and enhancement of BeOS. Intel has provided us with technical specifications
and software under a license to a commonly used communication protocol for
peripheral devices, known as Universal Serial Bus or "USB" and to a technology
that enables compression and decompression of video data. This allows BeOS to
be compatible with devices and applications that use these technologies.
Additionally, Intel has assisted us in developing relationships with current
and potential partners.
Hitachi, Ltd. Hitachi, a leading PC manufacturer in Japan, was the first
major OEM to ship Intel architecture- based computers with BeOS pre-installed.
In April 1999, we executed a memorandum of understanding with Hitachi to
implement a multi-year strategic relationship. According to the terms of this
memorandum, we will collaborate with Hitachi on the development and marketing
of digital audio systems, home theater systems, Internet appliances and other
devices which will operate on BeOS.
Fujitsu Computers GmbH. Fujitsu announced in March 1999 that it would begin
shipping a line of personal computers pre-installed with BeOS. We expect that
the first such computers will be delivered to customers in July 1999. We also
expect to collaborate with Fujitsu Computers to create additional PCs and
devices on a continuing basis.
Microworkz Computer Corporation. Microworkz was the first OEM to announce a
line of personal computers priced below $300. We are working with Microworkz to
develop low-priced Internet appliances based on standard industry components.
Software Developers
We devote significant resources to encourage software developers to develop
software applications for BeOS. A growing base of independent third party
software development is critical to expanding the number of BeOS users and
ultimately increasing the market acceptance for BeOS. As of March 31, 1999,
there were over 10,000 registered developers using BeOS to develop
applications, some of which are commercial developers.
To assist developers in their activities, we sponsor annual developer
conferences and smaller focused development workshops and provide technical
support, electronic newsletters, and general marketing services. Currently
there are about 800 applications that use BeOS, including utility and smaller
applications licensed broadly by the developer for little or no charge to the
end-user. BeOS also features an extensive set of development tools including an
integrated development environment, industry-standard compilers for code
generation, programming libraries and documentation, and debugging tools. We
believe that this facilitates development of software and applications based on
the BeOS platform.
We have a dedicated team of developer support and marketing personnel focused
on media authoring applications. These people proactively recruit and cultivate
targeted accounts, particularly for audio, video, image processing and 3D
applications. One of our strategies is to encourage the development of a
significant catalogue of applications by increasing our focus on larger
application developers. For the Internet appliance market, early versions
require Web browsers, email and simple productivity applications, all of which
are currently available on BeOS.
Our efforts have resulted in a number of key third party developers choosing
to write applications for BeOS. Additionally, our release of version R4.0 of
BeOS provided key services and architecture for the construction of media
creation applications. We believe that these applications will be introduced
into the market in two primary phases. We anticipate that the first wave of
digital video and audio editing applications will ship in the second half of
1999 followed by a second wave of authoring applications and add-ons for
filtering, file translation and additional hardware support introduced in the
first half of 2000. As the market for
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Internet and related appliances further develops, we will focus additional
efforts working with content creators and developers of small, interactive
entertainment and educational programs.
Set forth below is a partial list of independent third party developers and
related applications as of March 31, 1999:
<TABLE>
<CAPTION>
Development
Developer Application Status
--------- ----------- -----------------
<S> <C> <C>
BeatWare, Inc. ......... Web Imaging and productivity tools Shipping
Gobe Software, Inc. .... Productivity tools Shipping
GLW Incorporated........ Professional audio mixing consoles Shipping
Level Control Systems
Limited................ Theatre audio systems Shipping
Adamation, Inc. ........ Digital Video, Audio, and e-mail Currently testing
Electronic Arts, Inc. .. Games Currently testing
Human Touch
Restorations........... Painting and photo manipulation Currently testing
IK Multimedia........... Consumer music applications Currently testing
Maxon Computer GmbH..... 3D modeling and rendering Currently testing
Mediapede, Inc. ........ Digital video editing Currently testing
MGI Software Corp. ..... Consumer video and image manipulation Currently testing
The Mozilla
Organization........... Web browser, open source Currently testing
Arboretum Systems,
Inc. .................. Audio editing software In Development
CreamWare............... Studio audio hardware and software In Development
Cycling 74.............. MIDI and signal processing software In Development
Emagic Soft-und Hardware
GmbH................... MIDI sequencing and audio software In Development
Beatnik, Inc. .......... Sound synthesis and web audio In Development
MetaCreations
Corporation............ Imaging software In Development
Nichimen Graphics,
Inc. .................. 3D modeling In Development
Opera Software A/S...... Web browser In Development
RoDesign, Inc. ......... Professional digital video In Development
Seer Systems, Inc. ..... Music synthesis In Development
Steinberg Soft-und
Hardware GmbH.......... Audio editing In Development
Strata, Inc............. Video and image editing In Development
</TABLE>
Competition
The market for computer operating systems is intensely competitive. This
market has been dominated by Microsoft Corporation, which has significantly
greater financial and marketing resources than we do. Other companies that
offer competing operating systems include Apple Computer, Inc., IBM, Oracle
Corporation, Sony Corporation and a number of companies that offer versions of
the UNIX operating system, including SGI, the Hewlett-Packard Company, and Sun
Microsystems. In addition, we face competition from a number of smaller
companies developing and marketing UNIX-based operating systems such as Linux.
While the market for the Internet appliances is in its infancy, operating
systems such as Microsoft Windows, Windows CE and Linux are available for use
on Internet appliances.
We believe the principal competitive factors impacting the market for our
operating system are:
. the overall number of users;
. key technological features and capabilities of the operating system;
. the number and strength of third party applications available for use on
the operating system;
. partnerships with OEMs and consumer electronic companies;
. strength of reseller and distributor channel; and
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. technical, financial and marketing resources.
Many of our current and potential competitors compete more favorably than we
do with respect to some or all of these factors and have longer operating
histories, significantly greater number of customers, a greater number of
popular applications and tools specifically designed for their operating
systems, greater brand recognition, and greater financial, technical, marketing
and distribution resources than we do. In addition, our competitors may offer
their operating systems bundled with popular applications or other products
which we do not have. This could discourage users from purchasing BeOS. Present
and future competition could result in the failure of our BeOS product to gain
an economically sustainable level of market acceptance, which could materially
adversely affect our business or prospects.
Moreover, we believe that some of our competitors may use their dominant
position to secure preferential distribution and bundling contracts with third
parties such as resellers, OEMs, Internet service and content providers, and
software developers, including third parties with whom we have relationships.
Such preferential arrangements could significantly reduce the demand and market
acceptance for our BeOS product.
New product releases or improvements in our competitor's existing operating
systems could enable these operating systems to more effectively address the
requirement of using digital media in a manner similar to those offered by
BeOS. For example, enhancements and features could be added to Microsoft's
Windows operating system and Apple's Mac OS, which could significantly decrease
the differences in our BeOS and these operating systems. As a result, any
advantage we may have had in the marketing for BeOS would be lost and the
demand for and acceptance of our operating system would therefore diminish.
Research and Product Development
Our research and development efforts are focused primarily on developing new
features and enhancing the functionality, reliability, performance and
flexibility of BeOS. We also spend considerable resources on the development of
new products and core technologies. We obtain significant input concerning
product development from users and our OEM partners.
We have invested significant time and resources in creating a structured
process for product development and testing. This process uses both
commercially available and proprietary tools. Source code control is maintained
using the Perforce Fast Source Code Management tool set. Source code is
compiled and linked using the EGCS tools from Cygnus Inc. Both tools sets run
on BeOS. This enables BeOS to be developed using BeOS, resulting in rapid
identification and resolution of problems. Product testing is performed in
house by a dedicated quality assurance team and also through a formal test
program. Software errors are filed and tracked using a proprietary Web based
system. This error data base is available to customers via our Web site. We
believe that by using BeOS in our own software development, we gain valuable
insight into the experiences of third party developers and users of BeOS.
In 1997 and 1998 and the first three months of 1999, our research and
development expenses were approximately $4.4 million, $5.8 million, and $1.9
million, respectively.
Facilities
Be leases 20,575 square feet in Menlo Park, California. Be also leases 2,184
square feet in Paris, France to focus on channel distribution, sales to OEMs,
and third party developer relations and recruitment. While we believe that our
current facilities are adequate to meet our needs for the next six months,
however, we will need to expand our existing facility or possibly relocate to a
larger facility that would better address any growth that we may experience in
the future.
Employees
As of March 31, 1999, Be had 93 employees. Of these employees, 35 are in
sales and marketing, 49 are in research and development and 9 are in general
and administrative. We consider our employee relations to be good.
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MANAGEMENT
Executive Officers, Directors and Certain Key Employees
The executive officers, directors and certain key employees of Be as of March
31, 1999 and their ages as of March 31, 1999, are as follows:
<TABLE>
<CAPTION>
Name Age Position
---------------------------- --- ------------------------------------------
<C> <C> <S>
Jean-Louis F. Gassee........ 55 President, Chief Executive Officer and
Director
Roy Graham.................. 48 Executive Vice President, Sales and
Marketing
Steve M. Sakoman............ 45 Vice President, Engineering and Chief
Technical Officer
Wesley S. Saia.............. 54 Vice President and Chief Financial Officer
Jean R. Calmon.............. 53 Vice President and General Manager, Europe
Christian E. Marchandise.... 50 Director
Barry M. Weinman............ 60 Director
Garrett P. Gruener.......... 45 Director
Stewart Alsop............... 47 Director
</TABLE>
Jean-Louis F. Gassee co-founded Be in 1990 and has served as our President,
Chief Executive Officer and Chairman of the Board since October 1990. Prior to
forming Be, Mr. Gassee was associated with Apple Computer, Inc. for ten years
serving in numerous capacities including President of Apple Products, the R&D
and Manufacturing division of Apple. Prior to joining Apple Computer, Inc., Mr.
Gassee was President and General Manager of the French subsidiary of Exxon
Chemical Company. He also held several management positions with Data General
Corporation, including Chief Executive Officer of Data General for France and
Director of Product Marketing for Europe. Mr. Gassee serves as a director of
several private and publicly traded companies. Mr. Gassee serves as a director
of 3Com Corporation, Electronics for Imaging, Inc., Logitech International
S.A., and VirtualFund.com, Inc. Mr. Gassee holds an M.A. of Science from the
Faculty of Sciences (France).
Roy Graham has served as our Executive Vice President, Sales and Marketing
since March 1999. From 1996 to 1998, Mr. Graham served as Senior Vice President
of Sales, Marketing and Customer Service for Wyse Technology, Inc., a computer
terminal company. From 1988 to 1995, Mr. Graham served in various positions at
Tandem Computers, Inc., most recently as the Director and General Manager of
the Windows NT Business Group. Mr. Graham holds a B. Sc. Honors in Mathematical
Physics, from Sussex University (UK).
Steve M. Sakoman co-founded Be in 1990 and has served as our Vice President,
Engineering and Chief Technical Officer since August 1996. From 1994 to 1996,
Mr. Sakoman served in various management positions at SGI, including Director
of Consumer Technology. Prior to forming Be, Mr. Sakoman served as Director of
Macintosh and Apple II Development for Apple from 1985 until 1987 and Director
of Newton Development from 1987 to 1990. Mr. Sakoman has also held various
management positions at the Hewlett-Packard Company. Mr. Sakoman has also
served as a consultant and contract designer for the consumer electronics
industry in the area of home theater sound systems. Mr. Sakoman holds a B.S. in
Computer Engineering from Case Western Reserve University.
Wesley S. Saia has served as our Vice President and Chief Financial Officer
since November 1994. From 1993 until he assumed his current position, Mr. Saia
served as Vice President of Finance and Chief Financial Officer for Asante
Technologies, Inc., a company that specializes in computer networking products.
While at Asante, Mr. Saia completed an initial public offering that raised
approximately $25 million. Mr. Saia holds a B.S. degree in Industrial
Technology and an M.B.A. from Louisiana State University.
Jean R. Calmon has served as our Vice President and General Manager, Europe
since April 1994. From 1993 to 1994, he served as Vice President, Europe for
EO, Inc., a subsidiary of AT&T and Olivetti. From 1990
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to 1992, he served as Directeur General (CEO) of Electronic Data Systems
Corporation France. Mr. Calmon holds an undergraduate degree in Business
Administration from Ecole Superieure de Commerce de Bordeaux (France).
Christian E. Marchandise has served as one of our directors since December
1995. Since 1991, Mr. Marchandise has served as the Chief Executive Officer of
e-LaSer. He also serves as the Chief Executive Officer of Smart Valley
Investment, LLC. Mr. Marchandise attended the University of Economics and Law,
Paris X - Nanterre.
Barry M. Weinman has served as one of our directors since February 1998, and
is a member of the Audit Committee and Compensation Committee. Since 1993, Mr.
Weinman has served as a General Partner for Media Technology Ventures and as
Managing Director of Media Technology Equity Partners, the newly created media
fund of AVI Management Partners III. Mr. Weinman also serves on the Boards of
Women.com, Quokka Sports, Inc., TalkCity, Inc., and InfoGear Technology
Corporation. Mr. Weinman holds a B.S. from the Clarkson University, and an M.A.
from the London School of Economics/University of Southern California.
Garrett P. Gruener has served as one of our directors since April 1996, and
is a member of the Compensation Committee. Since 1996, Mr. Gruener has served
as a General Partner in Alta Partners Venture Capital Company. From 1992 to
1996, Mr. Gruener served as a Vice President of Burr, Egan, Deleage & Co. Mr.
Gruener specializes in information technology. He holds a B.S. in Political
Science from the University of California, San Diego and an M.A. from the
University of California, Berkeley.
Stewart Alsop has served as one of our directors since March 1999, and is a
member of the Audit Committee. Since 1988, Mr. Alsop has served as a General
Partner at New Enterprise Associates, a venture capital investment firm. Mr.
Alsop was a Venture Partner at New Enterprise Associates from 1996 to 1998.
From June 1991 to 1996, Mr. Alsop served as Senior Vice President and Editor-
in-Chief of InfoWorld Media Group, Inc., which publishes InfoWorld, a weekly
newspaper for information-technology professionals. Mr. Alsop also serves on
the board of directors of Macromedia, Inc. Mr. Alsop holds a B.A. in English
from Occidental College.
Board Composition
The number of directors is fixed by one or more resolutions by the board of
directors. Upon the closing of the offering, the number of directors will
remain set at five. In accordance with the terms of our Amended and Restated
Certificate of Incorporation, the terms of the office of the board of directors
will be divided into three classes, with each class holding office for
staggered three year terms: the Class I directors' term will expire at the
annual meeting of stockholders to be held in 2000, the Class II directors'
terms will expire at the annual meeting of stockholders to be held in 2001, and
the Class III directors' terms will expire at the annual meeting of
stockholders to be held in 2002. The Class I director is Mr. Marchandise, the
Class II directors are Messrs. Weinman and Gruener and the Class III directors
are Messrs. Gassee and Alsop. At each annual meeting of stockholders after the
initial classification, the successors to directors whose term will then expire
will be elected to serve from the time of election and qualification until the
third annual meeting following their election. Any additional directorships
resulting from an increase in the number of directors will be distributed among
the three classes so that, as nearly possible, each class will consist of one-
third of the directors. This classification of the board of directors may have
the effect of delaying or preventing changes in control or management of Be.
Under Delaware law, directors may be removed for cause by the affirmative vote
of the holders of a majority of the common stock.
Board Committees
Audit Committee. The audit committee is responsible for, among other things,
making recommendations to the board of directors regarding the engagement of
our independent public accountants, reviewing with the independent public
accountants the plans and results of the audit engagement, approving
professional services provided by the independent public accountants, and
reviewing the adequacy of our internal accounting controls. The audit committee
consists of Messrs. Weinman and Alsop.
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Compensation Committee. The compensation committee is responsible for
determining salaries and incentives compensation for our directors, officers,
employees and consultants and administering our stock option incentive plans.
The compensation committee consists of Messrs. Weinman and Gruener.
Compensation Committee Interlocks and Insider Participation
The members of our compensation committee are Messrs. Weinman and Gruener.
None of the members of our compensation committee of the board of directors is
currently or has been, at any time since the formation of Be, an officer or
employee of Be. Prior to the formation of the compensation committee, all
decisions regarding compensation for directors, officers, employees and
consultants and administration of stock and incentive plans were made solely by
the board of directors.
Director Compensation
Directors who are also our executive officers do not receive any additional
compensation for serving as members of the board of directors or any committee
thereof. Under our 1999 Non-Employee Directors' Stock Option Plan, each of the
current non-employee directors received an initial option to purchase 150,000
shares of common stock (at a per share exercise price of $5.00) for serving on
the board of directors and any committees thereof. Any future non-employee
directors will automatically be granted a non-qualified stock option to
purchase 100,000 shares of common stock under our 1999 Non-Employee Directors'
Stock Option Plan on the date on which such person is first elected or
appointed a director. A non-qualified stock option is defined under Section 422
of the Internal Revenue Code as an option not intended to be an incentive stock
option. Options initially granted under our 1999 Non-Employee Directors' Stock
Option Plan typically vest over a four year period with 25% vesting at the end
of the first year of service and thereafter at a rate of 1/48th monthly. On the
date the option becomes fully vested, the optionholder, if still a non-employee
director, will automatically be granted a non-qualified stock option to
purchase an additional 100,000 shares of common stock. The exercise price of
options under the 1999 Non-Employee Directors' Stock Option Plan will be equal
to the fair market value of the common stock on the date of grant. For more
information, please see "1999 Non-Employee Director's Stock Option Plan."
Executive Compensation
The following table sets forth the total compensation paid or accrued for the
year ended December 31, 1998, our Chief Executive Officer and for our four most
highly compensated officers whose salary and bonus for that year were in excess
of $100,000:
Summary Compensation Table
<TABLE>
<CAPTION>
Long-Term
Compensation
Awards
------------
Annual
Compensation Shares
---------------- Underlying
Name and Principal Position Salary Bonus Options
- --------------------------- -------- ------- ------------
<S> <C> <C> <C>
Jean-Louis F. Gassee, President................. $187,500 -- 500,000
Chief Executive Officer and Director
Steve M. Sakoman................................ $175,000 -- 340,000
Vice President, Engineering and Chief Technical
Officer
Wesley S. Saia.................................. $162,500 -- 250,000
Vice President and Chief Financial Officer
Jean R. Calmon.................................. $144,027 $48,008 125,000
Vice President and General Manager, Europe
Frank C. Boosman................................ $136,784 $30,000 68,000
Vice President, Business Development
</TABLE>
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Option Grants in Last Fiscal Year
The following table sets forth information concerning the grant of stock
options to our named executive officers during the fiscal year ended December
31, 1998. The exercise price per share of each option was equal to the fair
market value of the common stock on the date of grant as determined by the
board of directors. The potential realizable value is calculated based on the
term of the option at the time of grant. It is calculated assuming that the
deemed value of common stock on the date of grant appreciates at the indicated
annual rate compounded annually for the entire term of the option and that the
option is exercised and sold on the last day of its term for the appreciated
stock price. These values are calculated based on the requirements of the
Securities and Exchange Commission and do not reflect our estimate of future
stock price growth.
<TABLE>
<CAPTION>
Potential Realizable
Value at Assumed
Annual Rates of Stock
Price Appreciation
for Stock Option
Individual Grants Term (3)
--------------------------------------------------- ---------------------
Number of
Securities % of Total
Underlying Options Exercise
Options Granted in Price
Name Granted 1998 (1) Per Share (2) Expiration Date 5% 10%
- ---- ---------- ---------- ------------- --------------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Jean-Louis F. Gassee.... 500,000 20.5% $ 0.35 4/28/08 $2,903,611 $4,727,173
Steve M. Sakoman........ 340,000 14.0 0.35 3/31/08 1,819,385 2,967,554
Wesley S. Saia.......... 250,000 10.3 0.35 3/31/08 1,337,783 2,182,025
Jean R. Calmon.......... 125,000 5.1 0.35 3/31/08 668,891 1,091,012
Frank C. Boosman........ 68,000 2.8 0.20-0.35 1/27/08-2/25/08 308,241 500,477
</TABLE>
- --------
(1) The total number of options granted to our employees in fiscal year 1998
was 2,436,500.
(2) The exercise price per share of options granted represents the fair market
value of the underlying shares of common stock on the dates the respective
options were granted. The options vest over a four-year period.
(3) In order to comply with the SEC rules, we are including the gains or
"option spreads" that would exist for the respective options we granted to
our named executive officers. We calculate these gains by assuming an
annual compounded stock price appreciation of 5% and 10%, respectively,
from the date of the option grant until the termination date of the option.
These gains do not represent our estimate or projection of the future
common stock price.
Aggregated Option Exercises in Last Fiscal Year and Fiscal Year-End Option
Values
The following table sets forth certain summary information concerning the
exercise of stock options during the fiscal year ended December 31, 1998 by our
named executive officers.
<TABLE>
<CAPTION>
Number of Securities Value of Unexercised
Underlying Unexercised In-The-Money Options
Shares Options at December 31, 1998 at December 31, 1998 (1)
Acquired Value ----------------------------- -------------------------
Name on Exercise Realized Exercisable (2) Unexercisable Exercisable Unexercisable
- ---- ----------- --------- --------------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Jean-Louis F. Gassee.... 500,000(3) 2,745,000 -- -- -- --
Steve M. Sakoman........ -- -- 340,000 -- $1,866,600 --
Wesley S. Saia.......... 15,640 85,864 234,360 -- 1,286,636 --
Jean R. Calmon.......... -- -- 125,000 -- 686,250 --
Frank C. Boosman........ -- -- 68,000 -- 380,820 --
</TABLE>
- --------
(1) The value of unexercised "in-the-money" options is $5.84 per share, based
on the deemed fair value as of December 31, 1998, as determined for
accounting purposes, minus the exercise price, multiplied by the number of
shares underlying the option.
(2) These shares include an unvested portion of the options which may be
exercised prior to vesting under our 1992 Stock Option Plan and will be
subject to our right of repurchase.
(3) A portion of these shares includes unvested options subject to our right of
repurchase.
49
<PAGE>
Employee Benefit Plan
1992 Stock Option Plan
Our 1992 Stock Option Plan became effective on February 5, 1992 and was
terminated on March 30, 1999. No further options will be granted under the
option plan. However, existing options will continue in force and effect in
accordance with the terms of their agreements and those of the option plan. The
purpose of the option plan is to attract and retain qualified personnel, to
provide additional incentives to our employees (including officers), directors
and consultants and to promote the success of our business. A reserve of
8,000,000 shares of common stock was set aside for issuance under the option
plan. The option plan was administered by our board of directors. The board has
complete discretion to determine the status of any granted option as either an
incentive stock option or a non-qualified option, the vesting schedule to be in
effect for the option grant and the maximum term for which any granted option
is to remain outstanding.
As of March 31, 1999, we had options outstanding under the option plan that
were exercisable for an aggregate of 1,943,347 shares of common stock. As
outstanding options terminate unexercised, the shares underlying the options
are released and returned to our pool of authorized and unissued shares, and a
corresponding number of shares are, as a result, reserved under our 1999 Equity
Incentive Plan and become available for grant under that plan.
1999 Equity Incentive Plan
The 1999 Equity Incentive Plan was adopted on March 30, 1999. As of March 31,
1999, a total of 8,000,000 shares of common stock have been authorized for
issuance under our incentive plan. Under the incentive plan, as of March 31,
1999, options to purchase an aggregate of 3,367,000 shares were outstanding and
2,689,653 shares continue to be available for future grants under stock
options, restricted stock purchase rights and stock bonuses. Of the 8,000,000
shares of common stock reserved, however, 1,943,347 shares of common stock only
become available for future grants under stock options and stock purchase
rights to the extent that options granted and still outstanding under the 1992
Stock Option Plan as of March 30, 1999 are cancelled or terminated unexercised.
The incentive plan provides for the grant of incentive stock options within
the meaning of Section 422 of the Internal Revenue Code of 1986, non-qualified
stock options, restricted stock purchase rights and stock bonuses to our
employees, consultants and directors. Incentive stock options may be granted
only to employees. The incentive plan is administered by the board or a
committee appointed by the board, which determines the terms of awards granted,
including the exercise price and the number of shares subject to the award and
its exercisability. The exercise price of incentive stock options granted under
the incentive plan must be at least equal to the fair market value of our
common stock on the date of grant. However, for any employee holding more than
10% of the voting power of all classes of our stock, the exercise price will be
no less than 110% of the fair market value. The exercise price of non-qualified
stock options is set by the administrator of the incentive plan, but can be no
less than 85% of the fair market value. The maximum term of options granted
under the incentive plan is ten years.
An optionee whose relationship as an employee, director or consultant with us
or any related corporation ceases for any reason, other than due to death or
total and permanent disability, may exercise options in the three-month period
following such cessation, or such other period of time as determined by the
administrator, unless such options terminate or expire sooner, or later, by
their terms. The three-month period is extended to twelve months for
terminations due to death or total and permanent disability. In the event of
our merger with or into another corporation, any outstanding options held by
persons then performing services for us as an employee, director or consultant
may either be assumed or an equivalent award may be substituted by the
surviving entity or, if such options are not assumed or substituted, such
options shall become fully exercisable,
50
<PAGE>
including shares which would not otherwise be exercisable, and restricted stock
shall become fully vested. If not exercised at or prior to the merger, the
options shall terminate.
At the end of each of our fiscal years, an additional number of shares will
automatically be added to the number of shares already reserved for issuance
under the incentive plan. The additional number of shares will not be more than
the lesser of 5% of the number of shares of our common stock issued and
outstanding on that date, or the number equal to 8% of the number of shares of
common stock issued and outstanding on that date, less the number of shares of
our common stock then reserved under the incentive plan but not subject to
outstanding awards.
None of our employees may be granted, in any calendar year, options to
purchase more than 2,000,000 shares. During the course of the incentive plan,
no more than 23,000,000 shares may be issued pursuant to incentive stock
options and all such option grants must be made prior to the tenth anniversary
of the earlier of the date the board adopted the incentive plan or the date our
stockholders approved the incentive plan. The board may amend (subject to
stockholder approval as necessary) the incentive plan at any time. The
incentive plan will terminate at the discretion of the board.
None of our employees may be granted, in any calendar year, options to
purchase more than 2,000,000 shares. The board may amend (subject to
stockholder approval as necessary) the Incentive Plan at any time. The
incentive plan will terminate in March 2009, unless sooner terminated by the
board.
The board may also grant stock purchase rights to employees, directors and
consultants under the incentive plan. Such grants are made pursuant to a
restricted stock purchase agreement, and the price to be paid for the shares
granted thereunder is determined by the administrator. The restricted stock
purchase agreement grants us a repurchase option exercisable on the voluntary
or involuntary termination of the purchaser's services to us for any reason,
including death or disability. The exercise price of the repurchase option is
the original purchase price paid by the purchaser. Our repurchase option lapses
at a rate determined by the board at the time the stock purchase right is
granted. Once a stock purchase right has been exercised, the purchaser has the
rights equivalent to those of a stockholder. The board may also grant stock
bonuses to employees, directors and consultants under the incentive plan in
consideration for services actually rendered to us.
Employee Stock Purchase Plan
The Employee Stock Purchase Plan, was adopted on May 4, 1999, and a total of
1,500,000 shares of common stock have been reserved for issuance thereunder,
all of which are available for future issuance. The purchase plan, which is
intended to qualify under Section 423 of the Internal Revenue Code, is
administered by the board or by a committee appointed by the board.
Under the purchase plan, we withhold a specified percentage, not to exceed
15%, of each participating employee's compensation (excluding certain specified
items of compensation) over certain offering periods. Any employee who is
currently employed by us for at least 20 hours per week and for at least five
months in a calendar year is eligible to participate in the purchase plan.
Unless the board or a committee of the board determines otherwise, each
offering period will run for 24 months and will be divided into consecutive
purchase periods of approximately 6 months. The first offering period and the
first purchase period commences on the date on which our stock is first offered
for purchase by the public. Thereafter, new 24-month offering periods commence
every 6 months on each August 1st and February 1st, beginning February 1, 2000.
In the event of a change in control, including a merger of us with or into
another corporation, or the sale of all or substantially all of our assets, the
offering and purchase periods then in progress may be shortened if the offering
and purchase periods are not continued by the surviving corporation.
The price of common stock purchased under the purchase plan is equal to 85%
of the fair market value of the common stock on the first day of the applicable
offering period or the last day of the applicable purchase period, whichever is
lower. Employees may end their participation in the offering at any time during
the
51
<PAGE>
offering period, and participation ends automatically on termination of
employment with us. The maximum number of shares that a participant may
purchase on the last day of any offering period is determined by dividing the
payroll deductions accumulated during the purchase period by the purchase
price. However, no person may purchase shares under the purchase plan to the
extent such person would own 5% or more of the total combined value or voting
power of all classes of our capital stock or of any of our subsidiaries, or to
the extent that such person's rights to purchase stock under all employee stock
purchase plans would accrue at a rate in excess of $25,000 per calendar year.
The board may amend (subject to stockholder approval as necessary) or terminate
the purchase plan at any time, however, full termination will generally not
occur until all then ongoing offerings have concluded.
1999 Non-Employee Directors' Stock Option Plan
The Non-Employee Directors' Stock Option Plan was adopted on March 30, 1999,
and a total of 1,500,000 shares of common stock have been reserved for issuance
under the directors' plan. On adoption of the directors' plan, each non-
employee director at that time was granted a non-qualified stock option to
purchase 150,000 shares. As of March 31, 1999, options to purchase an aggregate
of 600,000 shares of common stock were outstanding and 900,000 shares of common
stock are currently available for future grants. Thereafter, each person who
becomes a non-employee director of Be will automatically be granted a non-
qualified stock option to purchase 100,000 shares of common stock on the date
on which such person is first elected or appointed a director. On the date the
option becomes fully vested, the optionholder, if still a non-employee
director, will automatically be granted a non-qualified stock option to
purchase an additional 100,000 shares of common stock. The exercise price of
options granted under the directors' plan will be equal to the fair market
value of the common stock on the date of grant. The maximum term of the options
granted under the directors' plan is ten years. Each initial grant under the
directors' plan will vest at 1/4th of the shares subject to the option one year
after the date of grant and 1/48th of the shares each month thereafter. The
rate of vesting of each subsequent grant will be 1/48th of the shares on a
monthly schedule after the date of grant. In the event we merge with or into
another corporation, all outstanding options may either be assumed or an
equivalent option may be substituted by the surviving entity or, if such
options are not assumed or substituted, such options shall become exercisable
as to all of the shares subject to the options, including shares which would
not otherwise be exercisable. The board may amend (subject to stockholder
approval as necessary) or terminate the directors' plan at any time.
Description of 401(k) Plan
We maintain a 401(k) retirement and deferred savings plan for our U.S.
employees that is intended to qualify as a tax-qualified plan under the
Internal Revenue Code. The 401(k) plan provides that each participant may
contribute up to 15% of his or her pre-tax compensation (up to a statutory
limit, which was $10,000 in calendar year 1998). Under the 401(k) plan, each
employee is fully vested in his or her deferral salary contributions. Employee
contributions are held and invested by the 401(k) plan's trustee. The 401(k)
plan also permits us to make discretionary contributions, subject to
established limits. To date, we have not made any discretionary contributions
to the 401(k) plan on behalf of participating employees.
Employment Agreements
Wesley S. Saia entered into an at-will employment agreement with Be on June
22, 1998 for the position of Vice President and Chief Financial Officer. This
agreement provides that Mr. Saia is entitled to a severance package consisting
of six months salary in the event that his employment is terminated without
cause or resulting from our change in control. This employment agreement also
entitles him to all company benefits for a period of six months from the date
of written notice of termination.
Roy Graham entered into an at-will employment agreement with Be on March 12,
1999 for the position of Executive Vice President, Sales and Marketing. This
agreement provides for base compensation of $216,000
52
<PAGE>
per year with a $54,000 bonus the first year. After the first year, a bonus
will be paid subject to accomplishment of goals set forth by our management and
board of directors. In addition, Mr. Graham was granted an option to purchase
660,000 shares of common stock, of which 160,000 shares vested immediately upon
his date of hire and of the remaining 500,000 shares, 1/4th of these shares
vest on the first anniversary date of employment and 1/48th of these shares
will vest monthly over the remaining three-year period.
Jean R. Calmon entered into an employment agreement with Be on October 4,
1998 for the position of Vice President and General Manager, Europe. This
agreement, governed by French law, provides for base compensation of FF 827,496
per year. A bonus equal to one-third of his gross salary will be paid subject
to the accomplishment of 100% of the goals set forth by our management. Mr.
Calmon's remuneration is revised on an annual basis. In addition, Mr. Calmon's
employment agreement entitles him to all benefits offered to other Be
employees.
Indemnification of Directors and Executive Officers and Limitation of Liability
As permitted by Section 145 of the Delaware General Corporation Law, our
bylaws provide that:
. we are required to indemnify our directors and officers to the fullest
extent permitted by the Delaware General Corporation Law;
. we may, in our discretion, indemnify other employees and agents as set
forth in the Delaware General Corporation Law;
. to the fullest extent permitted by the Delaware General Corporation Law,
we are required to advance all expenses incurred by our directors and
executive officers in connection with a legal proceeding (subject to
certain exceptions);
. the rights conferred in the bylaws are not exclusive;
. we are authorized to enter into indemnification agreements with our
directors, officers, employees and agents;
. to the fullest extent permitted by the Delaware General Corporation Law,
we may purchase insurance on behalf of any person required or permitted
to be indemnified; and
. we may not retroactively amend the bylaws, provisions relating to
indemnity.
We have entered into agreements to indemnify our officers and directors. A
form of the indemnity agreement has been filed as an exhibit to the
registration statement, of which this prospectus is a part.
We intend to obtain officer and director liability insurance with respect to
liabilities arising out of certain matters, including matters arising under the
Securities Act. In addition, our Amended and Restated Certificate of
Incorporation provides that our directors will not be liable for monetary
damages for breach of their fiduciary duty as directors to the fullest extent
permitted by the Delaware General Corporation Law. This provision in our
Amended and Restated Certificate of Incorporation does not eliminate their
fiduciary duty and in appropriate circumstances, equitable remedies such as an
injunction or other forms of non-monetary relief would remain available under
Delaware General Corporation Law. This provision does not affect a director's
responsibilities under any other laws such as the federal securities laws or
state or federal environmental laws.
At present, there is no pending litigation or proceeding involving a director
or officer in which indemnification is required or permitted, and we are not
aware of any threatened litigation or proceeding that may result in a claim for
such indemnification.
We are aware that the Commission considers indemnification for liabilities
arising under the Securities Act to be against public policy. Even if our
indemnification for liabilities of our directors, officers and controlling
persons is permitted under indemnification agreements, it would be
unenforceable as a matter of public policy.
53
<PAGE>
CERTAIN RELATIONSHIPS AND TRANSACTIONS
Private Placement Transactions
On April 12, 1996, we sold an aggregate of 14,116,000 shares of Series 1
convertible preferred stock at a per share price of $1.00. In connection with
the issuance and sale of the Series 1 convertible preferred stock, we issued
warrants to purchase an aggregate of 1,219,648 shares of common stock to
certain stockholders at an exercise price per share of $1.00. These warrants
are exercisable at any time on or before March 31, 2001. This financing was
consummated in conjunction with a recapitalization of Be. As part of the
recapitalization, all outstanding shares of Series A, Series A1 and Series B
preferred stock were converted into shares of common stock on the following
basis: 1.51-for-1 for Series A preferred stock and 1-for-1 for both Series A1
and B preferred stock.
On August 22, 1997 and December 17, 1997, we issued uncollateralized
promissory notes in an aggregate principal amount of $3,000,000. The notes bear
interest at the rate of 10% per annum and were payable on February 28, 1998.
Under this debt financing, notes in the aggregate principal amount of:
. $288,849 were issued to Jean-Louis F. Gassee, Be founder and Chief
Executive Officer;
. $1,083,377 were issued to August Capital, a principal stockholder;
. $609,399 were issued to entities affiliated with Alta California
Partners, a principal stockholder;
. $747,531 were issued to New Enterprise Associates, a principal
stockholder; and
. $270,845 were issued to entities affiliated with AVI Capital, of which
Mr. Weinman, one of our directors, is an affiliate. At the option of the
note holders, all of the uncollateralized promissory notes, including
accrued interest, on these notes were converted into 923,077 shares of
Series 2 convertible preferred stock on February 4, 1998.
On February 4, 1998 and December 23, 1998, we sold an aggregate of 8,276,730
shares of Series 2 convertible preferred stock at a per share price of $3.25.
In connection with the issuance and sale of Series 2 convertible preferred
stock, we issued a warrant to purchase an aggregate of 1,538,462 shares of
common stock to Intel Corporation at an exercise price per share of $3.25. This
warrant is exercisable at any time on or before December 23, 2003. Instead of
paying cash to exercise this warrant, Intel has the option to use some of the
shares covered under the warrant to pay for the exercise price. This option is
only available to Intel if the fair market value of our common stock is greater
than $3.25, the exercise price of the warrant.
54
<PAGE>
All mandatorily redeemable convertible preferred stock was sold in private
financings, pursuant to convertible preferred stock purchase agreements and
investors' rights agreements. The terms of those agreements (with the exception
of amount and price) are substantially similar for Series 1 and Series 2
convertible preferred stock, under which we made the standard representations,
warranties and covenants, and which provided the purchasers thereunder with
rights of first refusal, and demand and piggyback registrations rights. All of
the material terms of the Series 1 and Series 2 agreements, with the exception
of the registration rights, will terminate upon the effective date of the
registration statement of which this prospectus is a part. The purchasers of
convertible preferred stock included, among others, the following directors,
entities associated with directors, and holders of 5% or more of our common
stock:
<TABLE>
<CAPTION>
Common Common
Equivalent Equivalent
Shares of Shares of
Series 1 Series 2 Common
Convertible Convertible Stock
Investor Preferred Stock Preferred Stock Warrants
--------- --------------- --------------- ---------
<S> <C> <C> <C>
Alta California Partners, L.P. .. 2,250,000 384,615 --
August Capital, L.P. ............ 4,000,000 615,385 --
AVI Capital, L.P. ............... 1,000,000 307,693 --
Jean-Louis F. Gassee............. 1,066,476 91,952 --
Intel Corporation................ -- 1,538,462 1,538,462
Christian E. Marchandise......... 250,578 0 182,537
New Enterprise Associates VI,
L.P............................. 2,760,000 538,462 --
State of Michigan................ -- 1,538,462 --
</TABLE>
For purpose of the above table, shares held by all affiliated persons and
entities have been aggregated. Garret P. Gruener, an affiliate of Alta
California Partners, is one of our directors. Barry M. Weinman, an affiliate of
AVI Capital, is one of our directors. Stewart Alsop, a general partner of New
Enterprise Associates, is one of our directors. See "Principal Stockholders"
for more details.
The foregoing table has been adjusted to reflect the conversion of each
outstanding share of our Series 1 and Series 2 convertible preferred stock into
common stock on a 1-for-1 basis upon the completion of this offering. See
"Description of Capital Stock--Registration Rights."
Relationship with Intel Corporation
In connection with Series 2 convertible preferred stock financing, we entered
into a separate stock purchase agreement with Intel Corporation, which provided
to Intel, among other rights also given to other purchasers in the financing:
. certain board representation rights;
. a right to notice upon any offer to acquire all or substantially all of
our assets or capital stock;
. a right to cause the sale of Be upon a determination of a third party
that our business is no longer financially viable; and
. certain indemnification rights. All of these rights expire upon the
completion of this offering.
We regularly collaborate with Intel on technical, public relations and
marketing activities.
StarCode Acquisition
On May 1, 1998, we acquired StarCode Software, Inc. for an aggregate purchase
price of $567,000. StarCode owned and operated an electronic commerce Web site
which Be and certain developers of application software for use on BeOS. We had
previously contracted with StarCode to provide access to this Web site and
55
<PAGE>
paid a fee based on the level of revenue generated by these orders. The
acquisition has been accounted for using the purchase method of accounting and
the results of operations of StarCode have been included with our financial
statements since the date of the acquisition.
Notes Payable
During 1995, we issued notes to two officers in exchange for $985,000 of cash
with an additional $1 million issued as notes in exchange for cash in 1996.
These uncollateralized notes carried interest at an annual rate of 10% and were
payable at various dates during fiscal year 1996. In April 1996, $1,266,000 of
the notes payable were converted into Series 1 convertible preferred stock and
the remaining $719,000 in notes was repaid.
During 1997, we issued notes to certain stockholders in exchange for
$3,000,000 of cash. These notes bore interest at an annual rate of 10% and were
due in February 1998. The entire amounts due under the notes, including accrued
interest, were converted to Series 2 convertible preferred stock in February
1998.
Other Transactions
On October 2, 1997, we sold an aggregate of 50,000 shares of our common stock
at a per share price of $0.10 and issued an option to purchase an aggregate of
50,000 shares of our common stock at an exercise price of $0.10 to Jo Ann Heidi
Roizen, a former non-employee director. The options issued to Ms. Roizen were
subject to vesting over a four year period and the stock sold to Ms. Roizen was
subject to our right of repurchase. On March 30, 1999, we accelerated the
vesting of these options and released our repurchase rights on the 50,000
shares of stock held by Ms. Roizen.
On June 17, 1997, we entered into an engagement agreement with Cowen &
Company, under which Cowen acted as our exclusive placement agent in connection
with Series 2 convertible preferred stock financing. This agreement was
modified in February 1998. As part of Cowen's compensation under this
agreement, we issued to Financial Square Partners, L.P., a successor in
interest to Cowen, an aggregate of 106,144 shares of Series 2 convertible
preferred stock at a per share price of $3.25 and warrants to purchase an
aggregate of 112,865 shares of common stock at an exercise price per share of
$3.58. These warrants are exercisable at any time on or before June 17, 2000.
We have entered into indemnification agreements with our directors and
certain of our other officers for the indemnification of and advancement of
expenses to these persons to the full extent permitted by law. We also intend
to execute these agreements with our future directors and certain other
officers.
We believe that each of the foregoing transactions were in our best interest.
As a matter of policy the transactions were, and all future transactions
between ourselves and any of our officers, directors or principal stockholders
will be, approved by a majority of the independent and disinterested members of
the board of directors. Furthermore, the transactions will be on terms no less
favorable to us than could be obtained from unaffiliated third parties and will
be in connection with bona fide business purposes.
56
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information regarding the beneficial
ownership of our common stock as of March 31, 1999, and as adjusted to reflect
the sale of our common stock offered by this prospectus:
. each stockholder who is known by us to own beneficially more than 5% of
our common stock;
. each of our named executive officers;
. each of our directors; and
. all of our directors and executive officers as a group.
Unless otherwise indicated, to our knowledge, all persons listed below have
sole voting and investment power with respect to their shares of our common
stock, except to the extent authority is shared by spouses under applicable
law. Beneficial ownership is determined in accordance with the rules of the
Commission. Applicable percentage ownership is based on 30,513,549 shares of
common stock outstanding as of March 31, 1999, including 2,870,975 shares
issuable upon exercise of warrants, together with options for that stockholder
that are currently exercisable or exercisable within 60 days of March 31, 1999.
In computing the number and percentage of shares beneficially owned by a
person, shares of common stock subject to options currently exercisable, or
exercisable within 60 days of March 31, 1999 are counted as outstanding, while
these shares are not counted as outstanding for computing the percentage
ownership of any other person. The percentage of shares outstanding after the
offering is calculated after giving effect to the issuance of 6,000,000 shares
of common stock offered by this prospectus, assuming no exercise of the
underwriters' over-allotment option.
<TABLE>
<CAPTION>
Number of Shares
Beneficially Percentage of Shares
Owned (Including Shares Issuable Outstanding
the Number of Pursuant to Options --------------------
Shares Shown in Within 60 days of Before the After the
Name of Beneficial Owner the Second Column) March 31, 1999 Offering Offering
------------------------ ------------------ ------------------- ---------- ---------
<S> <C> <C> <C> <C>
August Capital, L.P.
(1).................... 4,615,385 -- 15.13% 12.64%
2480 Sand Hill Road
Suite 101
Menlo Park CA 94025
New Enterprise
Associates VI, L.P.
(2).................... 3,298,462 -- 10.81 9.03
c/o New Enterprise
Associates
2490 Sand Hill Road
Menlo Park, CA 94025
Intel Corporation (3)... 3,076,924 -- 10.08 8.43
2200 Mission Boulevard
Santa Clara, CA 95052
Alta California
Partners, L.P. (4)..... 2,634,615 -- 8.63 7.22
c/o Alta Partners
One Embarcadero Center
Suite 4050
San Francisco, CA 94111
State of Michigan (5)... 1,538,462 -- 5.04 4.21
c/o Department of
Treasury
Bureau of Investments
430 West Allegan
Street, 3rd Floor
Lansing, MI 48922
Jean-Louis F. Gassee.... 3,952,595 20,834 12.94 10.82
Stewart Alsop (6)....... 3,298,462 -- 10.81 9.03
Garrett P. Gruener (7).. 2,634,615 -- 8.63 7.22
Barry M. Weinman (8).... 1,307,693 -- 4.29 3.58
Jean R. Calmon.......... 715,417 135,417 2.33 1.95
Steve M. Sakoman........ 510,528 350,417 1.65 1.38
Wesley S. Saia.......... 510,417 197,905 1.66 1.39
Christian E. Marchandise
(9).................... 436,847 -- 1.43 1.20
Roy Graham.............. 160,000 -- * *
Frank C. Boosman........ 72,167 72,167 * *
All officers and
directors as a group
(10 persons) (10)...... 13,598,741 936,740 43.24% 36.31%
</TABLE>
57
<PAGE>
- --------
* Represents beneficial ownership of less than one percent of the common
stock.
(1) August Capital L.P. holds these shares for itself and as nominee for
August Capital Strategic Partners, L.P. and August Capital Associates,
L.P.
(2) Includes 10,000 shares held by NEA Ventures 1996, L.P. an affiliated
entity.
(3) Includes 1,538,462 shares issuable pursuant to a warrant.
(4) Consists of 2,561,126 shares held by Alta California Partners, L.P. and
73,489 shares held by Alta Embarcadero Partners, LLC. These entities are
part of an affiliated group.
(5) The State of Michigan holds these shares as custodian of the Michigan
Public School Employees' Retirement System, State Employees' Retirement
System, Michigan State Police Retirement System, and Michigan Judges
Retirement System.
(6) Consists of 3,298,462 shares held by New Enterprise Associates VI, L.P.
and its affiliated entity. Mr. Alsop is a partner of New Enterprise
Associates, the general partner of New Enterprise Associates VI. Mr.
Alsop disclaims beneficial ownership of these shares except to the extent
of his pecuniary interest therein.
(7) Consists of 2,634,615 shares held by Alta California Partners and its
affiliated entity. Mr. Gruener is a partner of Alta California Partners
and its affiliated entity. Mr. Gruener disclaims beneficial ownership of
these shares except to the extent of his pecuniary interest therein.
(8) Consists of 1,121,977 shares held by AVI Capital, L.P., 173,731 shares
held by Associated Venture Investors III and 11,985 shares held by AVI
Silicon Valley Partners L.P. Mr. Weinman disclaims beneficial ownership
of these shares.
(9) Consists of 100 shares held directly by Mr. Marchandise, 747 shares and
452 shares issuable upon exercise of warrants held by Charlotte
Marchandise, 1,000 shares held by Smart Valley Investment LLC and 252,463
shares and 182,085 shares issuable upon exercise of warrants held by
Dotcom Ventures, S.A. Mr. Marchandise claims voting power over the shares
and warrant held by Charlotte Marchandise, his daughter. Mr. Marchandise
is the Chief Executive Officer of Smart Valley Investment, and disclaims
beneficial ownership of these shares except to the extent of his
pecuniary interest therein. Mr. Marchandise holds a 30% equity ownership
in Dotcom Ventures, and disclaims beneficial ownership in the shares and
warrants except to the extent of his pecuniary interest therein.
(10) Also includes an aggregate of 3,298,462 shares held by New Enterprise
Associates VI and its affiliated entity, 1,000 shares held by Smart
Valley Investment LLC, 747 shares and 452 shares upon the exercise of
warrants held by Charlotte Marchandise, 252,463 shares and 182,085 shares
upon the exercise of warrants held by Dotcom Ventures, 2,634,615 shares
held by Alta California Partners and its affiliated entity and 1,307,693
shares held by the AVI entities.
58
<PAGE>
DESCRIPTION OF CAPITAL STOCK
General
Immediately following the consummation of this offering, our authorized
capital stock will consist of 78,000,000 shares of common stock, par value
$.001, and 2,000,000 shares of preferred stock, par value $.001 per share.
Common Stock
As of March 31, 1999, there were 5,143,700 shares of common stock
outstanding. Subject to preferences that may apply to shares of preferred stock
outstanding at the time, the holders of outstanding shares of common stock are
entitled to receive dividends out of assets legally available at such time and
in such amounts as the board of directors may from time to time determine. Each
stockholder is entitled to one vote for each share of common stock held by such
stockholder on matters submitted to a vote of stockholders. Cumulative voting
for the election of directors is not provided for in our Amended and Restated
Certificate of Incorporation, which means that the holders of a majority of the
shares voted can elect all of the directors then standing for election. The
common stock is not entitled to preemptive rights and is not to subject to
conversion or redemption. Upon the occurrence of a liquidation, dissolution or
winding-up, the holders of shares of common stock would be entitled to share
ratably in the distribution of all of our assets remaining available for
distribution after satisfaction of all of its liabilities and the payment of
the liquidation preference of any outstanding preferred stock. Each outstanding
share of common stock is, and all shares of common stock to be outstanding upon
completion of this offering will be, fully paid and nonassessable.
Convertible Preferred Stock
As of March 31, 1999, there were 22,498,874 shares of convertible preferred
stock outstanding. The board of directors has the authority, within the
limitations and restrictions stated in our Amended and Restated Certificate of
Incorporation, to provide by resolution for the issuance of shares of
convertible preferred stock, in one or more classes or series, and to fix the
rights, preferences, privileges and restrictions, including dividend rights,
conversion rights, voting rights, terms of redemption, liquidation preferences
and the number of shares constituting any series or the designation of such
series. The issuance of convertible preferred stock could have the effect of
decreasing the market price of the common stock and could adversely affect the
voting and other rights of the holders of common stock.
Options
As of March 31, 1999, options to purchase a total of 5,910,347 shares of
common stock were outstanding and up to 3,589,653 additional shares of common
stock may be subject to options granted in the future under the 1999 Equity
Incentive Plan and 1999 Non-Employee Directors' Stock Option Plan
(collectively, the "Stock Plans"). See "Management" and " Summary of
Compensation." Recommendations for option grants under the Stock Plans are
otherwise made by the Compensation Committee, subject to ratification by the
full board of directors. The Compensation Committee may issue options with
varying vesting schedules, but all options granted pursuant to the Stock Plans
must be exercised within ten years from the date of grant.
Warrants
As of March 31, 1999, we had outstanding warrants to purchase an aggregate of
2,870,975 shares of our common stock at an exercise price ranging from $1.00 to
$3.58 per share, weighted average price of $2.31. The warrants expire at
various times ranging from June 17, 2000 to December 23, 2003. Generally, each
warrant contains provisions for the adjustment of the exercise price and the
aggregate number of shares issuable upon the exercise of the warrant under
certain circumstances, including stock dividends, stock splits,
reorganizations, reclassifications, consolidations and certain dilutive
issuances of securities at prices below the then existing warrant exercise
price. All warrants are currently exercisable.
59
<PAGE>
Delaware Anti-takeover Law and Amended and Restated Certificate of
Incorporation, Bylaw and Delaware Law
Upon completion of the merger, we are subject to the provisions of Section
203 of the Delaware General Corporation Law regulating corporate takeovers.
This section prevents Delaware corporations from engaging in business
combinations, including a merger or sale of more than 10% of the corporation's
assets, with any stockholder who, together with its affiliates and employees,
owns 15% or more of the corporation's outstanding voting stock, referred to as
an "interested stockholder", for three years following the date that such
stockholder became an interested stockholder unless:
. The transaction in which such stockholder became an interested
stockholder is approved by the board of directors prior to the date the
interested stockholder attained such status;
. Upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers; or
. On or subsequent to such date the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders by the affirmative vote of at least two-thirds of the
outstanding voting stock that is not owned by the interested
stockholder.
This statute could prohibit or delay mergers or other takeover or change-in-
control attempts with respect to Be and, accordingly, may discourage attempts
to acquire us.
Our Amended and Restated Certificate of Incorporation and bylaws also require
that, effective upon the closing of this offering, any action required or
permitted to be taken by stockholders of the Be must be effected at a duly
called annual or special meeting of the stockholders and may not be effected by
a consent in writing. In addition, as provided by the our bylaws, special
meetings of our stockholders may be called only by the chairman of the board of
directors, the Chief Executive Officer, the board of directors or by the
holders of shares entitled to cast not less than 50% of the votes at the
meeting. The Amended and Restated Certificate of Incorporation also provides
that, beginning upon the closing of this offering, the board of directors will
be divided into three classes, with each class staggered three-year terms, and
specifies that the provisions authorized number of directors may be changed
only by resolution of the board of directors. These provisions, which require
the vote of stockholders holding at least two-thirds of the outstanding shares
to amend, may have the effect of deferring hostile takeovers or delaying
changes in our control or management.
California Foreign Corporation Law
We are currently subject to Section 2115 of the California Corporations Code.
Among other things, Section 2115 limits the ability of a corporation to elect a
classified board of directors. Section 2115 provides that, regardless of a
company's legal domicile, certain provisions of California Code may be applied
to that company if the company meets certain requirements relating to its
property, payroll and sales in California, and if more than 50% of its
outstanding voting securities are held of record by persons having addresses in
California. Despite this, we will not be subject to Section 2115 if we are
qualified for trading as a national market security on the Nasdaq National
Market and we have at least 800 stockholders as of the record date of our most
recent annual meeting after becoming a public company. In addition, under
section 301.5 of the California Code we will be permitted to eliminate
cumulative voting and to maintain a staggered board since we will have
outstanding securities designated as qualified for trading as a national market
system security on the Nasdaq National Market.
Registration Rights
The holders of an aggregate of 23,931,192 shares of common stock, including
1,538,462 shares issuable upon exercise of warrants, or their transferees are
entitled to certain rights with respect to the registration of
60
<PAGE>
such shares under the Securities Act. These rights are provided under the terms
of the Investors' Rights Agreements between ourselves and the holders of these
registrable securities. Subject to certain limitations in this agreement, the
holders of the registrable securities may require, on three occasions at any
time after the third anniversary from the date of the Investors' Rights
Agreement, that we use its best efforts to register the registrable securities,
for public resale, provided that the proposed aggregate offering price of such
registrable securities exceeds $5,000,000. If we register any of our common
stock either for our own account or for the account of other security holders,
the holders of registrable securities are entitled to include their shares of
common stock in the registration. A holder's right to include shares in an
underwritten registration is subject to the ability of the underwriters to
limit the number of shares included in this offering. All fees, costs and
expenses of such registrations must be borne by us and all selling expenses,
including underwriting discounts, selling commissions and stock transfer taxes,
relating to the registrable securities must be borne by the holders of the
securities being registered.
Transfer Agent and Registrar
The Transfer Agent and Registrar for our common stock is Norwest Bank
Minnesota, N.A.
Listing
We have applied for quotation of our common stock on the Nasdaq National
Market under the trading symbol "BEOS."
61
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has not been any public market for our common
stock and no prediction can be made as to the effect, if any, that market sales
of shares of our common stock or the availability of shares of our common stock
for sale will have on the market price of our common stock prevailing from time
to time. Nevertheless, sales of substantial amounts of our common stock in the
public market, or the perception that such sales could occur, could adversely
affect the market price of our common stock and could impair our future ability
to raise capital through the sale of our equity securities. Immediately after
this offering, we will have outstanding 33,642,574 shares of common stock. Of
these shares, the 6,000,000 shares being offered are freely tradable, assuming
no exercise of the underwriters over-allotment option.
Our directors and officers, stockholders, optionholders and warrantholders,
who, as of March 31, 1999, held a total of shares of our
outstanding or issuable common stock have entered into lock-up agreements.
Under these lock-up agreements, they have agreed that they will not sell,
directly or indirectly, any shares of common stock without the prior written
consent of Volpe Brown Whelan & Company, LLC, for a period of 180 days from the
date of this prospectus. Of these shares, 26,017,300 become eligible for sale
in the public market 180 days after the date of this prospectus, subject in
some cases to volume limitations.
In general, under Rule 144, as currently in effect, a person or persons whose
shares are required to be aggregated, including an affiliate, who has
beneficially owned shares for at least one year is entitled to sell, within any
three-month period commencing 90 days after the date of this prospectus, a
number of shares that does not exceed the greater of:
. 1% of the then outstanding shares of common stock (approximately 365,135
shares immediately after this offering, assuming no exercise of the
underwriters over-allotment option); or
. the average weekly trading volume in the common stock during the four
calendar weeks preceding the date on which notice of such sale is filed,
subject to restrictions.
In addition, a person who is not deemed to have been our affiliate at any
time during the 90 days preceding a sale and who has beneficially owned the
shares proposed to be sold for at least two years would be entitled to sell
such shares under Rule 144(k) without regard to the requirements described
above. To the extent that shares were acquired from one of our affiliates, such
person's holding period for the purpose of effecting a sale under Rule 144
commences on the date of transfer from the affiliate.
As of March 31, 1999, options to purchase a total of 5,910,347 shares of
common stock were outstanding, of which options to purchase 765,489 shares were
exercisable. Upon the closing of this offering, we intend to file a
registration statement to register for resale the 11,000,000 shares of common
stock reserved for issuance either under our stock option plans or underlying
options granted outside of our plans. We expect such registration statement to
become effective immediately upon filing. Shares issued upon the exercise of
stock options granted under our stock option plans will be eligible for resale
in the public market from time to time subject to vesting and the expiration of
the lock-up agreements referred to above. Net of repurchases, 5,011,994 shares
have already been issued upon exercise of options granted under our plans.
These shares may be freely tradable subject to the requirements of Rule 701 and
contractual obligations beginning 180 days after the date of this prospectus.
As of March 31, 1999, preferred stockholders and warrantholders holding
approximately 23,931,192 shares of outstanding or issuable common stock had the
right to include their shares in registration statements relating to our
securities. All of these shares are subject to the lock-up agreements described
above. By exercising their registration rights and causing a large number of
shares to be registered and sold in the public market, these holders may cause
the price of the common stock to fall. In addition, any demand to include such
shares in our future registration statements could have a material adverse
effect on our ability to raise needed capital.
62
<PAGE>
UNDERWRITING
Under the terms and conditions contained in an underwriting agreement among
the underwriters and us, each of the underwriters, for whom Volpe Brown Whelan
& Company, LLC and Needham & Company, Inc., are acting as representatives, have
severally agreed to purchase from us the number of shares of common stock set
forth opposite its name below:
<TABLE>
<CAPTION>
Number of
Underwriter Shares
----------- ---------
<S> <C>
Volpe Brown Whelan & Company, LLC..................................
Needham & Company, Inc. ...........................................
----
Total..........................................................
====
</TABLE>
The underwriting agreement provides that the obligations of the several
underwriters to purchase shares of common stock are subject to approval of
certain legal matters by their counsel and to certain other conditions. Under
the terms and conditions of the underwriting agreement, all of the underwriters
are obligated to take and pay for all such shares of common stock if any are
taken.
The underwriters propose initially to offer the shares of common stock
directly to the public at the public offering price set forth on the cover page
of this prospectus and to certain dealers at such price, less a concession not
in excess of $ per share. The underwriters may allow, and such dealers
may reallow, concessions not in excess of $ per share of the common
stock to certain other dealers. After the initial public offering of the common
stock, the offering price of the common stock and other selling terms may be
changed by the underwriters.
Pursuant to the underwriting agreement, we have granted to the underwriters
an option, exercisable for 30 days from the date of this prospectus, to
purchase up to 900,000 additional shares of common stock on the same terms and
conditions as set forth on the cover page of this prospectus. The underwriters
may exercise this option solely to cover over-allotments. To the extent such
option is exercised, each underwriter will have a commitment subject to certain
conditions, to purchase a number of additional shares of common stock
proportionate to such underwriter's initial commitment pursuant to the
underwriting agreement.
From the date of this prospectus until 180 days after such date, we and all
of our stockholders, officers and directors have agreed not to:
. offer, sell, contract to sell, make any short sale, pledge or otherwise
dispose of, directly or indirectly, any shares of common stock or any
options to acquire shares of common stock or any options to acquire
shares of common stock or securities convertible into or exchangeable
for any other rights to purchase or acquire common stock; or
. enter into any swap or other agreements that transfers, in whole or in
part, any of the economic consequences or ownership of common stock,
without the prior consent of Volpe Brown Whelan & Company, LLC.
The underwriters have reserved for sale, at the initial public offering
price, shares of common stock for certain of our directors, officers,
employees, friends and family who have expressed an interest in purchasing
shares of common stock in this offering. Such persons are expected to purchase,
in the aggregate, not more than 5% of the common stock offered in this
offering. The number of shares available for sale to the general public in this
offering will be reduced to the extent such persons purchase such reserved
shares. Any reserved shares not purchased will be offered by the underwriters
on the same basis as other shares offered.
63
<PAGE>
We have agreed to indemnify the underwriters against certain liabilities,
losses and expenses, including liabilities under the Securities Act of 1933, or
to contribute to payments that the underwriters may be required to make.
Prior to this offering, there has been no public market for our common stock.
The initial public offering price for the shares of common stock in this
offering was determined by agreement between us and the underwriters. Among the
factors considered in making such determination were the history of, and the
prospects for, the industry in which we compete, an assessment of our
management, our present operations, our historical results of operations and
the trend of our revenues and earnings, our prospects for future earnings, the
general condition of the securities markets at the time of this offering and
the price of similar securities of generally comparable companies. We cannot
assure you that an active trading market will develop for our common stock or
that our common stock will trade in the public markets at or above the initial
public offering price.
In order to facilitate this offering, certain persons participating in this
offering may engage in transactions that stabilize, maintain or otherwise
affect the price of the common stock during and after this offering.
Specifically, the underwriters may over-allot or otherwise create a short
position in the common stock for their own account by selling more shares of
common stock than have been sold to them by us. The underwriters may elect to
cover any such short position by purchasing shares of common stock in the open
market or by exercising the over-allotment option granted to the underwriters.
In addition, the underwriters may stabilize or maintain the price of the common
stock by bidding for or purchasing shares of common stock in the open market
and may impose penalty bids, under which selling concessions allowed to
syndicate members or other broker-dealers participating in this offering are
reclaimed if shares of common stock previously distributed in this offering are
repurchased in connection with stabilization transactions or otherwise. The
effect of these transactions may be to stabilize or maintain the market price
at a level above that which might otherwise prevail in the open market. The
imposition of a penalty bid may also affect the price of the common stock to
the extent that it discourages resales. No representation is made as to the
magnitude or effect of any such stabilization or other transactions. Such
transactions may be effected on the Nasdaq National Market or otherwise and, if
commenced, may be discontinued at any time.
The representatives have informed us that the underwriters do not intend to
confirm sales to accounts over which the underwriters have discretionary
authority.
64
<PAGE>
LEGAL MATTERS
The validity of the issuance of the shares of common stock offered and
certain other matters will be passed upon for us by Cooley Godward LLP, Palo
Alto, California. Pillsbury Madison & Sutro LLP, Palo Alto, California, is
acting as counsel for the underwriters in connection with selected legal
matters relating to the shares of common stock offered by this prospectus. GC&H
Investments, an entity in which certain attorneys of Cooley Godward have an
interest, holds 50,000 shares of our common stock.
EXPERTS
PricewaterhouseCoopers LLP, independent accountants, have audited our
financial statements and schedule included in this prospectus as of December
31, 1997 and 1998 and for each of the three years in the period ended December
31, 1998, as set forth in their report, which includes an explanatory paragraph
about our ability to continue as a going concern and is included in this
prospectus. In addition, PricewaterhouseCoopers LLP have audited the financial
statements of StarCode Software, Inc. included in this prospectus as of
December 31, 1997 and for the period from September 14, 1996 (date of
inception) to December 31, 1996, the year ended December 31, 1997 and the
period from September 14, 1996 (date of inception) to December 31, 1996, as set
forth in their report which is included in this prospectus. Our financial
statements and the financial statements of StarCode are included in this
prospectus in reliance on PricewaterhouseCoopers LLP's reports, given on their
authority as experts in accounting and auditing.
65
<PAGE>
WHERE YOU CAN FIND MORE INFORMATION
We have filed with the Commission a registration statement on Form S-1
(including the exhibits, schedules and amendments to the registration
statement) under the Securities Act of 1933 with respect to the shares of
common stock to be sold in this offering. This prospectus does not contain all
of the information set forth in the registration statement. For further
information about us and the shares of common stock to be sold in this
offering, please refer to the registration statement. Statements contained in
this prospectus as to the contents of any contract, agreement or other document
referred to are not necessarily complete, and in each instance reference is
made to the copy of such contract, agreement or other document filed as an
exhibit to the registration statement, each such statement being qualified in
all respects by such reference.
You may read and copy all or any portion of the registration statement or any
other information we file at the SEC's public reference room at 450 Fifth
Street, N.W., Washington, D.C. 20549. You can request copies of these
documents, upon payment of a duplicating fee, by writing to the SEC. Please
call the SEC at 1-800-SEC-0330 for further information on the operation of the
public reference rooms. Our SEC filings, including the registration statement,
are also available to you on the Commission's Web site (http://www.sec.gov)
As a result of this offering, we will become subject to the information and
reporting requirements of the Securities Exchange Act of 1934, and will file
periodic reports, proxy statements and other information with the SEC. Upon
approval of the common stock for the quotation on the Nasdaq National Market,
such reports, proxy and information statements and other information may also
be inspected at the offices of Nasdaq Operations, 1735 K Street, NW,
Washington, DC 20006.
We intend to furnish our stockholders with annual reports containing audited
financial statements and with quarterly reports for the first three quarters of
each year containing unaudited interim consolidated financial information.
We intend to provide our stockholders with annual reports containing combined
financial statements audited by an independent accounting firm and quarterly
reports containing unaudited combined financial data for the first three
quarters of each year.
66
<PAGE>
Index to Consolidated Financial Statements
<TABLE>
<S> <C>
Be Incorporated
Report of Independent Accountants.......................................... F-2
Consolidated Balance Sheets................................................ F-3
Consolidated Statements of Operations...................................... F-4
Consolidated Statements of Stockholders' Deficit........................... F-5
Consolidated Statements of Cash Flows...................................... F-6
Notes to Consolidated Financial Statements................................. F-7
Pro Forma Condensed Consolidated Financial Information..................... F-26
StarCode Software, Inc.
Report of Independent Accountants.......................................... F-28
Balance Sheets............................................................. F-29
Statement of Operations.................................................... F-30
Statements of Shareholders' Deficit........................................ F-31
Statement of Cash Flows.................................................... F-32
Notes to Financial Statements.............................................. F-33
</TABLE>
F-1
<PAGE>
Report of Independent Accountants
April 2, 1999
To The Board of Directors and Stockholders of
Be Incorporated
In our opinion, the accompanying consolidated balance sheets, and the related
consolidated statements of operations, of stockholders' deficit and of cash
flows present fairly, in all material respects, the financial position of Be
Incorporated and its subsidiaries at December 31, 1997 and 1998, and the
results of their operations and their cash flows for each of the three years in
the period ended December 31, 1998, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
The accompanying consolidated financial statements have been prepared
assuming the Company will continue as a going concern. As discussed in Note 2
to these financial statements, the Company has incurred losses and negative
cash flows from operations in each year since inception and is dependent upon
obtaining sufficient financing in order to fund operations for 1999. These
matters raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
San Jose, California
F-2
<PAGE>
BE INCORPORATED
Consolidated Balance Sheets
<TABLE>
<CAPTION>
Pro Forma
Year Ended December 31, March 31,
-------------------------- March 31, 1999
1997 1998 1999 (see Note 12)
------------ ------------ ------------ -------------
(unaudited) (unaudited)
<S> <C> <C> <C> <C>
Assets
Current assets:
Cash and cash
equivalents.......... $ 699,000 $ 3,394,000 $ 1,027,000
Short-term
investments.......... 200,000 8,254,000 7,280,000
Accounts receivable... 37,000 477,000 342,000
Prepaid and other
current assets....... 87,000 327,000 367,000
------------ ------------ ------------
Total current
assets.............. 1,023,000 12,452,000 9,016,000
Property and equipment,
net.................... 251,000 403,000 425,000
Purchased web site
technology, net of
amortization........... -- 303,000 212,000
Other assets, net of
accumulated
amortization........... 29,000 476,000 430,000
------------ ------------ ------------
Total assets......... $ 1,303,000 $ 13,634,000 $ 10,083,000
============ ============ ============
Liabilities, mandatorily
redeemable convertible
preferred stock and
stockholders' equity
(deficit)
Current liabilities:
Accounts payable...... $ 571,000 $ 576,000 $ 538,000
Accrued expenses...... 606,000 1,094,000 1,052,000
Technology license
obligations, current
portion.............. -- 688,000 705,000
Deferred revenue...... 52,000 392,000 747,000
Notes payable to
shareholders......... 3,000,000 -- --
------------ ------------ ------------
Total current
liabilities......... 4,229,000 2,750,000 3,042,000
Technology license
obligations, net of
current portion........ -- 779,000 601,000
------------ ------------ ------------
Total liabilities.... 4,229,000 3,529,000 3,643,000
------------ ------------ ------------
Mandatorily redeemable
convertible preferred
stock $0.001 par value:
Shares authorized:
22,500,000
Shares issued and
outstanding:
14,116,000 in 1997,
22,498,874 in 1998 and
1999 (unaudited) and
none pro forma
(unaudited)........... 14,052,000 38,005,000 38,137,000
------------ ------------ ------------
Liquidation value:
$41,360,000
Commitments (Note 6)
Stockholders' Deficit:
Common stock, $.001
par value:
Shares authorized:
40,000,000 shares;
Shares issued and
outstanding:
4,573,240 in 1997,
5,094,757 in 1998,
5,143,700 in 1999
(unaudited) and
27,642,574 pro forma
(unaudited).......... 5,000 5,000 5,000 $ 28,000
Additional paid-in
capital................ 15,002,000 25,302,000 32,956,000 71,070,000
Deferred stock
compensation........... (1,333,000) (4,490,000) (10,095,000) (10,095,000)
Accumulated deficit..... (30,652,000) (48,717,000) (54,563,000) (54,563,000)
------------ ------------ ------------ ------------
Total stockholders'
equity (deficit).... (16,978,000) (27,900,000) (31,697,000) $ 6,440,000
------------ ------------ ------------ ============
Total liabilities,
mandatorily
redeemable preferred
stock and
stockholders' equity
(deficit)........... $ 1,303,000 $ 13,634,000 $ 10,083,000
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
<PAGE>
BE INCORPORATED
Consolidated Statements of Operations
<TABLE>
<CAPTION>
Three Months Ended
Year Ended December 31, March 31,
--------------------------------------- ------------------------
1996 1997 1998 1998 1999
----------- ------------ ------------ ----------- -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net revenues............ $ -- $ 86,000 $ 1,199,000 $ 64,000 $ 309,000
Cost of revenues........ -- 84,000 2,161,000 143,000 85,000
----------- ------------ ------------ ----------- -----------
Gross profit (loss)..... -- 2,000 (962,000) (79,000) 224,000
Operating expenses:
Research and
development.......... 3,039,000 4,422,000 5,792,000 1,075,000 1,887,000
Sales and marketing... 2,711,000 4,032,000 4,496,000 856,000 1,882,000
General and
administrative....... 1,292,000 1,694,000 2,310,000 451,000 737,000
Amortization of
deferred stock
compensation......... 955,000 867,000 3,881,000 537,000 1,665,000
----------- ------------ ------------ ----------- -----------
Total operating
expenses........... 7,997,000 11,015,000 16,479,000 2,919,000 6,171,000
----------- ------------ ------------ ----------- -----------
Loss from operations.... (7,997,000) (11,013,000) (17,441,000) (2,998,000) (5,947,000)
Interest expense........ (33,000) (75,000) (159,000) (55,000) (36,000)
Other income and
expenses, net.......... 253,000 655,000 739,000 129,000 137,000
----------- ------------ ------------ ----------- -----------
Net loss................ (7,777,000) (10,433,000) (16,861,000) (2,924,000) (5,846,000)
----------- ------------ ------------ ----------- -----------
Dividend related to
beneficial conversion
feature of preferred
stock.................. (1,204,000)
Issuance of warrants to
induce conversion of
preferred stock........ (114,000)
Accretion of mandatorily
redeemable convertible
preferred stock........ (11,000) (15,000) (358,000) (66,000) (133,000)
----------- ------------ ------------ ----------- -----------
Net loss attributable to
common stockholders.... $(7,902,000) $(10,448,000) $(18,423,000) $(2,990,000) $(5,979,000)
=========== ============ ============ =========== ===========
Net loss per common
share--basic and
diluted................ $ (10.85) $ (4.87) $ (5.80) $ (1.09) $ (1.54)
=========== ============ ============ =========== ===========
Shares used in per
common share
calculation--basic and
diluted................ 728,000 2,145,000 3,178,000 2,740,000 3,881,000
=========== ============ ============ =========== ===========
Pro forma net loss per
common share--basic and
diluted................ $ (.69) $ (.22)
============ ===========
Shares used in pro forma
loss per common share
calculation--basic and
diluted................ 24,303,000 26,380,000
============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
<PAGE>
BE INCORPORATED
Consolidated Statements of Stockholders' Deficit
<TABLE>
<CAPTION>
Preferred Stock Common Stock Additional Deferred
------------------- ----------------- Paid-in Stock Accumulated
Shares Amount Shares Amount Capital Compensation Deficit Total
---------- ------- --------- ------ ----------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, January 1,
1996................... 7,922,000 $ 8,000 30,768 $ -- $11,105,000 $ -- $(12,328,000) $ (1,215,000)
Exercise of common
stock warrants........ -- -- 1,371 -- 21,000 -- -- 21,000
Conversion of shares of
Series A, A1 and B
preferred stock to
common stock, net of
conversion costs of
$13,000............... (7,922,000) (8,000) 26,468 -- (5,000) -- -- (13,000)
Issuance of warrants to
induce conversion of
preferred stock....... -- -- -- -- 114,000 -- (114,000) --
Issuance of common
stock to a developer
for services
rendered.............. -- -- 23,333 -- 21,000 -- -- 21,000
Exercise of stock
options............... -- -- 4,488,100 5,000 444,000 -- -- 449,000
Deferred stock
compensation related
to grants of stock
options............... -- -- -- -- 1,859,000 (1,859,000) -- --
Amortization of
deferred stock
compensation.......... -- -- -- -- -- 955,000 -- 955,000
Net loss............... -- -- -- -- -- -- (7,777,000) (7,777,000)
Accretion of
mandatorily redeemable
convertible preferred
stock................. -- -- -- -- (11,000) -- -- (11,000)
---------- ------- --------- ------ ----------- ------------ ------------ ------------
Balance, December 31,
1996................... -- -- 4,570,040 5,000 13,548,000 (904,000) (20,219,000) (7,570,000)
Issuance of common
stock to director .... -- -- 50,000 -- 177,000 -- -- 177,000
Exercise of stock
options............... -- -- 185,000 -- 19,000 -- -- 19,000
Repurchase of common
stock for cash........ -- -- (231,800) -- (23,000) -- -- (23,000)
Deferred stock
compensation related
to grants of stock
options............... -- -- -- -- 1,537,000 (1,537,000) -- --
Cancellation of
options............... -- -- -- -- (241,000) 241,000 -- --
Amortization of
deferred stock
compensation.......... -- -- -- -- -- 867,000 -- 867,000
Net loss............... -- -- -- -- -- -- (10,433,000) (10,433,000)
Accretion of
mandatorily redeemable
convertible preferred
stock................. -- -- -- -- (15,000) -- -- (15,000)
---------- ------- --------- ------ ----------- ------------ ------------ ------------
Balance, December 31,
1997................... -- -- 4,573,240 5,000 15,002,000 (1,333,000) (30,652,000) (16,978,000)
Repurchase of common
stock................. -- -- (248,700) -- (25,000) -- -- (25,000)
Exercise of stock
options............... -- -- 770,217 205,000 -- -- 205,000
Sale of option to
purchase preferred
stock
and warrants to
purchase common
stock................. -- -- -- 1,322,000 -- -- 1,322,000
Exercise of option to
purchase preferred
stock and warrants to
purchase common
stock................. -- -- -- (1,322,000) -- -- (1,322,000)
Issuance of warrants to
purchase common
stock................. -- -- -- -- 2,149,000 -- -- 2,149,000
Deferred stock
compensation related
to grants of stock
options............... -- -- -- -- 7,472,000 (7,472,000) -- --
Cancellation of
options............... -- -- -- -- (434,000) 434,000 -- --
Amortization of
deferred stock
compensation.......... -- -- -- -- -- 3,881,000 -- 3,881,000
Net loss............... -- -- -- -- -- -- (16,861,000) (16,861,000)
Beneficial conversion
feature related to
issuance of preferred
stock................. -- -- -- -- 1,204,000 -- -- 1,204,000
Dividend related to
beneficial conversion
feature of preferred
stock................. -- -- -- -- -- -- (1,204,000) (1,204,000)
Accretion of
mandatorily redeemable
convertible preferred
stock................. -- -- -- -- (358,000) -- -- (358,000)
Other -- -- -- -- 87,000 -- -- 87,000
---------- ------- --------- ------ ----------- ------------ ------------ ------------
Balance, December 31,
1998................... -- -- 5,094,757 5,000 25,302,000 (4,490,000) (48,717,000) (27,900,000)
Repurchase of common
stock................. -- -- (32,285) -- (3,000) -- -- (3,000)
Exercise of stock
options............... -- -- 81,228 -- 26,000 -- -- 26,000
Deferred stock
compensation related
to grants of stock
options............... -- -- -- -- 7,270,000 (7,270,000) -- --
Amortization of
deferred stock
compensation.......... -- -- -- -- -- 1,665,000 -- 1,665,000
Compensation expense on
grant of fully vested
options............... -- -- -- -- 494,000 -- -- 494,000
Net loss............... -- -- -- -- -- -- (5,846,000) (5,846,000)
Accretion of
mandatorily redeemable
convertible preferred
stock................. -- -- -- -- (133,000) -- -- (133,000)
---------- ------- --------- ------ ----------- ------------ ------------ ------------
Balance, March 31, 1999
(unaudited)............ -- $ -- 5,143,700 $5,000 $32,956,000 $(10,095,000) $(54,563,000) $(31,697,000)
========== ======= ========= ====== =========== ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
<PAGE>
BE INCORPORATED
Consolidated Statements of Cash Flows
<TABLE>
<CAPTION>
Three Months Ended March
Year Ended December 31, 31,
--------------------------------------- -------------------------
1996 1997 1998 1998 1999
----------- ------------ ------------ ------------ -----------
(unaudited)
<S> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(7,777,000) $(10,433,000) $(16,861,000) $ (2,924,000) $(5,846,000)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... 104,000 156,000 855,000 153,000 188,000
Licensed technology
used in research and
development.......... -- -- 1,852,000 --
Amortization of
discount on
technology license
obligations.......... -- -- 130,000 26,000 36,000
Increase in
allowances for sales
return............... -- -- 10,000 -- 12,000
Compensation expense
incurred on issuance
of stock............. 19,000 172,000 -- -- 494,000
Amortization of
deferred stock
compensation......... 955,000 867,000 3,881,000 537,000 1,665,000
Changes in assets and
liabilities (in
1998, net of effects
of acquisition):
Accounts
receivable......... (298,000) 261,000 (450,000) (54,000) 123,000
Prepaid and other
current assets..... (97,000) 85,000 (93,000) (88,000) (40,000)
Other assets........ (7,000) 17,000 (142,000) (40,000) --
Accounts payable.... (326,000) 187,000 5,000 103,000 (38,000)
Accrued expenses.... 417,000 72,000 573,000 184,000 (42,000)
Deferred revenue.... -- 52,000 340,000 5,000 355,000
----------- ------------ ------------ ------------ -----------
Net cash used in
operating
activities....... (7,010,000) (8,564,000) (9,900,000) (2,098,000) (3,093,000)
----------- ------------ ------------ ------------ -----------
Cash flow provided by
(used in) investing
activities:
Acquisition of property
and equipment......... (171,000) (208,000) (323,000) (88,000) (75,000)
Acquisition of licensed
technology............ -- -- (1,373,000) (166,000) (196,000)
Purchases of short-term
investments........... (9,018,000) (6,185,000) (35,213,000) (12,000,000) (1,043,000)
Sales of short-term
investments........... 4,150,000 10,853,000 12,399,000 1,392,000 2,017,000
Maturities of short
term investments...... -- -- 14,760,000 -- --
Acquisition of StarCode
(net of cash
acquired)............. -- -- (562,000) -- --
----------- ------------ ------------ ------------ -----------
Net cash provided
by (used in)
investing
activities....... (5,039,000) 4,460,000 (10,312,000) (10,862,000) 703,000
----------- ------------ ------------ ------------ -----------
Cash flows provided by
financing activities:
Proceeds from issuance
of preferred stock,
net................... 12,760,000 -- 20,156,000 18,957,000 --
Proceeds from issuance
of common stock
warrants.............. -- -- 1,248,000 -- --
Proceeds from option to
purchase Series 2
preferred stock and
common stock
warrants.............. -- -- 1,322,000 1,322,000 --
Proceeds from issuance
of common stock....... 470,000 24,000 206,000 -- 26,000
Repurchase of common
stock................. -- (23,000) (25,000) (4,000) (3,000)
Proceeds from issuance
of notes payable...... -- 3,000,000 -- -- --
Proceeds from issuance
of notes payable to
officers.............. 1,000,000 -- -- -- --
Repayments of notes
payable to officers... (719,000) -- -- -- --
----------- ------------ ------------ ------------ -----------
Net cash provided
by financing
activities....... 13,511,000 3,001,000 22,907,000 20,275,000 23,000
----------- ------------ ------------ ------------ -----------
Net increase (decrease)
in cash and cash
equivalents........... 1,462,000 (1,103,000) 2,695,000 7,315,000 (2,367,000)
Cash and cash
equivalents, beginning
of period............. 340,000 1,802,000 699,000 699,000 3,394,000
----------- ------------ ------------ ------------ -----------
Cash and cash
equivalents, end of
period................ $ 1,802,000 $ 699,000 $ 3,394,000 $ 8,014,000 $ 1,027,000
=========== ============ ============ ============ ===========
Supplemental schedule
of noncash financing
activities:
Conversion of Series A,
Series A1, and Series
B preferred stock to
common stock, net of
expenses totaling
$13,000............... $10,390,000 $ -- $ -- $ -- $ --
=========== ============ ============ ============ ===========
Conversion of notes
payable and accrued
interest to preferred
stock................. $ 1,266,000 $ -- $ 3,104,000 $ -- $ --
=========== ============ ============ ============ ===========
Issuance of preferred
stock to bankers...... -- -- $ 345,000 $ 245,000 --
=========== ============ ============ ============ ===========
Issuance of warrants to
induce conversion of
preferred stock....... $ 114,000 $ -- $ -- $ -- $ --
=========== ============ ============ ============ ===========
Allocation of proceeds
from option to
purchase preferred
stock and warrants.... $ -- $ -- $ 1,322,000 $ -- $ --
=========== ============ ============ ============ ===========
Dividend related to
beneficial conversion
feature of preferred
stock................. $ -- $ -- $ 1,204,000 $ -- $ --
=========== ============ ============ ============ ===========
Accretion of
mandatorily redeemable
preferred stock....... $ 11,000 $ 15,000 $ 358,000 $ 66,000 $ 133,000
=========== ============ ============ ============ ===========
Future obligations
under noncancelable
technology licenses... $ -- $ -- $ 696,000 $ 1,213,000 $ --
=========== ============ ============ ============ ===========
Unearned stock based
compensation related
to stock option
grants, net of
cancellations......... $ 1,859,000 $ 1,296,000 $ 7,038,000 $ 4,340,000 $ 7,270,000
=========== ============ ============ ============ ===========
</TABLE>
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements
NOTE 1--NATURE OF BUSINESS:
Be Incorporated (the "Company") offers the Be Operating System ("BeOS"), an
operating system designed for digital media applications and Internet
appliances. The Company markets and sells BeOS directly to end users and
resellers and distributors. Prior to 1998, the Company was engaged primarily in
research and development, raising capital and development of its markets and
was in the development stage.
NOTE 2--SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Basis of preparation
These financial statements have been prepared on a basis of accounting
assuming that the Company is a going concern, which contemplates the
realization of assets and satisfaction of liabilities in the normal course of
business. The Company has incurred losses and negative cash flows from
operations in each year since inception and is dependent upon obtaining
sufficient financing in order to fund operations for 1999. These matters raise
substantial doubt about the Company's ability to continue as a going concern.
Management is in the process of investigating alternative methods of raising
the required financing for 1999 and thereafter. If management is unable to
obtain such financing adjustments may be necessary to the recorded amounts of
assets and liabilities. These financial statements do not reflect any such
adjustments.
Principles of consolidation
These consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
Foreign currency translation
The functional currency of the Company's foreign subsidiary is the U.S.
Dollar. Nonmonetary assets and liabilities are remeasured into U.S. Dollars at
historical rates, monetary assets and liabilities are remeasured at exchange
rates in effect at the end of the year and income statement accounts are
remeasured at average rates for the period. Remeasurement gains and losses of
the Company's foreign subsidiary are included in the results of operations and
are not significant.
Unaudited interim results
The accompanying interim consolidated financial statements as of March 31,
1999, and for the three months ended March 31, 1998 and 1999, together with the
related notes, are unaudited. The unaudited interim financial statements have
been prepared on the same basis as the annual financial statements and, in the
opinion of management, reflect all adjustments, which include only normal
recurring adjustments, necessary to present fairly the Company's financial
position, results of operations and its cash flows as of March 31, 1999 and for
the three months ended March 31, 1998 and 1999. The results for the three
months ended March 31, 1999 are not necessarily indicative of the results to be
expected for the year ending December 31, 1999.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amount of assets and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported
amounts of revenues and expenses during the reported period. Actual results
could differ from those estimates.
F-7
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
Financial instruments
The Company considers all highly liquid investments with an original or
remaining maturities of three months or less at the date of purchase to be cash
equivalents. Cash and cash equivalents are deposited with two major banks in
the United States. Deposits in these banks may exceed the amount of insurance
provided on such deposits. The Company has not experienced any losses on its
deposits of its cash and cash equivalents.
Management has classified all of its short-term investments as available for
sale. Realized gains and losses are calculated using the specific
identification method. Realized gains and losses in 1996, 1997 and 1998 and
unrealized holding gains and losses at December 31, 1997 and 1998 were not
significant.
The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses, and notes payable approximate fair value due to their short
maturities. The fair value of short term investments is set forth in note 4 of
notes to the consolidated financial statements.
Certain risks and concentrations
The Company's revenue is derived entirely of sales of BeOS. At December 31,
1998, one customer accounted for 98% of the Company's accounts receivable.
Subsequent to December 31, 1998, this amount was paid in full. At March 31,
1999 (unaudited), three customers accounted for 42%, 16% and 15% of accounts
receivable, respectively. In addition one customer accounted for 37% of net
revenues for the year ended December 31, 1998 and 23% (unaudited) of net
revenues for the three months ended March 31, 1999.
The demand and acceptance of the Company's product is dependent upon its
ability to license key enabling technologies which allow computers to work with
other digital media devices such as digital cameras, set-top boxes, and digital
video types. If the Company is unable to license these enabling technologies at
favorable terms or at all the Company may experience lower demand for its
product.
The Company depends on development tools provided by a limited number of
third party vendors. Together with application developers, the Company relies
primarily upon software development tools provided by two companies. If one or
both of these companies fail to support or maintain these development tools,
the Company will have to support the tools itself or transition to another
vendor. Any maintenance or support of the tools by the Company or transition
could be time consuming, could delay product release and upgrade schedule and
could delay the development and availability of third party applications used
on the Company's BeOS. Failure to procure the needed software development tools
or any delay in availability of third party applications could negatively
impact the Company's ability and the ability of third party application
developers to release and support BeOS and applications that run it or they
could negatively and materially affect the acceptance and demand for BeOS, our
business and prospects.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, generally three years. Upon disposal, the cost of
the asset and related accumulated depreciation are removed from the accounts
and any resulting gain or loss is included in the results of operations.
Depreciation expense for 1996, 1997, and 1998 was $104,000, $156,000, and
$202,000, respectively.
Accounting for Long-Lived Assets and Purchased Software
The Company reviews property and equipment, purchased software and technology
licenses and purchased Web site technology for impairment whenever events or
changes in circumstances indicate that the carrying
F-8
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
amount of an asset may not be recoverable. Recoverability is measured by
comparison of its carrying amount to future net cash flows the assets are
expected to generate. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the projected discounted future cash flows arising
from the asset.
At each balance sheet, the unamortized cost of purchased software is compared
to the net realizable value of the related software product. The amount by
which the unamortized cost exceeds the net realizable value of the software is
charged to operations. The net realizable value of the software product is
determined by estimating future gross revenues and reduced by the estimated
future costs of selling the product.
Income taxes
The Company accounts for its income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
Advertising costs
Advertising costs, included in sales and marketing expenses, are expensed as
incurred and were $6,000, $14,000 and $38,000 in 1996, 1997 and 1998,
respectively.
Research and development costs
Costs incurred in the research and development of new software products are
expensed as incurred, including minimum payments made and due to third parties
for technology incorporated into the Company's product, until technological
feasibility is established. Development costs are capitalized beginning when a
product's technological feasibility has been established and ending when the
product is available for general release to customers. To date, products and
enhancements have generally reached technological feasibility and have been
released for sale at substantially the same time.
Revenue recognition
The Company's revenue is derived from licensing fees from product sales to
end users either by direct-order on the Company's web site or sales by a
distributor.
The Company adopted the provisions of Statement of Position 97-2 or SOP 97-2,
Software Revenue Recognition, as amended by Statement of Position 98-4,
Deferral of the Effective Date of Certain Provisions of SOP 97-2, effective
January 1, 1998. SOP 97-2 supersedes Statement of Position 91-1, Software
Revenue Recognition, and delineates the accounting for software product and
maintenance revenues. Under SOP 97-2, the Company recognizes product revenues
from orders on the Company's web site upon shipment, provided a credit card
authorization is received, the fee is fixed and determinable, collection of
resulting receivables is probable and product returns are reasonably estimable.
The Company uses a standard shrink wrap license for all of its sales. Under the
license, the Company is obligated to provide limited telephone support to end
users who purchase the Company's product and provides a 5-day money back
guarantee. The Company accrues the costs of providing telephone support upon
shipment of the product based on the historical cost of providing such support
to its customers. In addition, upon shipment of its product, the Company
records an allowance for estimated sales returns.
Product revenue for sales to its distributors is recognized upon sell through
to an end user provided a signed contract exists, the fee is fixed and
determinable and collection is probable. The Company has
F-9
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
recognized revenue from these distributors upon sale by the distributors to an
end user because the Company does not have sufficient experience with the
distributors to reasonably estimate returns.
Under certain circumstances, the Company offers an upgrade to its product in
conjunction with product sales at no additional charge. Generally, such rights
are offered prior to new versions being released and give the customers who
purchase products between established dates the right to such an upgrade.
Revenue is allocated to an upgrade right based on the objective evidence of
fair value or if not sold separately, the price determined by management. The
Company recognizes upgrade revenue when the criteria for product revenue
recognition from end users set forth above are met.
At December 31, 1998 and March 31, 1999, deferred revenues consisted of
revenue related to upgrades deliverable in the future and distributor sales not
sold through to end users.
Prior to the adoption of SOP 97-2, the Company recognized revenue from the
sale of products upon shipment if remaining obligations were insignificant,
collection of the resulting accounts receivable was probable and product
returns were reasonably estimable. Revenue for 1997 was entirely from direct
sale of products to end users.
Stock-based compensation
The Company uses the intrinsic value method of Accounting Principles Board
Opinion No. 25, "Accounting for Stock Issued to Employees," in accounting for
its employee stock options, and presents disclosure of pro forma information
required under Financial Accounting Standards Board Statement No. 123 or SFAS
123, "Accounting for Stock-Based Compensation."
Comprehensive income
The Company has adopted the provisions of SFAS No. 130, or SFAS 130,
"Reporting Comprehensive Income." SFAS 130, establishes standards for reporting
comprehensive income and its components in financial statements. Comprehensive
income, as defined, includes all changes in equity during a period from non-
owner sources. There was no difference between the Company's net loss and its
total comprehensive loss for 1996, 1997 and 1998 and for the three months ended
March 31, 1998 and 1999 (unaudited).
F-10
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
Net loss per common share
Basic net loss per common share is computed by dividing net loss available to
common stockholders by the weighted average number of vested common shares
outstanding for the period. Diluted net loss per common share is computed
giving effect to all dilutive potential common shares, including options,
warrants and preferred stock. Options, warrants and preferred stock were not
included in the computation of diluted net loss per common share in 1996, 1997
and 1998 because the effect would be antidilutive. A reconciliation of the
numerator and denominator used in the calculation of basic and diluted net loss
per common share follows (in thousands, except per share data):
<TABLE>
<CAPTION>
Three Months
Ended March 31,
----------------
1996 1997 1998 1998 1999
------- -------- -------- ------- -------
(unaudited)
<S> <C> <C> <C> <C> <C>
Net loss per common share, basic
and diluted:
Net loss...................... $(7,777) $(10,433) $(16,861) $(2,924) $(5,846)
Dividend related to beneficial
conversion feature of
preferred stock.............. (1,204)
Issuance of warrants to induce
conversion of preferred
stock........................ (114)
Accretion of mandatorily
redeemable convertible
preferred stock.............. (11) (15) (358) (66) (133)
------- -------- -------- ------- -------
Numerator for net loss per
common share, basic and
diluted.................. (7,902) (10,448) (18,423) (2,990) (5,979)
Denominator for basic and
diluted loss per common
share:
Weighted average common
shares outstanding......... 728 2,145 3,178 2,740 3,881
======= ======== ======== ======= =======
Net loss per common share
basic and diluted............ $(10.85) $ (4.87) $ (5.80) $ (1.09) $ (1.54)
======= ======== ======== ======= =======
Antidilutive securities:
Options to purchase common
stock...................... 961 987 2,205 2,322 1,943
Common stock subject to
repurchase................. 3,020 1,921 1,389 1,688 1,089
Preferred stock............. 14,116 14,116 22,499 14,116 22,499
Warrants.................... 1,220 1,220 2,870 2,862 2,870
------- -------- -------- ------- -------
19,317 18,244 28,963 20,988 28,401
======= ======== ======== ======= =======
</TABLE>
Recent accounting pronouncements
In March 1998, the Accounting Standards Executive Committee ("AcSEC") issued
Statement of Position No. 98-1 or SOP 98-1, "Accounting for the Costs of
Computer Software Developed or Obtained for Internal Use," which provides
guidance on accounting for the cost of computer software developed or obtained
for internal use. SOP 98-1 is effective for financial statements for fiscal
years beginning after December 15, 1998. The Company is currently evaluating
the impact of SOP 98-1 on its financial statements and related disclosures.
In December 1998, AcSEC released Statement of Position 98-9 or SOP 98-9,
Modification of SOP 97-2, "Software Revenue Recognition." SOP 98-9 amends SOP
97-2 to require that an entity recognize revenue for multiple element
arrangements by means of the "residual method" when (1) there is no vendor-
specific objective evidence ("VSOE") of the fair values of all the undelivered
elements that are not accounted for by
F-11
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
means of long-term contract accounting, (2) VSOE of fair value does not exist
for one or more of the delivered elements, and (3) all revenue recognition
criteria of SOP 97-2 (other than the requirement for VSOE of the fair value of
each delivered element) are satisfied. The provisions of SOP 98-9 that extend
the deferral of certain paragraphs of SOP 97-2 became effective December 15,
1998. These paragraphs of SOP 97-2 and SOP 98-9 will be effective for
transactions that are entered into in fiscal years beginning after March 15,
1999. Retroactive application is prohibited. The Company is currently
evaluating the impact of the requirements of SOP 98-9 and the effects, if any,
on its current revenue recognition policies.
In April 1998, the AcSEC issued Statement of Position 98-5, or SOP 98-5,
"Reporting on the Costs of Start-Up Activities." This standard requires
companies to expense the costs of start-up activities and organization costs as
incurred. In general, SOP 98-5 is effective for fiscal years beginning after
December 15, 1998. The Company believes the adoption of SOP 98-5 will not have
a material impact on its results of operations.
In June 1998, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 133, or SFAS 133, Accounting for Derivative
Instruments and Hedging Activities. SFAS 133 establishes new standards of
accounting and reporting for derivative instruments and hedging activities.
SFAS 133 requires that all derivatives be recognized at fair value in the
statement of financial position, and that the corresponding gains or losses be
reported either in the statement of operations or as a component of
comprehensive income, depending on the type of hedging relationship that
exists. SFAS 133 will be effective for fiscal years beginning after June 15,
1999. The Company does not currently hold derivative instruments or engage in
hedging activities.
NOTE 3--ACQUISITIONS:
StarCode acquisition
On April 30, 1998, the Company acquired StarCode Software, Inc. ("StarCode")
for an aggregate purchase price of $567,000. StarCode owned and operated an
electronic commerce web site which the Company and certain developers of
application software for use with BeOS used to sell their products. The Company
had previously contracted with StarCode to provide access to this web site and
paid a fee based on the level of revenue generated by orders therefrom. The
acquisition has been accounted for using the purchase method of accounting and
the results of operations of StarCode have been included with those of the
Company since the date of acquisition.
The fair value of the assets acquired from StarCode and a summary of the
consideration exchanged for these assets is as follows:
<TABLE>
<S> <C>
Total purchase price.............................................. $567,000
========
Assets acquired: Tangible assets, including cash, accounts
receivable and property and equipment............................ $ 22,000
Purchased web site technology..................................... 545,000
--------
$567,000
========
</TABLE>
The amount allocated to purchased Web Site technology, for which
technological feasibility had been established at the acquisition date, is
being amortized on a straight-line basis over eighteen months. Accumulated
amortization at December 31, 1998 was $242,000.
F-12
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
Summarized below are the unaudited pro forma results of operations of the
Company as though StarCode had been acquired at the beginning of 1997.
Adjustments have been made for the estimated increases in amortization related
to purchased web site technology and other appropriate pro forma adjustments.
<TABLE>
<CAPTION>
1997 1998
------------ ------------
<S> <C> <C>
Revenue......................................... $ 95,000 $ 1,215,000
Net loss........................................ $(11,013,000) $(17,064,000)
Net loss per common share, basic and diluted.... $ (5.13) $ (5.37)
</TABLE>
The above amounts are based upon certain assumptions and estimates which the
Company believes are reasonable. The pro forma financial information presented
above is not necessarily indicative of either the results of operations that
would have occurred had the acquisition taken place at the beginning of fiscal
1997 or of future results of operations of the combined companies.
NOTE 4--BALANCE SHEET ACCOUNTS:
<TABLE>
<CAPTION>
December 31,
---------------------------------------
1997 1998
----------------- ---------------------
Fair
Cost Value Cost Fair Value
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
Short-term investments
Federal government obligations...... $ -- $ -- $5,264,000 $5,264,000
Corporate debt obligations.......... 200,000 200,000 2,990,000 2,990,000
-------- -------- ---------- ----------
$200,000 $200,000 $8,254,000 $8,254,000
======== ======== ========== ==========
</TABLE>
All short-term investments mature within one year.
<TABLE>
<CAPTION>
December 31,
---------------------
1997 1998
--------- ----------
<S> <C> <C>
Property and equipment, net
Computer equipment.................................... $ 456,000 $ 775,000
Furniture and fixtures................................ 128,000 168,000
--------- ----------
584,000 943,000
Less: accumulated depreciation........................ (333,000) (540,000)
--------- ----------
$ 251,000 $ 403,000
========= ==========
Accrued expenses
License and royalty liabilities....................... $ -- $ 152,000
Product warranty reserve.............................. 154,000 77,000
Payroll and related................................... 223,000 531,000
Other................................................. 229,000 334,000
--------- ----------
$ 606,000 $1,094,000
========= ==========
</TABLE>
F-13
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
During 1998, the Company terminated 7 employees, incurring costs of $189,000.
At December 31, 1998, there remained $125,000 of such accrued costs that were
subsequently paid in January 1999.
<TABLE>
<CAPTION>
December 31,
-------------------
1997 1998
------- -----------
<S> <C> <C>
Other assets, net
Technology licenses..................................... $ -- $ 2,069,000
Deposits................................................ 29,000 29,000
------- -----------
29,000 2,098,000
Less: accumulated amortization.......................... -- (1,622,000)
------- -----------
$29,000 $ 476,000
======= ===========
</TABLE>
During 1998 the Company entered into a licensing agreement for the delivery
of a development tool which compiled software for use in versions of BeOS for
two microprocessor architectures. The present value of the non cancelable
payments due under this agreement of $1,406,000 were initially recorded as a
technology license asset and were amortized over an estimated useful life of
three years (see Note 6).
However, in June 1998, based on the performance characteristics of this tool
on one of the microprocessor architectures, management deemed that it did not
meet its requirements as a development tool for BeOS and made alternative
arrangements with another company to develop a suitable replacement for that
architecture. Also in June 1998, the manufacturer of systems based on the other
microprocessor architecture announced that they would not release details of
any of their future systems. As a result, the Company was unable to support any
of the future platforms. Since no estimated future cash flows were expected
from the licensed technology, a permanent impairment in the value of $1,211,000
was recorded in June 1998. This impairment charge has been included in cost of
sales in the statement of operations.
In addition, in 1998 the Company entered into other technology license
agreements including non cancelable minimum payments. The present value of
payments due under these agreements (see Note 6) is recorded as an asset and
amortized over the lesser of the term of the agreement or three years, if
technological feasibility was established at the date the agreement was signed
or as research and development costs if technological feasibility had not been
established and there was no alternative future use for the licensed
technology. During 1998, costs capitalized and expensed as research and
development under these agreements were $663,000 and $641,000, respectively.
NOTE 5--NOTES PAYABLE:
During 1995, the Company issued notes payable to two officers in exchange for
$985,000 of cash with an additional $1 million issued as notes payable in
exchange for cash in 1996. These uncollateralized notes payable bore interest
at an annual rate of 10%, and were payable at various dates during fiscal year
1996. In April 1996, $1,266,000 of the notes payable were converted into Series
1 preferred stock (see Note 7) and the remaining $719,000 in notes was repaid.
During 1997, the Company issued notes payable to certain shareholders in
exchange for $3,000,000 of cash. These notes payable bore interest at an annual
rate of 10%, and were payable in February 1998. These notes payable and related
accrued interest were converted to Series 2 convertible preferred stock in
February 1998 (see Note 7).
F-14
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
NOTE 6--COMMITMENTS:
The Company leases its facility under a non cancelable operating lease
expiring February, 2003. Future annual minimum lease payments as of December
31, 1998 are as follows:
<TABLE>
<S> <C>
1999.............................................................. $ 912,000
2000.............................................................. 875,000
2001.............................................................. 887,000
2002.............................................................. 519,000
2003.............................................................. 74,000
----------
$3,267,000
==========
</TABLE>
Total rent expense was $373,000, $400,000, and $825,000 for 1996, 1997 and
1998, respectively.
In addition, the Company has entered into several technology licensing
agreements which include non cancelable payments. These payments have been
recorded at the net present value using a discount rate of 10% per annum. The
future minimum payments under these agreement are as follows:
<TABLE>
<S> <C>
1999............................................................. $ 808,000
2000............................................................. 748,000
2001............................................................. 45,000
2002............................................................. 45,000
----------
1,646,000
Less discount.................................................... (179,000)
----------
1,467,000
Less current portion............................................. (688,000)
----------
$ 779,000
==========
</TABLE>
NOTE 7--STOCKHOLDERS' EQUITY:
Convertible Preferred Stock
In April 1996, pursuant to the Company's recapitalization plan, the Company
declared an automatic conversion of all its outstanding shares of Series A,
Series A1 and Series B preferred stock into common stock and, immediately
thereafter, the Company's outstanding common stock was subject to a reverse
stock split of 1 for 300.
All common and common equivalent shares in these financial statements have
been adjusted to give retroactive effect to this reverse stock split.
Mandatorily Redeemable Convertible Preferred Stock
The mandatorily redeemable convertible preferred stock comprise the following
series:
<TABLE>
<CAPTION>
Number of Number of Common Shares
Shares Shares Issued Reserved for Liquidation
Authorized and Outstanding Conversion Value
---------- --------------- ------------- -----------
<S> <C> <C> <C> <C>
Series 1............... 14,116,000 14,116,000 14,116,000 $14,116,000
Series 2............... 8,384,000 8,382,874 8,382,874 27,244,000
---------- ---------- ---------- -----------
22,500,000 22,498,874 22,498,874 $41,360,000
========== ========== ========== ===========
</TABLE>
F-15
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
Changes in the mandatorily redeemable convertible preferred stock during
1996, 1997 and 1998 were as follows:
<TABLE>
<CAPTION>
Amount
-----------
<S> <C>
Balance, January 1, 1996....................................... $ --
Issuance of Series 1......................................... 14,026,000
Accretion to redemption value................................ 11,000
-----------
Balance, December 31, 1996..................................... 14,037,000
Accretion to redemption value................................ 15,000
-----------
Balance, December 31, 1997..................................... 14,052,000
Issuance of Series 2:
February 1998, net of issuance costs of $1,432,000......... 22,391,000
December 1998, net of issuance costs of $217,000 and
allocation to warrants of $2,001,000...................... 1,204,000
Beneficial conversion feature................................ (1,204,000)
Dividend related to beneficial conversion feature of
preferred stock............................................. 1,204,000
Accretion to redemption value................................ 358,000
-----------
Balance, December 31, 1998..................................... $38,005,000
===========
</TABLE>
Issuance of Series 1 Mandatorily Redeemable Convertible Preferred Stock
In April 1996, the Company issued 12,850,000 shares of its Series 1
mandatorily redeemable convertible preferred stock at $1.00 per share for gross
cash proceeds of $12.9 million. Concurrent with the issuance in April of Series
1 mandatorily redeemable convertible preferred stock, $1,266,000 of outstanding
promissory notes were converted into an additional 1,266,000 shares of the
Company's Series 1 mandatorily redeemable convertible preferred stock.
Issuance of Series 2 Mandatorily Redeemable Convertible Preferred Stock
In February 1998, the Company sold 6,706,318 shares of its Series 2
mandatorily redeemable convertible preferred stock to investors for total gross
proceeds of $21,795,000. In addition, the Company issued 923,077 shares if its
Series 2 mandatorily redeemable convertible preferred stock in exchange for the
$3,000,000 of notes payable outstanding at December 31, 1997, and an additional
31,950 shares were issued for forgiveness for interest related to the notes
payable.
In connection with the sale of Series 2 mandatorily redeemable convertible
preferred stock, the Company issued the lead investor an option to purchase an
additional 615,385 shares of Series 2 mandatorily redeemable convertible
preferred stock and other warrants to purchase up to 1,538,462 shares of common
stock, subject to certain terms and conditions. The right to purchase Series 2
mandatorily redeemable convertible preferred stock and the warrants to purchase
common stock were to expire on December 31, 1998. The lead investor exercised
this option in December 1998 and the additional shares were issued. In
addition, as the result of this exercise, the warrants issued to the lead
investor become exercisable (see "Warrants" below). The Company received total
cash consideration of $5 million from the lead investor of which $3 million was
received in February 1998 and $2 million in December 1998.
In February 1998, the net proceeds of $2.9 million ($3 million net of
issuance costs of $0.1 million) were allocated to preferred stock and the
option to purchase the additional shares of preferred stock and the warrant for
common stock (the "Option") based on the relative fair values of each of these
instruments. The fair value
F-16
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
of the option was estimated at $2,584,000 using the Black-Scholes model and the
following assumptions; dividend yield of 0%, volatility of 60%, risk free
interest rate of 5.51% and a term of eight months. The resulting allocation was
as follows:
<TABLE>
<S> <C>
Series 2 mandatorily redeemable convertible preferred stock..... $1,535,000
Option.......................................................... 1,322,000
----------
$2,857,000
==========
</TABLE>
In December 1998, the proceeds from the issuance of preferred stock have been
allocated to the preferred stock and warrants to purchase 1,538,462 shares of
common stock based on the relative fair values of each of these instruments.
The fair value of the warrants was estimated at $6,202,000 using the Black-
Scholes model and the following assumptions; dividend yield of 0%, volatility
of 60%, risk free interest rate of 4.76% and a term of five years. The proceeds
comprised $1.9 ($2 million net of issuance costs of $0.1 million) million in
cash consideration plus the fair value of the options to purchase preferred
stock and the common stock warrants discussed above and totaled $3,205,000. The
resulting allocation was as follows:
<TABLE>
<S> <C>
Series 2 mandatorily redeemable convertible preferred stock..... $1,204,000
Common stock warrants........................................... 2,001,000
----------
$3,205,000
==========
</TABLE>
In connection with these issuances the Company issued 75,375 and 30,769
shares of Series 2 mandatorily redeemable convertible preferred stock in
February 1998 and December 1998 to the bankers in lieu of investment bankers
fees. The fair value of these shares has been recorded and included as issuance
costs of Series 2 mandatorily redeemable convertible preferred stock financing
(see Warrants below).
Terms of Mandatorily Redeemable Convertible Preferred Stock
Both Series 1 and Series 2 mandatorily redeemable convertible preferred stock
("Series 1" or "Series 2" preferred stock) are redeemable at the option of the
holders at $1.00 and $3.25 per share, respectively, plus any declared but
unpaid dividends. Series 1 preferred stock can be redeemed at any date after
the sixth anniversary of the original issue date upon a vote for redemption by
the majority of the holders of the then outstanding shares voting together as a
separate class. Series 2 preferred stock is redeemable at any date after the
seventh anniversary of the original issue date if two-thirds majority of the
holders of the then outstanding shares voting together as a separate class pass
a resolution requiring redemption.
The amount at which Series 2 preferred stock is recorded is less than its
redemption value as a result of amounts allocated to the option to purchase
Series 2 preferred stock and warrants to purchase common stock. In addition,
the cash proceeds from Series 2 preferred stock were reduced by investment
banker fees paid in cash and the estimated value of warrants issued to the
Investment Bankers (see Warrants below). Series 1 preferred stock has also been
reduced below redemption value by cash issuance costs. Accordingly, the
preferred stock is being accreted to its redemption value each period by using
the interest method. The amount of accretion recorded in each period increases
the net loss applicable to the common stockholders.
Each share of Series 1 and Series 2 preferred stock is convertible initially
on a one for one basis, at the option of the holder, into a number of fully
paid shares of common stock as determined by dividing the respective preferred
stock issue price by the conversion price in effect at the time. The initial
conversion price of Series 1 and Series 2 preferred stock is $1.00 and $3.25
per share, respectively, and is subject to adjustment in accordance with the
antidilution provisions contained in the Company's Articles of Incorporation.
F-17
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
Conversion is automatic (i) upon the closing of a firm commitment underwritten
public offering in which the public offering price equals or exceeds $5.00 per
share (adjusted to reflect subsequent stock dividends, stock splits or
recapitalization) and the aggregate proceeds raised exceed $10,000,000 or (ii)
written consent of the holders of at least two-thirds of the then outstanding
shares of Series 1 and Series 2 preferred stock. The Company has reserved
shares of common stock in the event of conversion.
In the event of any liquidation, dissolution or winding up of the Company,
the holders of Series 1 and Series 2 preferred stock are entitled to receive,
prior and in preference to any distribution of any of the assets of the Company
to the holders of common stock, an amount per share equal to the sum of $1.00
and $3.25 per share, respectively, of preferred stock (as adjusted for any
stock dividends, combinations or splits) plus any declared but unpaid
dividends. In the event that upon liquidation or dissolution, the assets and
funds of the Company are insufficient to permit the payment to the holders of
preferred stock of the full preferential amounts, then the entire assets and
funds of the Company, legally available for distribution, are to be distributed
ratably among the holders of Series 1 and Series 2 preferred stock in
proportion to the full preferential amount each is otherwise entitled to
receive.
After payment has been made to the holders of Series 1 and Series 2 preferred
stock, any remaining assets and funds are to be distributed equally among both
the holders of the Series 1 and Series 2 preferred stock and common stock as if
all shares of preferred stock had been converted into common stock; however,
the distributions to the holders of Series 1 and Series 2 preferred stock is
limited to $5.00 per share.
The holders of shares of Series 1 and Series 2 preferred stock are entitled
to receive dividends at the rate of $0.10 and $.0325, respectively, per share
per annum, in preference to any payment of cash dividends on common stock. Such
dividends are payable whenever declared by the board of directors out of assets
legally available and are noncumulative. As of December 31, 1998, and March 31,
1999 (unaudited) no dividends have been declared.
The holder of each share of Series 1 and Series 2 preferred stock is entitled
to one vote for each share of common stock into which such share of Series 1
and Series 2 preferred stock is convertible. The holders of Series 1 and Series
2 preferred stock also have demand and piggyback registration rights.
The Company has the right of first refusal to repurchase any outstanding
shares Series 1 and Series 2 preferred stock in the event the holder of such
shares receives and accepts an offer from a third party to purchase the
shareholder's preferred stock. This right expires on the effective date of a
registration statement as filed with the SEC.
Warrants
The Company has issued fully exercisable warrants to purchase common stock as
follows:
<TABLE>
<CAPTION>
Number
of Shares Number
Expiration Under the of Shares
Issuance Date Date Warrants Reserved Exercise Price
------------- ---------- --------- --------- --------------
<S> <C> <C> <C> <C>
April 1996 March 2001 1,219,648 1,219,648 $1.00 per share
December 1998 December 2003 1,538,462 1,538,462 $3.25 per share
May and December 1998 June 17, 2000 112,865 112,865 $3.58 per share
---------
2,870,975
=========
</TABLE>
F-18
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
The April 1996 warrants were issued in connection with the conversion of
Series B preferred stock to common stock. The fair value of the warrants of
$114,000 was estimated using the Black-Scholes model and the following
assumptions; dividend yields of 0%, volatility of 60% risk free interest rate
of 6.05% and a term of 5 years. The estimated value of the warrants was
accounted for as a dividend to Series B preferred stockholders and increased
net loss attributable to common stockholders in 1996.
The December 1998 warrants were issued in connection with the issuance of
Series 2 preferred stock in December 1998 and valued as described above under
"Issuance of Series 2 mandatorily redeemable convertible preferred stock".
The May and December 1998 warrants were issued for investment banker fees
related to the issuance of the Series 2 preferred stock. The fair value of the
warrants of $148,000 was estimated using the Black-Scholes model and the
following assumptions; dividends yield of 0%, volatility of 60% risk free
interest rate of 4.76%-5.51% and a term of 5 years. The value of the warrant, a
stock issuance cost, was offset against the proceeds from the Series 2
preferred stock.
Stock Option Plan
In 1992 the Company adopted a stock option plan (the "Plan") under which
5,000 shares of the Company's common stock had been reserved for issuance of
stock options to employees, directors, or consultants under terms and
provisions established by the board of directors. In 1997 and 1998, the Company
reserved an additional 5,995,000 shares and 2,000,000 shares, respectively, for
issuance under the Plan. Under the terms of the Plan, incentive options may be
granted to employees, and nonstatutory options may be granted to employees,
directors and consultants, at prices no less than 100% and 85%, respectively,
of the fair market value of the Company's common stock at the date of grant, as
determined by the board of directors. Options granted under the Plan are
immediately exercisable; however, shares exercised under the Plan are subject
to the Company's right of repurchase at the end of the holder's association
with the Company. The Company's right of repurchase generally lapses as to 20%
of the shares one year from the date of grant and 1/60th each month thereafter
or as to 25% of the shares one year from the date of grant and 1/48th each
month thereafter. The options expire ten years from the date of grant.
On March 30, 1999, the board of directors terminated the Plan. No further
options will be granted under this plan.
F-19
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
Activity under the Plan is set forth below:
<TABLE>
<CAPTION>
Options Outstanding
---------------------------------
Average
Weighted
Available Price per Exercise
for Grant Shares Share Price Amount
---------- ---------- ----------- --------- ------
<S> <C> <C> <C> <C> <C>
Balance, January 1,
1996................... 1,198 3,534 $ 51.00 $ 180,000 $51.00
Options authorized.... 5,995,000 --
Options granted....... (5,519,000) 5,519,000 0.10 552,000 0.10
Options exercised..... -- (4,488,100) 0.10 (449,000) 0.10
Options terminated.... 73,534 (73,534) 0.10-51.00 (187,000) 2.54
---------- ---------- --------- ------
Balance, December 31,
1996................... 550,732 960,900 0.10-51.00 96,000 0.10
Options granted....... (410,500) 410,500 0.10-0.20 48,000 0.12
Options exercised..... -- (185,000) 0.10-0.20 (19,000) 0.10
Options terminated.... 199,000 (199,000) 0.10-51.00 (21,000) 0.10
---------- ---------- --------- ------
Balance, December 31,
1997................... 339,232 987,400 0.10-0.20 104,000 0.11
Options authorized.... 2,000,000 -- -- -- --
Options granted....... (2,436,500) 2,436,500 0.20-0.35 840,000 0.34
Options exercised..... -- (770,217) 0.10-0.35 (205,000) 0.27
Options terminated.... 448,756 (448,756) 0.10-0.35 (94,000) 0.21
---------- ---------- --------- ------
Balance, December 31,
1998................... 351,488 2,204,927 0.10-0.35 645,000 $ 0.29
Options granted....... (39,000) 39,000 0.35 14,000 0.35
Options exercised..... (81,228) 0.10-0.35 (26,000) 0.32
Options terminated.... 219,352 (219,352) 0.35 (71,000) 0.33
---------- ---------- --------- ------
Balances, March 31,
1999................... 531,840 1,943,347 $0.10-$0.35 $ 562,000 $ 0.29
========== ========== ========= ======
</TABLE>
At December 31, 1996, 1997 and 1998 all outstanding options were exercisable
of which 771,892 shares, 631,600 shares, and 1,691,474 shares, at weighted
average exercise prices of $0.10, $0.11, and $0.31, respectively, are subject
to the Company's right of repurchase upon exercise. In addition, 3,020,086,
1,920,929 shares and 1,339,302 shares of the Company's outstanding common stock
is subject to the Company's right of repurchase at weighted average prices of
$0.10, $0.10 and $0.17, respectively.
Pro forma stock compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("SFAS No. 123"). Had compensation cost been determined based on
the fair value at the grant date for the awards in 1996, 1997 and 1998
consistent with the provisions of SFAS No. 123, the Company's net loss for
1996, 1997 and 1998, respectively, would have been as follows (in thousands,
except per share amounts):
<TABLE>
<CAPTION>
1996 1997 1998
------- -------- --------
<S> <C> <C> <C>
Net loss attributable to common
stockholders--as reported................... $(7,902) $(10,448) $(18,423)
Net loss attributable to common
stockholders--pro forma..................... $(8,002) $(10,488) $(18,442)
Net loss per common share--basic and diluted
as reported................................. $(10.85) $ (4.87) $ (5.80)
Net loss per common share--basic and diluted
pro forma................................... $(10.99) $ (4.89) $ (5.80)
</TABLE>
Such pro forma disclosures may not be representative of future compensation
cost because options vest over several years and additional grants are made
each year.
F-20
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
The fair value of each option grant is estimated on the date of grant using a
type of Black-Scholes option pricing model with the following assumptions used
for grants:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Expected volatility........................ 0% 0% 0%
Weighted average risk-free interest rate... 5.82-6.69% 5.85-6.63% 4.59-6.03%
Expected life (from vesting date).......... 5 years 5 years 5 years
Expected dividends......................... 0% 0% 0%
</TABLE>
Based on the above assumptions, the aggregate fair value and weighted average
fair value per share of options granted in 1996, 1997 and 1998 were $3,234,000,
$1,535,000 and $7,766,000, and $0.59, $3.69 and $3.19, respectively.
During 1996, 1997 and 1998, options to purchase 5,519,000, 410,500 and
2,436,500 shares of the Company's common stock, with weighted average exercise
prices of $0.10, $0.12 and $0.34 per share and weighted average fair values of
$0.59, $3.69 and $3.19 per share, were granted with exercise prices below the
estimated market value at the date of grant, respectively.
The options outstanding and currently exercisable by exercise price at
December 31, 1998 are as follows:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
-------------------------------- --------------------
Weighted
Average
Remaining Weighted Weighted
Contractual Average Average
Number Life Exercise Number Exercise
Exercise Prices Outstanding (years) Price Exercisable Price
--------------- ----------- ----------- -------- ----------- --------
<S> <C> <C> <C> <C> <C>
$0.10-0.20............ 538,400 7.9 $0.11 538,400 $0.11
$0.35................. 1,666,527 9.2 $0.35 1,666,527 $0.35
--------- --- ---------
2,204,927 9.0 2,204,927
========= === =========
</TABLE>
1999 Equity Incentive Plan
On March 30, 1999 the board of directors adopted the Equity Incentive Plan
(the "Incentive Plan") under which a total of up to 8,000,000 shares of common
stock have been authorized for issuance. The Incentive Plan provides for the
grant of incentive stock options, non-qualified stock options, restricted stock
purchase rights and stock bonuses to employees, consultants and directors.
Incentive stock options may be granted only to employees. The exercise price of
incentive stock options granted under the Incentive Plan must be at least equal
to the fair market value of the Company common stock on the date of grant. The
exercise price of non-qualified stock options is set by the administrator of
the Incentive Plan, but can be no less than 85% of the fair market value. The
maximum term of options granted under the Incentive Plan is ten years. Options
granted under the terms of the Incentive Plan vest over four years.
At March 31, 1999, options to purchase an aggregate of 3,367,000 shares were
outstanding at an exercise price of $5.00 per share. These options were granted
on March 30, 1999 when the deemed fair value of the common stock was $7.00 per
share. At March 31, 1999, 2,689,653 shares are currently available for future
grant under stock options, restricted stock purchase rights and stock bonuses.
Of the 8,000,000 shares of common stock reserved, however, 1,943,347 shares of
common stock only become available for future grant under stock options and
stock purchase rights to the extent that options granted and still outstanding
under the Plan as of March 30, 1999, terminate unexercised.
F-21
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
1999 Non-Employee Directors' Stock Option Plan
On March 30, 1999 the board of directors also adopted the Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"), and have reserved a total
of 1,500,000 shares of common stock for issuance thereunder. The exercise price
of options under the Directors' Plan will be equal to the fair market value of
the common stock on the date of grant. The maximum term of the options granted
under the Directors' Plan is ten years. Each initial grant under the Directors'
Plan will vest at 1/4th of the shares subject to the option one year after the
date of grant and 1/48th of the shares each month thereafter. The rate of
vesting of each subsequent grant will be 1/48th of the shares on a monthly
schedule after the date of grant. The board may amend (subject to stockholder
approval as necessary) or terminate the Directors' Plan at any time.
As of March 31, 1999, options to purchase an aggregate of 600,000 shares were
outstanding at an exercise price of $5.00 per share. These options were granted
on March 30, 1999 when the deemed fair value of the common stock was $7.00 per
share. At March 31, 1999, 900,000 shares are currently available for future
grants.
Deferred stock compensation
During 1996, 1997 and 1998, the Company issued options to certain employees
under the Plan with exercise prices below the deemed fair market value of the
Company's common stock at the date of grant. In accordance with the
requirements of APB 25, the Company has recorded deferred compensation for the
difference between the exercise price of the stock options and the fair market
value of the Company's stock at the date of grant. This deferred compensation
is amortized to expense over the period during which the Company's right to
repurchase the stock lapses or the options become exercisable, generally four
or five years. At December 31, 1998, the Company had recorded deferred
compensation related to these options in an amount of $10,193,000 (net of
cancellations), of which $955,000, $867,000 and $3,881,000 had been amortized
to expense during 1996, 1997 and 1998. Future compensation expense from options
granted through December 31, 1998 is estimated to be $2,831,000, $1,167,000,
$448,000 and $44,000 for 1999, 2000, 2001, and 2002, respectively.
In the three month period ended March 31, 1999, the Company issued options to
purchase 39,000 shares under the Plan, 3,367,000 options under the 1999
Incentive Plan and 600,000 options under the Directors' Plan. The Company
recorded deferred compensation related to these options and the options granted
through December 31, 1998 in the total amount of $17,464,000 (unaudited).
Future compensation expense from these options is estimated to be $4,869,000,
$3,411,000, $1,425,000, $387,000 for the rest of 1999, 2000, 2001, and 2002
(unaudited), respectively.
F-22
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
NOTE 8--INCOME TAXES:
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
-------------------------
1997 1998
----------- ------------
<S> <C> <C>
Net operating loss carryforwards.................. $ 5,680,000 $ 10,993,000
Tax credit carryforwards.......................... 414,000 879,000
Property and equipment and intangibles............ -- 40,000
Other............................................. 4,000 168,000
----------- ------------
6,098,000 12,080,000
Less: valuation allowance......................... (6,098,000) (12,080,000)
----------- ------------
Net deferred tax asset............................ $ -- $ --
=========== ============
</TABLE>
Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its net deferred tax assets.
The principal items accounting for the difference between income taxes
benefit at the U.S. statutory rate and the benefit from income taxes reflected
in the statement of operations are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
---------- ---------- ----------
<S> <C> <C> <C>
Federal benefit at statutory rate........ $2,722,000 $3,652,000 $5,901,000
Nondeductible expenses................... (419,000) (304,000) (1,419,000)
Net operating losses and benefits........ (2,303,000) (3,348,000) (4,482,000)
---------- ---------- ----------
$ -- $ -- $ --
========== ========== ==========
</TABLE>
At December 31, 1998, the Company had approximately $28,370,000 of net
operating loss carryforwards and $580,000 of research and development credits
to offset future federal income taxes. The Company also had $23,060,000 of net
operating loss carryforwards and $299,000 of research and development credits
to offset future state income taxes. These carryforwards expire in the years
2000 through 2018 if not utilized. Due to changes in ownership, the Company's
net operating loss and credit carryforwards may become subject to certain
annual limitations.
NOTE 9--401(k) PROFIT SHARING PLAN:
The Company has a 401(k) Profit Sharing Plan which covers all employees.
Under the Plan, employees are permitted to contribute up to 15% of gross
compensation not to exceed the annual limitation for any plan year ($10,000 in
1998). Discretionary contributions may be made by the Company. No contributions
were made by the Company during 1996, 1997 and 1998.
NOTE 10--MARKETING TO DEVELOPERS:
During 1996 and 1997, the Company manufactured and sold a computer, which
used its operating system, to software developers for amounts that approximated
the Company's direct material and labor cost. The costs of the product and the
revenues are included in sales and marketing expense, as the units were shipped
so that application software would be developed and available when the
Company's computer operating systems were shipped to end users. Revenues from
the sale of these computer systems included in sales and marketing expenses
totaled $1,844,000 and $288,000 in 1996 and 1997, respectively.
F-23
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
NOTE 11--GEOGRAPHIC INFORMATION:
The Company has adopted the Financial Accounting Standards Board's Statements
of Financial Accounting Standards No. 131, or SFAS 131, "Disclosures about
Segments of an Enterprise and Related Information," effective for fiscal years
beginning after December 31, 1997. SFAS 131 supersedes Statement of Financial
Accounting Standards No. 14 or SFAS 14, "Financial Reporting for Segments of a
Business Enterprise." SFAS 131 changes current practice under SFAS 14 by
establishing a new framework on which to base segment reporting and also
requires interim reporting of segment information.
Management uses one measurement of profitability for its business. The
Company markets its products and related services to customers in the United
States, Europe and Asia.
All long lived assets are maintained in the United States. Revenue
information by geographic area are as follows:
<TABLE>
<CAPTION>
Revenues
--------
<S> <C>
1997
United States..................................................... $ 86
Europe............................................................
Asia.............................................................. --
------
Total........................................................... $ 86
======
1998
United States..................................................... $ 565
Europe............................................................ 194
Asia.............................................................. 440
------
Total........................................................... $1,199
======
</TABLE>
NOTE 12--UNAUDITED PRO FORMA NET LOSS PER COMMON SHARE AND PRO FORMA
STOCKHOLDERS' EQUITY (DEFICIT):
Pro forma basic net loss per common share has been computed as described in
Note 2 and also gives effect to common equivalent shares from preferred stock
that will automatically convert upon the closing of the Company's initial
public offering (using the as-if-converted method) for 1998 and the three
months ended March 31, 1999.
F-24
<PAGE>
BE INCORPORATED
Notes to Consolidated Financial Statements (continued)
A reconciliation of the numerator and denominator used in the calculation of
pro forma basic and diluted net loss per common share follows (in thousands
except per share data):
<TABLE>
<CAPTION>
Three Months
Ended
March 31,
1998 1999
------------ ------------
<S> <C> <C>
Pro forma net loss per common share, basic and
diluted:
Net loss attributable to common stockholder... $(18,423,000) $(5,979,000)
Less dividend related to beneficial conversion
feature of preferred stock................... 1,204,000
Less accretion of mandatorily redeemable
convertible preferred stock.................. 358,000 133,000
------------ -----------
Net loss.................................... $(16,861,000) $(5,846,000)
============ ===========
Shares used in computing net loss per common
share, basic and diluted....................... 3,178,000 3,881,000
Adjustments to reflect the effect of the assumed
conversion of the preferred stock.............. 21,125,000 22,499,000
------------ -----------
Shares used in computing pro forma net loss per
common share, basic and diluted................ 24,303,000 26,380,000
------------ -----------
Pro forma net loss per common share, basic and
diluted........................................ $ (.69) $ (.22)
------------ -----------
</TABLE>
If the offering contemplated by this prospectus is consummated, all of the
mandatorily redeemable convertible preferred stock outstanding, as of the
closing date will automatically be converted into an aggregate of approximately
22,498,874 shares of common stock based on the shares of manditority redeemable
convertible preferred stock outstanding at March 31, 1999. Unaudited pro forma
stockholders' equity at March 31, 1999, as adjusted for the conversion of
manditority redeemable convertible preferred stock, is disclosed on the balance
sheet.
NOTE 13--SUBSEQUENT EVENTS
On May 4, 1999, the Company authorized the reincorporation of the Company as
a Delaware corporation by effecting a merger of the Company with and into Be
Incorporated, a Delaware corporation, in which each outstanding share of the
Company's common stock and preferred stock shall be converted into one share of
Be Incorporated's common stock or preferred stock, as appropriate. The Company
also authorized the filing of an Amended and Restated Certificate of
Incorporation for Be Incorporated to add certain anti-takeover provisions, to
remove Series 1 and Series 2 preferred stock and authorize 2,000,000 shares of
undesignated preferred stock.
In addition, on May 4, 1999, the Company adopted the Employee Stock Purchase
Plan under which 1,500,000 shares have been reserved for issuance and approved
the issuance and sale in an underwritten public offering of up to 6,900,000
shares of the Company's common stock.
F-25
<PAGE>
BE INCORPORATED
Pro Forma Combined Condensed Consolidated Financial Information
Effective April 30, 1998, Be Incorporated ("Be" or the "Company") acquired
all the outstanding shares of StarCode Software, Inc. ("StarCode"). The
acquisition was accounted for using the purchase method of accounting and
accordingly, the purchase price was allocated to the tangible and intangible
assets acquired and liabilities assumed on the basis of their fair values on
the acquisition date.
The purchase price of approximately $567,000 consisted entirely of cash
payments. Of the total purchase price, $545,000 has been allocated to purchased
website technology which is being amortized over its estimated useful life of
eighteen months. The remainder of the purchase price was allocated to tangible
assets acquired and liabilities assumed.
The following unaudited pro forma financial statement gives effect to the
acquisition of substantially all of the assets and liabilities of StarCode by
Be as if such acquisition had taken place as of January 1, 1998.
The accompanying unaudited pro forma combined condensed consolidated
statement of operations for the year ended December 31, 1998 combines the
historical consolidated statement of operations of the Company for the year
ended December 31, 1998 and the historical statement of operations of StarCode
for the four months ended April 30, 1998 as if the acquisition had occurred on
January 1, 1998. The results of operations of StarCode are only included for
the four months ended April 30, 1998 as Be's historical results of operations
for the year ended December 31, 1998 include the results of StarCode since the
date of acquisition on April 30, 1998. The unaudited pro forma combined
condensed consolidated statement of operations gives effect to the acquisition
using the purchase method of accounting based upon allocation of the purchase
price of StarCode, and the adjustments described in the notes attached hereto.
The pro forma combined information is not necessarily indicative of future
operations or the actual results that would have occurred had the acquisition
been consummated at the beginning of the periods presented.
The pro forma combined information and related adjustments are based upon
available information and upon certain assumptions, which the Company believes,
are reasonable. The pro forma combined condensed consolidated statement of
operations should be read in conjunction with the Company's and StarCode's
historical financial statements and notes thereto contained elsewhere herein.
The adjustment applied to Be's historical financial statements and those of
StarCode to arrive at the pro forma consolidated financial information was to
record the amortization of the acquired completed technology totaling $545,000
over its estimated useful life of eighteen months.
F-26
<PAGE>
BE INCORPORATED
Pro Forma Combined Condensed Consolidated Statement of Operations (unaudited)
<TABLE>
<CAPTION>
Year Ended December 31, 1998
----------------------------------------
Be StarCode Adjustments Pro Forma
-------- -------- ----------- ---------
<S> <C> <C> <C> <C>
Net revenue........................... $ 1,199 $ 16 $ -- $ 1,215
Cost of revenues...................... 2,161 1 -- 2,162
-------- ----- ----- --------
Gross profit.......................... (962) 15 -- (947)
Operating expenses:
Sales and marketing................. 5,792 29 -- 5,821
Research and development............ 4,496 16 120 4,632
General and administrative.......... 2,310 54 -- 2,364
Amortization of deferred stock
compensation....................... 3,881 -- -- 3,881
-------- ----- ----- --------
Total operating expenses.......... 16,479 99 120 16,698
-------- ----- ----- --------
Loss from operations.................. (17,441) (84) (120) (17,645)
Interest and other income, net........ 580 1 -- 581
-------- ----- ----- --------
Net loss.............................. $(16,861) $ (83) $(120) $(17,064)
-------- ----- ----- --------
Pro forma net loss per share
Basic and diluted................... $ (5.31) $(.21) $ -- $ (5.37)
-------- ----- ----- --------
Weighted average shares--basic and
diluted............................ 3,178 400 -- 3,178
======== ===== ===== ========
</TABLE>
F-27
<PAGE>
Report of Independent Accountants
April 9, 1999
To the Board of Directors and Stockholders of Be Incorporated
In our opinion, the accompanying balance sheets and the related statements of
operations, of shareholders' deficit and of cash flows present fairly, in all
material respects, the financial position of StarCode Software, Inc. (a company
in the development stage) at December 31, 1996 and 1997, and the results of its
operations and its cash flows for the period from September 14, 1996 (date of
inception) to December 31, 1996, the year ended December 31, 1997 and the
cumulative period September 14, 1996 (date of inception) to December 31, 1997
in conformity with generally accepted accounting principles. These financial
statements are the responsibility of the Company's management; our
responsibility is to express an opinion on these financial statements based on
our audits. We conducted our audits of these statements in accordance with
generally accepted auditing standards which require that we plan and perform
the audit to obtain reasonable assurance about whether the financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the financial
statements, assessing the accounting principles used and significant estimates
made by management, and evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for the
opinion expressed above.
/s/PricewaterhouseCoopers LLP
San Jose, California
F-28
<PAGE>
STARCODE SOFTWARE, INC.
(a company in the development stage)
Balance Sheets
<TABLE>
<CAPTION>
December 31,
------------------- March 31,
1996 1997 1998
-------- --------- -----------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash....................................... $ 38,380 $ 6,288 $ 4,775
Accounts receivable........................ -- 109 --
Prepaid expenses and other current assets.. 200 1,524 3,618
-------- --------- ---------
Total current assets.................... 38,580 7,921 8,393
Property and equipment, net.................. -- 27,965 30,751
Other assets................................. 824 10,475 7,667
-------- --------- ---------
Total assets............................ $ 39,404 $ 46,361 $ 46,811
======== ========= =========
Liabilities and shareholders' deficit
Current liabilities:
Accounts payable........................... $ 360 $ 8,993 $ 12,761
Accrued expenses........................... -- 5,146 8,697
Notes payable to shareholders.............. -- 36,000 61,000
Current portion of capital lease
obligations............................... -- 5,132 8,998
Advance from shareholders.................. 57,500 -- --
-------- --------- ---------
Total current liabilities............... 57,860 55,271 91,456
Other liabilities............................ -- 2,864 2,417
Capital lease obligations, net of current
portion..................................... -- 4,001 5,346
-------- --------- ---------
Total liabilities....................... 57,860 62,136 99,219
-------- --------- ---------
Commitments (Note 5)
Shareholders' deficit:
Convertible preferred stock
Authorized: 1,000,000 shares in 1996,
543,000 shares in 1997 and 636,858 shares
in 1998 (unaudited)
Series A par value, $0.0735; Issued and
outstanding: 340,000 shares in 1997 and
1998 (unaudited).......................... -- 24,990 24,990
Liquidation value: $24,990
Series B par value, $0.9671; Issued and
outstanding: 103,400 shares in 1997 and
1998 (unaudited).......................... -- 99,510 99,510
Liquidation value: $99,998
Series C par value, $1.00; Issued and
outstanding: 100,000 shares in 1997 and
1998 (unaudited).......................... -- 97,327 97,327
Liquidation value: $100,000
Series D par value, $1.07; Issued and
outstanding: 46,728 shares in 1998
(unaudited)............................... -- -- 49,998
Liquidation value: $49,998
Common Stock $0.005 par value:
Authorized: 9,000,000 shares in 1996;
1,456,600 shares in 1997 and
2,000,000 shares in 1998 (unaudited)
Issued and outstanding: 400,000 shares in
1996, 1997 and 1998 (unaudited)........... 200 200 200
Deficit accumulated during the development
stage..................................... (18,656) (237,802) (324,433)
-------- --------- ---------
Total shareholders' deficit............. (18,456) (15,775) (52,408)
-------- --------- ---------
Total liabilities and shareholders'
deficit................................ $ 39,404 $ 46,361 $ 46,811
======== ========= =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-29
<PAGE>
STARCODE SOFTWARE, INC.
(a company in the development stage)
Statements of Operations
<TABLE>
<CAPTION>
Cumulative Cumulative
Period from Period from Period from
September 14, September 14, September 14,
1996 (date of 1996 (date of Three Months Three Months 1996 (date of
inception) to Year Ended Inception) to Ended Ended inception)
December 31, December 31, December 31, March 31, March 31, to March 31,
1996 1997 1997 1997 1998 1998
------------- ------------ ------------- ------------ ------------ -------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Revenues:
Web site fees........... $ -- $ 1,989 $ 1,989 $ -- $ 1,391 $ 3,380
Products................ -- 6,528 6,528 1,353 -- 6,528
-------- --------- --------- -------- -------- ---------
Total revenues........ -- 8,517 8,517 1,353 1,391 9,908
-------- --------- --------- -------- -------- ---------
Cost of revenues........ -- 283 283 -- 298 581
-------- --------- --------- -------- -------- ---------
Gross profit............ -- 8,234 8,234 1,353 1,093 9,327
Operating expenses:
General and
administrative......... 7,802 83,386 91,188 9,700 46,109 137,297
Product development..... 5,988 100,707 106,695 17,241 25,406 132,101
Sales and marketing..... 4,866 43,529 48,395 7,618 13,718 62,113
-------- --------- --------- -------- -------- ---------
Total operating
expenses............. 18,656 227,622 246,278 34,559 85,233 331,511
-------- --------- --------- -------- -------- ---------
Loss from operations.... (18,656) (219,388) (238,044) (33,206) (84,140) (322,184)
Other income............ -- 991 991 584 1,575
Interest expense........ -- (749) (749) -- (3,075) (3,824)
-------- --------- --------- -------- -------- ---------
Net loss................ $(18,656) $(219,146) $(237,802) $(33,206) $(86,631) $(324,433)
======== ========= ========= ======== ======== =========
Net loss per share--
basic and diluted...... $ (0.05) $ (0.55) $ (0.59) $ (0.08) $ (0.22) $ (0.81)
======== ========= ========= ======== ======== =========
Shares used in per share
calculation--basic and
diluted................ 400,000 400,000 400,000 400,000 400,000 400,000
======== ========= ========= ======== ======== =========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-30
<PAGE>
STARCODE SOFTWARE, INC.
(a company in the development stage)
Statements of Shareholders' Deficit
<TABLE>
<CAPTION>
Common Stock Preferred Stock
-------------- ---------------- Accumulated
Shares Amount Shares Amount Deficit Total
------- ------ ------- -------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Issuance of common stock
to founders in
September 1996 at
$0.0005 per share...... 400,000 $200 -- $ -- $ -- $ 200
Net loss................ -- -- -- -- (18,656) (18,656)
------- ---- ------- -------- --------- --------
Balance at December 31,
1996................... 400,000 200 -- -- (18,656) (18,456)
Conversion of advance
from shareholder into
Series A convertible
preferred stock in
March 1997 at $0.0735
per share.............. -- -- 340,000 24,990 -- 24,990
Issuance of Series B
convertible preferred
stock for cash and
conversion of advance
from shareholder in
June 1997 at $0.9671
per share.............. -- -- 103,400 99,510 -- 99,510
Issuance of Series C
convertible preferred
stock for cash in
November 1997 at $1.00
per share.............. -- -- 100,000 97,327 97,327
Net loss................ -- -- -- -- (219,146) (219,146)
------- ---- ------- -------- --------- --------
Balance at December 31,
1997................... 400,000 200 543,400 221,827 (237,802) (15,775)
Issuance of Series D
convertible preferred
stock for cash in
February 1998 at $1.07
per share (unaudited).. -- -- 46,728 49,998 49,998
Net loss (unaudited).... -- -- -- -- (86,631) (86,631)
------- ---- ------- -------- --------- --------
Balance at March 31,
1998 (unaudited)....... 400,000 $200 590,128 $271,825 $(324,433) $(52,408)
======= ==== ======= ======== ========= ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-31
<PAGE>
STARCODE SOFTWARE, INC.
Pro Forma Consolidated Financial Information
Statements of Cash Flows
<TABLE>
<CAPTION>
Cumulative Cumulative
Period from Period from Period from
September 14, September 14, Three Three September 14,
1996 (date of 1996 (date of Months Months 1996 (date of
inception) to Year Ended inception) to Ended Ended inception) to
December 31, December 31, December 31, March 31, March 31, March 31,
1996 1997 1997 1997 1998 1998
------------- ------------ ------------- ----------- ---------- -------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Cash flows from
operating activities:
Net loss............... $(18,656) $(219,146) $(237,802) $(33,206) $(86,631) $(324,433)
Adjustments to
reconcile net loss to
net cash used in
operating activities:
Depreciation and
amortization......... -- 5,619 5,619 -- 2,885 8,504
Loss on disposal of
property and
equipment............ -- -- -- -- 1,068 1,068
Changes in assets and
liabilities:
Accounts
receivable......... -- (109) (109) -- 109 --
Prepaids and other
current assets..... (200) (1,324) (1,524) (1,388) (2,094) (3,618)
Other assets........ (824) (9,651) (10,475) -- 2,808 (7,667)
Accounts payable.... 360 8,633 8,993 1,100 3,768 12,761
Accrued expenses.... -- (1,188) (1,188) -- 3,104 1,916
-------- --------- --------- -------- -------- ---------
Net cash used in
operating
activities....... (19,320) (217,166) (236,486) (33,494) (74,983) (311,469)
-------- --------- --------- -------- -------- ---------
Cash flows from
investing activities:
Purchase of property
and equipment......... -- (13,450) (13,450) (4,621) -- (13,450)
-------- --------- --------- -------- -------- ---------
Cash flows from
financing activities:
Proceeds from notes
payable to
shareholders.......... -- 36,000 36,000 -- 25,000 61,000
Advances from
shareholders.......... 57,500 2,000 59,500 2,000 -- 59,500
Proceeds from issuance
of common stock....... 200 -- 200 -- -- 200
Proceeds from issuance
of preferred stock.... -- 162,327 162,327 -- 49,998 212,325
Payments on capital
lease obligations..... -- (1,803) (1,803) -- (2,526) (4,329)
Proceeds from sale of
property and
equipment............. -- -- -- -- 998 998
-------- --------- --------- -------- -------- ---------
Net cash provided
by financing
activities....... 57,700 198,524 256,224 2,000 73,470 329,694
-------- --------- --------- -------- -------- ---------
Net increase (decrease)
in cash............... 38,380 (32,092) 6,288 (36,115) (1,513) 4,775
Cash at beginning of
period................ -- 38,380 -- 38,380 6,288 --
-------- --------- --------- -------- -------- ---------
Cash at end of period.. $ 38,380 $ 6,288 $ 6,288 $ 2,265 $ 4,775 $ 4,775
======== ========= ========= ======== ======== =========
Supplemental schedule
of noncash activities:
Conversion of advance
from shareholders into
Series A and B
Preferred Stock....... $ -- $ 59,500 $ 59,500 $ 57,500 $ -- $ 59,500
Cash payments for
interest.............. $ -- $ 749 $ 749 $ -- $ 3,075 $ 3,824
Assets acquired under
capital lease
obligations........... $ -- $ 10,936 $ 10,936 $ -- $ 7,737 $ 18,673
</TABLE>
The accompanying notes are an integral part of these financial statements.
F-32
<PAGE>
STARCODE SOFTWARE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Financial Statements
NOTE 1--THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
The Company
StarCode Software, Inc. ("StarCode"), was incorporated in California in 1996.
StarCode provides a forum where Internet users can buy and developers can sell
software applications for the Be Operating System. StarCode is in the
development stage and since inception has devoted substantially all of its
efforts to developing its product and raising capital.
Use of estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
reported amounts of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
Fair value of financial instruments
StarCode's financial instruments, including cash, accounts receivable and
accounts payable are carried at cost, which approximates their fair value
because of the short-term maturity of these instruments.
Property and equipment
Property and equipment are stated at historical cost. Depreciation is
computed using the straight-line method over the estimated useful life of the
assets of three years.
Income taxes
StarCode accounts for its income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amount expected
to be realized.
Revenue recognition
StarCode's revenues are derived from product license fees and Web Site
distribution fees. Revenue from product license fees are recognized upon
shipment to the customer if remaining obligations are insignificant,
collections of the resulting accounts receivable are probable and product
returns are reasonably estimable. Revenue from Web Site distribution fees is
recognized upon shipment of the related product.
Unaudited interim results
The accompanying interim financial statements as of March 31, 1998, and for
the three months ended March 31, 1997 and 1998 and for the period from
September 14, 1996 (date of inception) to March 31, 1998 are unaudited. The
unaudited interim financial statements have been prepared on the same basis as
the annual financial statements and, in the opinion of management, reflect all
adjustments, which include only normal
F-33
<PAGE>
STARCODE SOFTWARE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Financial Statements (continued)
recurring adjustments, necessary to present fairly the StarCode's financial
position, results of operations and its cash flows as of March 31, 1998 and for
the three months ended March 31, 1997 and 1998 and for the period from
September 14, 1996 (date of inception) to March 31, 1998. The financial data
and other information disclosed in these notes to financial statements related
to these periods are unaudited. The results for the three months ended March
31, 1998 are not necessarily indicative of the results to be expected for the
year ending December 31, 1998.
Comprehensive income
Effective January 1, 1998, StarCode adopted the provisions of Statement of
Financial Accounting Standard ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting comprehensive income
and its components in financial statements. Comprehensive income, as defined,
includes all changes in equity (net assets) during a period from nonowner
sources. Through December 31, 1997 and March 31, 1998 (unaudited), there was no
difference between StarCode's net loss and comprehensive loss.
Net loss per share
Basic net loss per share is computed by dividing net loss available to common
shareholders by the weighted average number of common shares outstanding for
the period. Diluted net loss per share is computed giving effect to all
dilutive potential common shares, including options, warrants and preferred
stock. Options, warrants and preferred stock were not included in the
computation of diluted net loss per share in 1996, 1997 and 1998 or the three
months ended March 31, 1997 and 1998 because the effect would be antidilutive.
A reconciliation of the numerator and denominator used in the calculation of
historical basic and diluted net loss per share follows:
<TABLE>
<CAPTION>
Cumulative Cumulative
Period from Period from Period from
September 14, September 14, Three Three September 14,
1996 (date of Year 1996 (date of Months Months 1996 (date of
inception) to Ended inception) to Ended Ended inception) to
December 31, December 31, December 31, March 31, March 31, March 31,
1996 1997 1997 1997 1998 1998
------------- ------------ ------------- ----------- ---------- -------------
(unaudited) (unaudited) (unaudited)
<S> <C> <C> <C> <C> <C> <C>
Numerator for net loss,
basic and diluted:
Net loss.............. $18,656 $219,146 $237,802 $33,206 $86,631 $324,433
Denominator for basic
and diluted loss per
share:
Weighted average
common shares
outstanding.......... 400,000 400,000 400,000 400,000 400,000 400,000
------- -------- -------- ------- ------- --------
Net loss per share basic
and diluted............ $ (0.05) $ (0.55) $ (0.59) $ (0.08) $ (0.22) $ (0.81)
======= ======== ======== ======= ======= ========
Antidilutive securities:
Options to purchase
common stock......... 12,000 15,400 15,400 12,000 15,400 15,400
Preferred stock....... -- 543,400 543,400 340,000 590,128 590,128
------- -------- -------- ------- ------- --------
12,000 558,800 558,800 352,000 605,528 605,528
======= ======== ======== ======= ======= ========
</TABLE>
F-34
<PAGE>
STARCODE SOFTWARE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Financial Statements (continued)
Recent accounting pronouncements
In June 1997, the Financial Accounting Standards Board issued SFAS No. 131,
or SFAS 131, "Disclosures about Segments of an Enterprise and Related
Information." This statement establishes standards for the way companies report
information about operating segments in annual financial statements. It also
establishes standards for related disclosures about products and services,
geographic areas and major customers. The disclosures prescribed by SFAS 131
will be effective for the year ending December 31, 1998. StarCode has
determined that it does not have any separately reportable business segments as
of March 31, 1998.
In March 1998, the American Institute of Certified Public Accountants issued
Statement of Position ("SOP") No. 98-1, "Accounting for the costs of Computer
Software Developed or Obtained for Internal Use," which provides guidance on
accounting for the cost of computer software developed or obtained for internal
use. SOP No. 98-1 is effective for financial statements for fiscal years
beginning after December 15, 1998. StarCode does not expect that the adoption
of SOP No. 98-1 will have a material impact on its consolidated financial
statements.
NOTE 2--BALANCE SHEET COMPONENTS:
<TABLE>
<CAPTION>
December 31,
------------
1996 1997
---- -------
<S> <C> <C>
Property and equipment, net:
Computer equipment............................................. $ -- $33,584
Less: Accumulated depreciation and amortization................ -- (5,619)
---- -------
$ -- $27,965
==== =======
</TABLE>
The depreciation expense for 1997 and for the period from September 14, 1996
(date of inception) to December 31, 1997 was $5,619. At December 31, 1997,
computer equipment acquired under capital leases and the related accumulated
amortization was $10,936 and $152, respectively.
NOTE 3--INCOME TAXES:
The principal items accounting for the difference between income taxes
benefit at the U.S. statutory rate and the benefit from income taxes reflected
in the statement of operations are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1996 1997
------- --------
<S> <C> <C>
Federal benefit at statutory rate......................... $ 6,300 $ 74,500
Nondeductible expenses.................................... (700)
------- --------
Net operating loss carryforwards.......................... (6,300) (73,800)
------- --------
$ -- $ --
======= ========
</TABLE>
F-35
<PAGE>
STARCODE SOFTWARE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Financial Statements (continued)
The components of the net deferred tax asset are as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1996 1997
------- --------
<S> <C> <C>
Net operating loss carryforwards.......................... $ 7,400 $ 89,800
Tax credit carryforwards.................................. 600 10,400
Fixed assets and intangibles.............................. (2,100)
Other..................................................... -- 1,000
------- --------
8,000 99,100
Less: valuation allowance................................. (8,000) (99,100)
------- --------
Net deferred tax asset.................................... $ -- $ --
======= ========
</TABLE>
Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its net deferred tax assets. The valuation allowance increased by
$91,100 from December 31, 1996 to December 31, 1997.
At December 31, 1997, the Company had approximately $211,400 of net operating
loss carryforwards and $6,500 of research and development credits to offset
future federal income taxes. The Company also had $210,600 of net operating
loss carryforwards and $3,300 of research and development credits to offset
future state income taxes. These carryforwards expire in the years 1999 through
2017 if not utilized. Due to changes in ownership, the use of the Company's net
operating loss and credit carryforwards are subject to certain annual
limitations.
NOTE 4--BORROWINGS:
Notes payable
At December 31, 1997 and March 31, 1998, notes payable consists of amounts
payable to shareholders of StarCode totaling $36,000 and $61,000 (unaudited).
The notes, which are unsecured, are payable upon demand and bear interest at
1.5% per month. The weighted average interest rate on these borrowings for 1997
was 15%.
NOTE 5--COMMITMENTS:
The Company acquired certain computer equipment under capital leases. The
obligations under such leases at December 31, 1997 are as follows:
<TABLE>
<S> <C>
1998................................................................ $ 5,814
1999................................................................ 4,164
-------
9,978
Less portion representing interest at 10%........................... (845)
-------
9,133
Less current portion................................................ (5,132)
-------
$ 4,001
=======
</TABLE>
F-36
<PAGE>
STARCODE SOFTWARE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Financial Statements (continued)
Operating lease
The Company leases its facility under operating lease agreements. The future
minimum lease payments under noncancelable operating leases are as follows:
<TABLE>
<CAPTION>
Year Ending
December 31,
------------
<S> <C>
1998............................................................. $22,464
1999............................................................. 3,744
-------
$26,208
=======
</TABLE>
Facility rent expense for 1997 and the period from September 14, 1996 (date
of inception) to December 31, 1997 was $13,979.
NOTE 6--STOCKHOLDERS' EQUITY:
Convertible Preferred Stock:
Dividends
The holders of Series A, B C and D convertible preferred stock ("convertible
preferred stock") are entitled to preferential noncumulative dividends at the
rate of $0.0735, $0.9671, $1.00 and $1.07 per share, respectively, if and when
declared by the board of directors. No dividends have been declared as of
December 31, 1996 or 1997 and March 31, 1998 (unaudited).
Liquidation
In the event of any liquidation, dissolution or winding up of StarCode,
either voluntary or involuntary, the holders of convertible preferred stock are
entitled to receive, prior and in preference to any distribution of any of the
assets or surplus funds of StarCode to the holders of shares of common stock,
an amount equal to $0.0735, $0.9671, $1.00 and $1.07 per share plus any unpaid
dividends (whether or not declared). If upon the occurrence of such event, the
assets and funds distributed among the holders of the convertible preferred
stock are insufficient to permit the payment to such holders of the full
aforesaid preferential amounts, then, the entire assets and funds of StarCode
legally available for distribution are to be distributed ratably among the
holders of the convertible preferred stock in proportion to the full
preferential amount each such holder is otherwise entitled to receive.
Voting rights
The holders of convertible preferred stock are entitled to one vote for each
share of common stock into which such share of convertible preferred stock is
convertible.
Conversion
Each share of convertible preferred stock is convertible, at the option of
the holder, at any time into common stock on a one-to-one basis, subject to the
antidilution adjustments contained in StarCode's Articles of Incorporation.
Each share of convertible preferred stock shall automatically be converted
into common stock upon the effective date of a public offering of the
StarCode's common stock with aggregate proceeds of more than $7.5 million and
an offering price of not less than $5.00 per share.
F-37
<PAGE>
STARCODE SOFTWARE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Financial Statements (continued)
Common stock
Each share of common stock is entitled to one vote. The holders of common
stock are also entitled to receive dividends whenever funds are legally
available and when declared by the board of directors, subject to the prior
rights of holders of then outstanding convertible preferred stock. As of
December 31, 1997 and March 31, 1998 (unaudited), no dividends have been
declared.
Stock option plan
In September 1996, StarCode authorized the 1996 Stock Option Plan (the
"Plan") under which the board of directors may issue incentive stock options
and nonqualified stock options. As of December 31, 1997, StarCode has reserved
30,000 shares of common stock for issuance under the Plan. Options are to be
granted at an exercise price not less than fair market value for incentive
options or 85% of fair market value for nonqualified stock options. For
employees holding more than 10% of the voting rights of all classes of stock,
the exercise prices for incentive and non-qualified stock options will be not
less than 110% of fair market value. Options granted under the Plan are
immediately exercisable; however, shares exercised under the Plan are subject
to StarCode's right of repurchase. StarCode's right of repurchase generally
lapses as to 25% of the shares one year from the date of grant and monthly
thereafter, over three years, or as to 33% of the shares one year from the date
of grant and monthly thereafter, over two years.
The Plan requires that options be exercised no later than ten years from the
date of the grant. In the case of an incentive stock option granted to an
optionee who, at the time the option is granted, holds more than 10% of the
voting rights of all classes of stock, the term of the option shall be no
longer than five years from the date of the grant.
Activity under the Plan is as follows:
<TABLE>
<CAPTION>
Outstanding Options
-----------------------------------------------
Shares Weighted
Available Number of Exercise Aggregate Average
for Grant Shares Price Price Exercise Price
--------- --------- ------------ --------- --------------
<S> <C> <C> <C> <C> <C>
Shares reserved at plan
inception.............. 30,000 -- $ -- $-- $ --
Options granted......... (12,000) 12,000 0.011 132 0.011
Options exercised....... -- -- -- -- --
Options canceled........ -- -- -- -- --
------- ------ ----
Balances, December 31,
1996................... 18,000 12,000 0.011 132 0.011
Options granted......... (3,400) 3,400 0.100 340 0.100
Options exercised....... -- -- -- -- --
Options canceled........ -- -- -- -- --
------- ------ ------------ ---- ------
Balances, December 31,
1997................... 14,600 15,400 $0.011-0.100 $472 $0.031
======= ====== ==== ======
</TABLE>
F-38
<PAGE>
STARCODE SOFTWARE, INC.
(A COMPANY IN THE DEVELOPMENT STAGE)
Notes to Financial Statements (continued)
The following table summarizes information with respect to stock options
outstanding at December 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding
------------------------
Weighted Options
Average Exercisable
Remaining -----------
Number Contractual Number
Exercise Prices Outstanding Life (Years) Exercisable
--------------- ----------- ------------ -----------
<S> <C> <C> <C>
$0.011.................................. 12,000 8.8 12,000
$0.100.................................. 3,400 9.6 3,400
------ ------
15,400 9.0 15,400
====== ======
</TABLE>
There was no activity on the Plan during the period December 31, 1997 to
March 31, 1998.
At December 31, 1996 and 1997 all outstanding options were exercisable of
which 12,000 shares and 10,400 shares at weighted average exercise prices of
$0.11 and $0.04, respectively, are subject to StarCode's right of repurchase
upon exercise.
Pro forma stock-based compensation
StarCode has adopted the disclosure-only provisions of Statement of Financial
Accounting Standards No.123, "Accounting for Stock-Based Compensation" ("SFAS
No. 123"). Had compensation cost been determined based on the fair value at the
grant date for the awards in 1996, 1997 and the three months ended March 31,
1998 consistent with the provisions of SFAS No.123, StarCode's net loss for
1996, 1997 and the three months ended March 31, 1998, respectively, would have
been as follows:
<TABLE>
<CAPTION>
Cumulative
Period from Period from
September 14, September 14,
1996 (date of 1996 (date of
inception) to Year Ended inception) to
December 31, December 31, December 31,
1996 1997 1997
------------- ------------ -------------
<S> <C> <C> <C>
Net loss--as reported............. $(18,656) $(219,146) $(237,802)
Net loss--pro forma............... $(18,658) $(219,413) $(238,071)
Net loss per share--basic and
diluted as reported.............. $ (0.05) $ (0.55) $ (0.59)
Net loss per share--basic and
diluted pro forma................ $ (0.05) $ (0.55) $ (0.60)
</TABLE>
In accordance with the provisions of SFAS No. 123, the minimum value of each
options is estimated using the following assumptions: dividend yield of 0%,
volatility of 0%, risk-free interest rates between 5.92% to 6.35% at the date
of grant and an expected life of four and five years, for grants during 1996
and 1997, respectively.
Based on the above assumptions, the aggregate minimum value of options
granted in 1996 and 1997 was $29 and $3,148, respectively, and the weighted
average minimum value per share of options was $.002 and $.926, respectively.
NOTE 7--ACQUISITION BY BE INCORPORATED:
On April 30, 1998, Be Incorporated acquired all of StarCode's then
outstanding shares of common stock, at which time StarCode became a wholly
owned subsidiary of Be Incorporated.
F-39
<PAGE>
Examples of digital media applications running on BeOS
--these pictures are actual screen shots of applications running on BeOS
[A still shot
of different Internet appliances are being designed with
applications interfaces that are closer to consumer
running on electronics than computer interfaces. This
BeOS.] demonstration application runs on BeOS and is
designed by Be to access Internet-based
media, display Web pages as well as TV
signals and streaming video from a variety of
sources. These appliances need to display
multiple video and audio streams as well as
standard Web pages.
[A still shot With the VideoWave
of the application, shown here
VideoWare running on BeOS, users will be
application able to edit their videos, and
running on then publish the results on
BeOS.] the Internet. This application
was developed by MGI Software
Corporation, an unrelated
third party.
[A still shot of Using the IK Multimedia T-RackS audio mixer
the IK Multimedia application, BeOS users will be able to edit
T-RackS audio live music. Shown here is the T-RackS
mixer application application, as well as a Web browser and an
running on BeOS.] email client, all running on BeOS. T-RackS is
developed by IK Multimedia Production Srl, an
unrelated third party.
[A still shot Shown here are typical
of different applications running on BeOS,
applications including simultaneous
running on operation of multiple
BeOS.] applications, including
various audio programs, a
media player and the
NetPositive Web browser, all
of which were developed by Be.
<PAGE>
[BE LOGO]
<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 by the Registrant in connection
with the distribution of the common stock being registered. All amounts are
estimated, except the SEC Registration Fee, the NASD Filing Fee and the Nasdaq
National Market Filing Fee:
<TABLE>
<S> <C>
SEC Registration Fee............................................. 19,182
NASD Filing Fee.................................................. 5,900
Nasdaq National Market Filing Fee................................ 95,000
Blue Sky Fees and Expenses....................................... 5,000
Accounting Fees.................................................. 300,000
Legal Fees and Expenses.......................................... 350,000
Transfer Agent and Registrar Fees................................ 10,000
Printing and Engraving........................................... 150,000
Miscellaneous.................................................... 165,918
----------
Total........................................................ $1,100,000
==========
</TABLE>
Item 14. Indemnification of Directors and Officers
The Registrant's Amended and Restated Certificate of Incorporation, filed as
Exhibit 3.1 to the Registration Statement, provides that directors of the
Registrant shall not be personally liable to the Registrant or its stockholders
for monetary damages for breach of fiduciary duty as a director, to the fullest
extent permitted by the Delaware General Corporation Law. The Registrant's
bylaws, filed as Exhibit 3.2 to the Registration Statement, provide for
indemnification of officers and directors to the full extent and in the manner
permitted by Delaware law. Section 145 of the Delaware General Corporation Law
makes provision for such indemnification in terms sufficiently broad to cover
officers and directors under certain circumstances for liabilities arising
under the Securities Act of 1933, as amended (the "Securities Act").
The Registrant intends to enter into indemnification agreements with each
director and certain officers which provide indemnification under certain
circumstances for acts and omissions which may not be covered by any directors'
and officers' liability insurance.
The form of Underwriting Agreement, filed as Exhibit 1.1 to the Registration
Statement, provides for indemnification of the Registrant and its controlling
persons against certain liabilities under the Securities Act.
Item 15. Recent Sales of Unregistered Securities
(a) Since January 1, 1996, the Company has issued and sold (without payment
or any selling commissions to any person) the following registered securities:
(1) Since January 1, 1996, the Registrant issued 50,000 shares of common stock
(net of repurchases) to one director at a weighted average purchase price
of $0.10 per share. The sale and issuance of these securities were deemed
to be exempt from registration under the Securities Act by virtue of
Section 4(2) and Rule 701.
(2) Since January 1, 1996 and through March 31, 1999, the Registrant has
granted stock options to purchase 11,435,126 shares of common stock (net of
cancellations/expirations) to a total of 145 employees,
II-1
<PAGE>
consultants and non-employee directors at a weighted average exercise price
of $1.85 per share pursuant to the Company's stock plans. The sale and
issuance of these securities were deemed to be exempt from registration
under the Securities Act by virtue of Section 4(2), Rule 701 or Regulation
S.
(3) On April 12, 1996, the Registrant issued and sold shares of Series 1
Convertible Preferred Stock convertible to an aggregate of 14,116,000
shares of common stock to a total of 45 private investors for an aggregate
purchase price of $14,116,000. The sale and issuance of these securities
were deemed to be exempt from registration under the Securities Act by
virtue of Section 4(2), Regulation D or Regulation S.
(4) On February 4, 1998 and December 23, 1998, the Registrant issued and sold
shares of Series 2 Convertible Preferred Stock convertible to an aggregate
of 8,276,730 shares of common stock to a total of 34 private investors for
an aggregate purchase price of $26,899,372.50. The sale and issuance of
these securities were deemed to be exempt from registration under the
Securities Act by virtue of Section 4(2), Regulation D or Regulation S.
(5) As of March 31, 1999, 5,524,779 shares of common stock had been issued
upon exercise of options and 1,943,347 shares of common stock were
issuable upon exercise of outstanding options under the Registrant's 1992
Stock Option Plan. The sale and issuance of these securities were deemed
to be exempt from registration under the Securities Act by virtue of
Section 4(2) and Rule 701.
(6) On April 12, 1996, the Registrant issued warrants to purchase an aggregate
of 1,219,648 shares of common stock to 28 private investors for an
aggregate exercise price of $1.00. The sale and issuance of these
securities were deemed to be exempt from registration under the Securities
Act by virtue of Section 4(2), Regulation D or Regulation S.
(7) On May 31, 1998 and December 23, 1998, the Company issued warrants to
purchase an aggregate of 112,875 shares of common stock to Cowen & Company
for an aggregate exercise price of $3.58 as payment of investor banking
fees. The sale and issuance of these securities were deemed to be exempt
from registration under the Securities Act by virtue of Section 4(2) and
Regulation D.
(8) On July 20, 1998 and December 23, 1998, the Company issued shares of
Series 2 Convertible Preferred Stock convertible into an aggregate of
106,144 shares of common stock to Cowen & Company as payment of investor
banking fees. The sale and issuance of these securities were deemed to be
exempt from registration under the Securities Act by virtue of Section
4(2) and Regulation D.
(9) On December 23, 1998, the Registrant issued warrants to purchase an
aggregate of 1,538,462 shares of common stock to Intel Corporation for an
aggregate exercise price of $3.25. The sale and issuance of these
securities were deemed to be exempt from registration under the Securities
Act by virtue of Section 4(2) and Regulation D.
The issuance described in Item 15(a)(1) was or will be exempt from
registration under Section 2(3) of the Securities Act on the basis that such
transaction did not involve a "sale" of securities.
The sales and issuances of securities in the above transactions deemed to be
exempt from registration under the Securities Act by virtue of Section 4(2),
Regulation S or Rule 701 promulgated thereunder, are transactions by an issuer
not involving any public offering, in that the purchasers in each case
represented their intention to acquire the securities for investment only and
not with a view to the distribution thereof, received either adequate
information about the Registrant or had access, through employment or other
relationship, to such information, and the securities were offered and sold,
either pursuant to a written compensatory benefit plan or pursuant to a
written contract relating to compensation as provided by Rule 701. Appropriate
legends are affixed to the stock certificates issued in such transactions.
The sales and issuances of securities in the above transactions deemed to be
exempt from registration under the Securities Act by virtue of Section 4(2),
Regulation D or Regulation S promulgated thereunder are transactions by an
issuer not involving any public offering. The purchasers in each case
represented their intention to acquire the securities for investment only and
not with a view to the distribution thereof. Appropriate legends are affixed
to the stock certificates issued in such transactions. Similar legends were
imposed in connection with any subsequent sales of any such securities. All
recipients received either adequate information about the Registrant or had
access, through employment or other relationships, to such information.
II-2
<PAGE>
There were no underwritten offerings employed in connection with any of the
transactions set forth in Item 15(a).
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<C> <S>
1.1 Form of Underwriting Agreement
3.1* Form of Amended and Restated Certificate of Incorporation to be filed
upon the closing of the offering made pursuant to this registration
statement.
3.2* Bylaws
4.1* Form of common stock certificate
4.2* Form of Warrant to purchase an aggregate of up to 1,219,648 shares of
common stock issued in connection with Series 1 convertible preferred
stock financing.
4.3* Warrant to purchase up to 103,177 shares of common stock, dated May
31, 1998, issued by Be Incorporated to Financial Square Partners, L.P.
4.4* Warrant to purchase up to 9,688 shares of common stock, dated December
23, 1998, issued by Be Incorporated to Financial Square Partners, L.P.
4.5* Warrant to purchase up to 1,538,462 shares of common stock, dated
December 23, 1998, issued by Be Incorporated to Intel Corporation.
4.6* Amended and Restated Investor's Rights Agreement, dated February 4,
1998.
5.1* Opinion of Cooley Godward LLP
10.1* Form of Indemnity Agreement by and between Be Incorporated and its
directors and officers
10.2.1* 1992 Stock Option Plan
10.2.2* Form of 1992 Stock Option Agreement
10.3.1* 1999 Equity Incentive Plan
10.3.2* Form of 1999 Equity Incentive Plan Stock Option Agreement
10.3.3* Form of 1999 Stock Option Grant Notice
10.4.1* Employee Stock Purchase Plan
10.4.2* Form of Employee Stock Purchase Plan Offering
10.5.1* 1999 Non-Employee Directors' Stock Option Plan
10.5.2* Form of Nonstatutory Stock Option
10.6.1* Office Lease, dated June 24, 1994, by and between Menlo Station
Development and Be Incorporated.
10.6.2* Amendment to Office Lease, dated April 10, 1997, by and between Menlo
Station Development and Be Incorporated.
10.7* Employment Agreement, dated June 22, 1998, by and between Be
Incorporated and Wesley S. Saia.
10.8* Employment Agreement, dated March 12, 1999, by and between Be
Incorporated and Roy Graham.
10.9* Employment Agreement, dated October 9, 1998, by and between Be
Incorporated and Jean R. Calmon.
10.10* Stock Purchase Agreement, dated May 1, 1998, by and among StarCode
Software, Inc., the Stockholders of StarCode Software, Inc., and Be
Incorporated.
10.11+ Software Distribution Agreement, dated November 5, 1998 between Be
Incorporated and Plat'Home Co. Ltd.
21.1* List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1)
24.1* Power of Attorney
27.1* Financial Data Schedule
</TABLE>
- --------
*Previously filed.
+Confidential treatment requested with respect to portions of this Exhibit.
II-3
<PAGE>
(b) Financial Statement Schedules
Schedule II--Valuation and Qualifying Accounts
Other schedules are omitted because they are not applicable, or because the
information is included in the Financial Statements or the Notes thereto.
Item 17. Undertakings
A. The Registrant hereby undertakes to provide to the underwriters at the
closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
B. Insofar as indemnification for liabilities arising under the Securities
Act may be permitted to directors, officers, and controlling persons of the
Registrant pursuant to the provisions described in Item 14 above, or otherwise,
the Registrant has been advised that in the opinion of the Securities and
Exchange Commission such indemnification is against public policy as expressed
in the Securities Act and is, therefore, unenforceable. In the event that a
claim for indemnification against such liabilities (other than the payment by
the Registrant of expenses incurred or paid by a director, officer or
controlling person of the Registrant in the successful defense of any action,
suit or proceeding) is asserted by such director, officer or controlling person
in connection with the securities being registered, the Registrant will, unless
in the opinion of its counsel the matter has been settled by controlling
precedent, submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as expressed in the
Securities Act and will be governed by the final adjudication of such issue.
C. The Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act, the
information omitted from the form of prospectus filed as part of this
registration statement in reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to Rule 424(b)(I) or (4) or 497(h)
under the Securities Act shall be deemed to be part of this registration
statement as of the time it was declared effective.
(2) For purposes of determining any liability under the Securities Act, each
post-effective amendment that contains a form of prospectus shall be deemed to
be a new registration statement relating to the securities offered therein, and
the offering of such securities at that time shall be deemed to be the initial
bona fide offering thereof.
II-4
<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 San Francisco, State of
California, on June 21, 1999.
Be Incorporated
/s/ Jean-Louis F. Gassee
By:___________________________________
Name: Jean-Louis F. Gassee
Title: President, Chief Executive
Officer and Director
Pursuant to the requirements of the Securities Act of 1933, this registration
statement has been signed by the following persons in the capacities and on the
dates indicated.
<TABLE>
<CAPTION>
Signature Title(s) Date
--------- -------- ----
<C> <S> <C>
/s/ Jean-Louis F. Gassee President, Chief Executive June 21, 1999
____________________________________ Officer and Director (Principal
Jean-Louis F. Gassee Executive Officer)
/s/ Wesley S. Saia Vice President and Chief June 21, 1999
____________________________________ Financial Officer
Wesley S. Saia
Christian E. Marchandise* Director June 21, 1999
____________________________________
Christian E. Marchandise
Barry M. Weinman* Director June 21, 1999
____________________________________
Barry M. Weinman
Garrett P. Gruener* Director June 21, 1999
____________________________________
Garrett P. Gruener
Stewart Alsop * Director June 21, 1999
____________________________________
Stewart Alsop
</TABLE>
/s/ Jean-Louis F. Gassee /s/ Wesley S. Saia
*By:__________________________ *By:__________________________
Jean-Louis F. Gassee Wesley S. Saia
Attorney-in-fact Attorney-in-fact
II-5
<PAGE>
Report of Independent Accountants on Financial Statement Schedule
To the Board of Directors of Be, Incorporated;
Our audits of the consolidated financial statements referred to in our report
dated April 2, 1999 appearing on page F-2 of this Form S-1 also included an
audit of the financial statement schedule listed under item 16(B) of this Form
S-1. In our opinion, this financial statement schedule presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related consolidated financial statements.
/s/ PricewaterhouseCoopers LLP
San Jose, California
April 2, 1999
1
<PAGE>
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
<TABLE>
<CAPTION>
Additions
Balance at Charged to Balance at
Beginning Costs and Ending
of Period Expenses Deductions of Period
<S> <C> <C> <C> <C>
Year Ended December 31, 1996
Allowance for sales returns....... $ -- $ -- $ -- $ --
Year Ended December 31, 1997
Allowance for sales return........ $ -- $ -- $ -- $ --
Year Ended December 31, 1998
Allowance for sales returns....... $ -- $ 17 $ 7 $ 10
</TABLE>
2
<PAGE>
Index to Exhibits
<TABLE>
<CAPTION>
Number Description
------ ----------------------------------------------------------------------
<C> <S>
1.1 Form of Underwriting Agreement
3.1* Form of Amended and Restated Certificate of Incorporation to be filed
upon the closing of the offering made pursuant to this registration
statement.
3.2* Bylaws
4.1* Form of common stock certificate
4.2* Form of Warrant to purchase an aggregate of up to 1,219,648 shares of
common stock issued in connection with Series 1 convertible preferred
stock financing.
4.3* Warrant to purchase up to 103,177 shares of common stock, dated May
31, 1998, issued by Be Incorporated to Financial Square Partners, L.P.
4.4* Warrant to purchase up to 9,688 shares of common stock, dated December
23, 1998, issued by Be Incorporated to Financial Square Partners, L.P.
4.5* Warrant to purchase up to 1,538,462 shares of common stock, dated
December 23, 1998, issued by Be Incorporated to Intel Corporation.
4.6* Amended and Restated Investor's Rights Agreement, dated February 4,
1998.
5.1* Opinion of Cooley Godward LLP
10.1* Form of Indemnity Agreement by and between Be Incorporated and its
directors and officers
10.2.1* 1992 Stock Option Plan
10.2.2* Form of 1992 Stock Option Agreement
10.3.1* 1999 Equity Incentive Plan
10.3.2* Form of 1999 Equity Incentive Plan Stock Option Agreement
10.3.3* Form of 1999 Stock Option Grant Notice
10.4.1* Employee Stock Purchase Plan
10.4.2* Form of Employee Stock Purchase Plan Offering
10.5.1* 1999 Non-Employee Directors' Stock Option Plan
10.5.2* Form of Nonstatutory Stock Option
10.6.1* Office Lease, dated June 24, 1994, by and between Menlo Station
Development and Be Incorporated.
10.6.2* Amendment to Office Lease, dated April 10, 1997, by and between Menlo
Station Development and Be Incorporated.
10.7* Employment Agreement, dated June 22, 1998, by and between Be
Incorporated and Wesley S. Saia.
10.8* Employment Agreement, dated March 12, 1999, by and between Be
Incorporated and Roy Graham.
10.9* Employment Agreement, dated October 9, 1998, by and between Be
Incorporated and Jean R. Calmon.
10.10* Stock Purchase Agreement, dated May 1, 1998, by and among StarCode
Software, Inc., the Stockholders of StarCode Software, Inc., and Be
Incorporated.
10.11+ Software Distribution Agreement, dated November 5, 1998 between Be
Incorporated and Plat'Home Co. Ltd.
21.1* List of Subsidiaries
23.1 Consent of PricewaterhouseCoopers LLP, independent accountants
23.2* Consent of Cooley Godward LLP (included in Exhibit 5.1)
24.1* Power of Attorney
27.1* Financial Data Schedule
</TABLE>
- --------
*Previously filed.
+Confidential treatment requested with respect to portions of this Exhibit.
<PAGE>
EXHIBIT 1.1
_________ Shares/1/
Be Incorporated
Common Stock
UNDERWRITING AGREEMENT
July __, 1999
VOLPE BROWN WHELAN & COMPANY, LLC
NEEDHAM & COMPANY, INC.
As Representatives of the several Underwriters
c/o Volpe Brown Whelan & Company, LLC
One Maritime Plaza
San Francisco, California 94111
Dear Sirs and Madams:
Be Incorporated, a Delaware corporation (the "Company"), proposes to issue
and sell to the Underwriters (defined below) __________ (the "Firm Shares")
shares of its authorized but unissued Common Stock, $0.001 par value (the
"Common Stock"). The Company also proposes to grant to the Underwriters an
option to purchase up to ____________ additional shares of Common Stock (the
"Optional Shares" and, with the Firm Shares, collectively, the "Shares"). The
Common Stock is more fully described in the Registration Statement and the
Prospectus hereinafter mentioned.
The Company hereby confirms its agreement with you, as the representatives
(the "Representatives") of the several underwriters named in Schedule I hereto
(collectively, the "Underwriters," which term shall also include any underwriter
purchasing Stock pursuant to Section 2(b) hereof) with respect to the purchase
and sale of the Shares. You represent and warrant, severally and not jointly,
that you have been authorized by each of the other Underwriters to enter into
this Agreement on such Underwriter's behalf and to act for it in the manner
herein provided.
Section 1. Representations and Warranties of the Company. The Company
hereby represents and warrants to the Representatives as of the date hereof and
as of each Closing Date (as defined below) that:
(a) The Company has filed with the Securities and Exchange
Commission (the "Commission") a registration statement on Form S-1 (No. 333-
77855), including the related preliminary prospectus, for the registration under
the Securities Act of 1933, as amended (the "Securities Act"), of the Shares.
Copies of such registration statement and of each amendment thereto, if any,
including the related preliminary prospectus (meeting the requirements of Rule
- ---------------
/1/ Plus an option to purchase from the Company up to _____ additional shares
to cover over-allotments.
1.
<PAGE>
430A of the rules and regulations of the Commission) heretofore filed by the
Company with the Commission have been delivered to you.
The term Registration Statement as used in this agreement shall mean such
registration statement, including all exhibits and financial statements, all
information omitted therefrom in reliance upon Rule 430A and contained in the
Prospectus referred to below, in the form in which it became effective, and any
registration statement filed pursuant to Rule 462(b) of the rules and
regulations of the Commission with respect to the Shares (a "Rule 462(b)
registration statement"), and, in the event of any amendment thereto after the
effective date of such registration statement (the "Effective Date"), shall also
mean (from and after the effectiveness of such amendment) such registration
statement as so amended (including any Rule 462(b) registration statement). The
term Prospectus as used in this Agreement shall mean the prospectus relating to
the Shares first filed with the Commission pursuant to Rule 424(b) and Rule 430A
(or if no such filing is required, as included in the Registration Statement)
and, in the event of any supplement or amendment to such prospectus after the
Effective Date, shall also mean (from and after the filing with the Commission
of such supplement or the effectiveness of such amendment) such prospectus as so
supplemented or amended. The term Preliminary Prospectus as used in this
Agreement shall mean each preliminary prospectus included in such Registration
Statement prior to the time it becomes effective.
The Registration Statement has been declared effective under the Securities
Act, and no post-effective amendment to the Registration Statement has been
filed as of the date of this Agreement. The Company has caused to be delivered
to you copies of each Preliminary Prospectus and has consented to the use of
such copies for the purposes permitted by the Securities Act.
(b) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, has full corporate power and
authority to own or lease its properties and conduct its business as described
in the Registration Statement and the Prospectus and as being conducted, and is
duly qualified as a foreign corporation and in good standing in all
jurisdictions in which the character of the property owned or leased or the
nature of the business transacted by it makes qualification necessary (except
where the failure to be so qualified would not have a material adverse effect on
the business, business prospects, properties, condition (financial or otherwise)
or results of operations of the Company and its subsidiaries, taken as a whole).
(c) The Company does not own or control, directly or indirectly,
any corporation, association or other entity other than the subsidiaries listed
in Exhibit 21.1 to the Registration Statement. Except as described in the
Prospectus, the Company owns all of the outstanding capital stock of its
subsidiaries free and clear of all claims, liens, charges and encumbrances. The
Company and each of its subsidiaries is in possession of and operating in
compliance with all material authorizations, licenses, permits, consents,
certificates and orders material to the conduct of their respective businesses
as described in the Prospectus, all of which are valid and in full force and
effect.
(d) Since the respective dates as of which information is given in
the Registration Statement and the Prospectus, there has not been any materially
adverse change in
2.
<PAGE>
the business, business prospects, properties, condition (financial or otherwise)
or results of operations of the Company and its subsidiaries, taken as a whole,
whether or not arising from transactions in the ordinary course of business,
other than as set forth in the Registration Statement and the Prospectus, and
since such dates, except in the ordinary course of business, neither the Company
nor any of its subsidiaries has entered into any material transaction not
referred to in the Registration Statement and the Prospectus.
(e) The Registration Statement and the Prospectus comply, and on
the Closing Date (as hereinafter defined) and any later date on which Optional
Shares are to be purchased, the Prospectus will comply, in all material
respects, with the provisions of the Securities Act and the rules and
regulations of the Commission thereunder; on the Effective Date, the
Registration Statement did not contain any untrue statement of a material fact
and did not omit to state any material fact required to be stared therein or
necessary in order to make the statements therein not misleading; and, on the
Effective Date the Prospectus did not and, on the Closing Date and any later
date on which Optional Shares are to be purchased, will not contain any 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, not misleading; provided, however, that none of the
representations and warranties in this subparagraph (e) shall apply to
statements in, or omissions from, the Registration Statement or the Prospectus
made in reliance upon and in conformity with information herein or otherwise
furnished in writing to the Company by or on behalf of the Underwriters for use
in the Registration Statement or the Prospectus.
(f) The Company has authorized and outstanding capital stock as set
forth under the heading "Capitalization" in the Prospectus. The issued and
outstanding shares of Common Stock have been duly authorized and validly issued,
are fully paid and nonassessable, have been issued in compliance with all
federal and state securities laws, and were not issued in violation of or
subject to any preemptive rights or other rights to subscribe for or purchase
securities. All issued and outstanding shares of capital stock of each
subsidiary of the Company have been duly authorized and validly issued and are
fully paid and nonassessable. Except as disclosed in or contemplated by the
Prospectus and the financial statements of the Company and the related notes
thereto included in the Prospectus, neither the Company nor any subsidiary has
any outstanding options to purchase, or any preemptive rights or other rights to
subscribe for or to purchase, any securities or obligations convertible into, or
any contracts or commitments to issue or sell, shares of its capital stock or
any such options, rights, convertible securities or obligations. The description
of the Company's stock option, stock bonus and other stock plans or
arrangements, and the options or other rights granted and exercised thereunder,
set forth in the Prospectus accurately and fairly presents the information
required by the Securities Act and the Rules and Regulations to be shown with
respect to such plans, arrangements, options and rights.
(g) The Shares are duly authorized and when issued and sold to the
Underwriters as provided herein, will be validly issued, fully paid and
nonassessable and conform to the description thereof in the Prospectus. No
further approval or authority of the stockholders or the Board of Directors of
the Company will be required for the transfer and sale of the Shares to be sold
by the Company as contemplated herein.
3.
<PAGE>
(h) The Shares are authorized for listing on the Nasdaq National
Market upon official notice of issuance.
(i) No preemptive right, co-sale right, registration right, right
of first refusal or other similar right to subscribe for or purchase securities
of the Company exists with respect to the issuance and sale of the Shares by the
Company pursuant to this Agreement. No stockholder of the Company has any right
which has not been waived, or complied with, to require the Company to register
the sale of any shares owned by such stockholder under the Securities Act in the
public offering contemplated by this Agreement. The description of the
registration rights set forth in the Prospectus accurately and fairly presents
the information required by the Securities Act and the Rules and Regulations to
be shown with respect to such registration rights.
(j) The Company has full corporate power and authority to enter
into this Agreement and perform the transactions contemplated hereby. This
Agreement has been duly authorized, executed and delivered by the Company and
constitutes a valid and binding obligation of the Company enforceable in
accordance with its terms, except as enforceability may be limited by general
equitable principles, bankruptcy, insolvency, reorganization, moratorium laws
affecting creditors' rights generally and except as to those provisions relating
to indemnity or contribution for liabilities arising under federal and state
securities laws. The making and performance of this Agreement by the Company and
the consummation of the transactions contemplated hereby (i) will not violate
any provisions of the Certificate of Incorporation, Bylaws or other
organizational documents of the Company or any of its subsidiaries, as amended,
and (ii) will not conflict with, result in a material breach or violation of, or
constitute, either by itself or upon notice or the passage of time or both, a
material default under (A) any material agreement, mortgage, deed of trust,
lease, franchise, license, indenture, permit or other instrument to which the
Company or any of its subsidiaries is a party or by which the Company or any of
its subsidiaries or any of their respective properties may be bound or affected,
or (B) any statute or any authorization, judgment, decree, order, rule or
regulation of any court or any regulatory body, administrative agency or other
governmental body applicable and material to the business and operaitons of the
Company or any of its subsidiaries or any of their respective properties. No
consent, approval, authorization or other order of any court, regulatory body,
administrative agency or other governmental body that has not already been
obtained is required for the execution and delivery of this Agreement or the
consummation of the transactions contemplated by this Agreement, except for
compliance with the Securities Act, the Blue Sky laws applicable to the public
offering of the Common Shares by the several Underwriters and the clearance of
such offering with the NASD.
(k) The consolidated financial statements and schedules of the
Company and the related notes thereto included in the Registration Statement and
the Prospectus present fairly on a consolidated basis the financial position of
the Company and its subsidiaries as of the respective dates of such financial
statements and schedules, and the results of operations and cash flows of the
Company and its subsidiaries for the respective periods covered thereby. Such
statements, schedules and related notes have been prepared in accordance with
generally accepted accounting principles applied on a consistent basis
throughout the periods specified, as certified by the independent accountants
named in Section 9(g). No other financial statements or schedules are required
to be included in the Registration Statement. The selected financial data set
forth in the Prospectus under the captions "Summary Consolidated Financial
Data," and "Selected Consolidated Financial Information" fairly present the
information set forth therein on the basis stated in the Registration Statement.
4.
<PAGE>
(l) The Company maintains a system of internal accounting controls
sufficient to provide reasonable assurances that (i) transactions are executed
in accordance with management's general or specific authorizations, (ii)
transactions are recorded as necessary to permit preparation of financial
statements in conformity with generally accepted accounting principles and to
maintain accountability for assets, (iii) access to assets is permitted only in
accordance with management's general or specific authorization, and (iv) the
recorded accountability for assets is compared with existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences. The representations and warranties given by the Company and its
officers to its independent public accountants for the purpose of supporting the
letters referred to in Sections 9(f) and 9(g) are true and correct.
(m) Neither the Company nor any of its subsidiaries is (i) in
violation or default of any provision of its Certificate of Incorporation,
Bylaws or other organizational documents, as amended, or (ii) in a material
breach of or default with respect to any provision of any agreement, judgment,
decree, order, mortgage, deed of trust, lease, franchise, license, indenture,
permit or, to the Company's knowledge, other instrument to which it is a party
or by which it or any of its properties are bound; and, to the Company's
knowledge, there does not exist any state of facts which, with notice or lapse
of time or both would constitute such a breach or default on the part of the
Company and its subsidiaries, taken as a whole.
(n) There are no contracts or other documents required to be
described in the Registration Statement or to be filed as exhibits to the
Registration Statement by the Securities Act or by the Rules and Regulations
which have not been described or fried as required. The contracts so described
in the Prospectus are in full force and effect on the date hereof.
(o) Except as disclosed in the Prospectus, there are no legal or
governmental actions, suits or proceedings pending or, to the Company's
knowledge, threatened to which the Company or any of its subsidiaries is or, to
the Company's knowledge, is threatened to be made a party or of which property
owned or leased by the Company or any of its subsidiaries is or, to the
Company's knowledge, is threatened to be made the subject, which actions, suits
or proceedings could, individually or in the aggregate, prevent or adversely
affect the transactions contemplated by this Agreement or result in a material
adverse change in the business, business prospects, properties, condition
(financial or otherwise), or results of operations of the Company or its
subsidiaries; and no labor disturbance by the employees of the Company or any of
its subsidiaries exists or is imminent which could materially adversely affect
the business, business prospects, properties, condition (financial or
otherwise), or results of operations of the Company or its subsidiaries. Neither
the Company nor any of its subsidiaries is a party or subject to the provisions
of any material injunction, judgment, decree or order of any court, regulatory
body, administrative agency or other governmental body. Except as disclosed in
the Prospectus, there are no material legal or governmental actions, suits or
proceedings pending or, to the Company's knowledge, threatened against any
executive officers or directors of the Company.
(p) The Company or the applicable subsidiary has good and
marketable title to all the properties and assets reflected as owned in the
financial statements hereinabove described (or elsewhere in the Prospectus),
subject to no lien, mortgage, pledge, charge or encumbrance of any kind except
(i) those, if any, reflected in such financial statements (or elsewhere in the
Prospectus), or (ii) those which are not material in amount to the Company or
its
5.
<PAGE>
subsidiaries, and do not adversely affect the use made and proposed to be made
of such property by the Company or its subsidiaries. The Company or the
applicable subsidiary holds its leased properties under valid and binding
leases. Except as disclosed in the Prospectus, the Company owns or leases all
such properties as are necessary to its operations as now conducted or as
proposed to be conducted.
(q) Since the respective dates as of which information is given in
the Registration Statement and Prospectus, and except as described in or
specifically contemplated by the Prospectus: (i) the Company and its
subsidiaries have not (A) incurred any liabilities or obligations, indirect,
direct or contingent, or (B) entered into any oral or written agreement or other
transaction, which in the case of (A) or (B) is not in the ordinary course of
business or disclosed in the Registration Statement or Prospectus; (ii) the
Company and its subsidiaries have not sustained any material loss or
interference with their respective businesses or properties from fire, flood,
windstorm, accident or other calamity, whether or not covered by insurance;
(iii) the Company and its subsidiaries have not paid or declared any dividends
or other distributions with respect to their respective capital stock and the
Company and its subsidiaries are not in default in the payment of principal or
interest on any outstanding debt obligations; (iv) there has not been any change
in the capital stock of the Company or its subsidiaries (other than upon the
sale of the Shares hereunder or upon the exercise of any options or warrants
disclosed in the Prospectus); (v) there has not been any material increase in
the short- or long-term debt of the Company and its subsidiaries except as
disclosed in the Registration Statement and Prospectus; and (vi) there has not
been any material adverse change or any development involving or which may
reasonably be expected to involve a prospective material adverse change, in the
business, condition (financial or otherwise), properties, or results of
operations of the Company or its subsidiaries.
(r) The Company is and its subsidiaries are conducting business in
compliance with all applicable laws, rules and regulations of the jurisdictions
in which they are conducting business, except where the failure to be so in
compliance would not have a material adverse effect on the business, business
prospects, properties, condition (financial or otherwise) or results of
operations of the Company or its subsidiaries.
(s) The Company and its subsidiaries have filed all necessary
federal, state and foreign income and franchise tax returns, and all such tax
returns are complete and correct in all material respects, and the Company and
its subsidiaries have not failed to pay any taxes which were payable pursuant to
said returns or any assessments with respect thereto. The Company has no
knowledge of any tax deficiency which has been or is likely to be threatened or
asserted against the Company or its subsidiaries.
(t) The Company has not distributed, and will not distribute prior
to the later to occur of (i) completion of the distribution of the Shares, or
(ii) the expiration of any time period within which a dealer is required under
the Securities Act to deliver a prospectus relating to the Shares, any offering
material in connection with the offering and sale of the Shares other than the
Prospectus, the Registration Statement and any other materials permitted by the
Securities Act and consented to by the Underwriters.
6.
<PAGE>
(u) Each of the Company and its subsidiaries maintains insurance of
the types and in the amounts generally deemed adequate for their business,
including, but not limited to, directors' and officers' insurance, insurance
covering real and personal property owned or leased by the Company and its
subsidiaries against theft, damage, destruction, acts of vandalism and all other
risks customarily insured against, all of which insurance is in full force and
effect. The Company has not been refused any insurance coverage sought or
applied for, and the Company has no 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 materially adversely affect the business,
business prospects, properties, condition (financial or otherwise) or results of
operations of the Company or its subsidiaries.
(v) Neither the Company nor any of its subsidiaries, to the best of
the Company's knowledge, any of their employees or agents has at any time during
the last five years (i) made any unlawful contribution to any candidate for
foreign office, or failed to disclose fully any contribution in violation of
law, or (ii) made any payment to any foreign, federal or state governmental
officer or official or other person charged with similar public or quasi-public
duties, other than payments required or permitted by the laws of the United
States or any jurisdiction thereof.
(w) The Company has not taken and will not take, directly or
indirectly, any action designed to or that might be reasonably expected to cause
or result in stabilization or manipulation of the price of the Common Stock to
facilitate the sale or resale of the Shares.
(x) The Company has caused (i) each of its executive officers and
directors as set forth in the Prospectus and (ii) holders of __% of the shares
of the outstanding Common Stock (including shares issuable upon the exercise or
conversion of any option, warrant or other security) to furnish to the
Underwriters an agreement, in form and substance satisfactory to VOLPE BROWN
WHELAN & COMPANY, LLC, pursuant to which each such party has agreed that during
the period of one hundred eighty (180) days after the date the Registration
Statement becomes effective, without the prior written consent of VOLPE BROWN
WHELAN & COMPANY, LLC, such party will not (i) offer, sell, contract to sell,
make any short sale (including without limitation short against the box), pledge
or otherwise dispose of, directly or indirectly, any shares of the Company's
Common Stock, options to acquire Common Stock or securities convertible into or
exchangeable for, or any other rights to purchase or acquire, the Company's
Common Stock (including, without limitation, Common Stock of the Company which
may be deemed to be beneficially owned in accordance with the rules and
regulations of the Commission) other than the exercise or conversion of
outstanding options, warrants or convertible securities; or (ii) enter into any
swap or other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in (i) or (ii) is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise provided, however, that bona fide gift
transactions and transfers which will not result in any change in beneficial
ownership may be permitted if the transferee enters into a lock-up agreement in
substantially the same form covering the remainder of the lock-up period.
7.
<PAGE>
(y) Neither the Company nor any of its affiliates does business
with the government of Cuba or with any person or affiliate located in Cuba.
(z) Except as specifically disclosed in the Prospectus, the Company
and its subsidiaries have sufficient trademarks, trade names, patent rights,
copyrights, licenses, approvals and governmental authorizations to conduct their
businesses as now conducted; the expiration of any trademarks, trade names,
patent rights, copyrights, licenses, approvals or governmental authorizations
would not have a material adverse effect on the business, business prospects,
properties, condition (financial or otherwise) or results of operations have
been of the Company or its subsidiaries; the Company has not received notice or
have actual knowledge of any infringement by the Company or its subsidiaries of
trademark, trade name rights, patent rights, copyrights, licenses, trade secret
or other similar rights of others; and no claims have been made or, to the
Company's knowledge, are threatened against the Company or its subsidiaries
regarding trademark, trade name, patent, copyright, license, trade secret or
other infringement which could have a material adverse effect on the business,
business prospects, properties, condition (financial or otherwise) or results of
operations or prospects of the Company and its subsidiaries.
(aa) Except as disclosed in the Prospectus, (i) the Company and its
subsidiaries are in compliance in all material respects with all rules, laws and
regulation relating to the use, treatment, storage and disposal of toxic
substances and protection of health or the environment ("Environmental Laws")
which are applicable to their business, (ii) neither the Company nor any of its
subsidiaries has received any notice from any governmental authority or third
party of an asserted claim under Environmental Laws, (iii) no facts currently
exist that will require the Company or any of its subsidiaries to make future
material capital expenditures to comply with Environmental Laws, and (iv) to the
knowledge of the Company, no property which is or has been owned, leased or
occupied by the Company or any of its subsidiaries has been designated as a
Superfund site pursuant to the Comprehensive Environmental Response,
Compensation and Liability Act of 1980, as amended (42 U.S.C. (S) 9601, et
seq.), or otherwise designated as a contaminated site under applicable state or
local law.
(bb) The Company is not an "investment company" within the meaning
of the Investment Company Act of 1940, as amended.
Section 2. Purchase of the Shares by the Underwriters.
(a) On the basis of the representations and warranties and subject
to the terms and conditions herein set forth, the Company agrees to issue and
sell _______________ of the Firm Shares to the several Underwriters, and each of
the Underwriters agrees to purchase from the Company the respective aggregate
number of Firm Shares set forth opposite its name in Schedule I. The price at
which such Firm Shares shall be sold by the Company and purchased by the several
Underwriters shall be $____ per share. The obligation of each Underwriter to the
Company shall be to purchase from the Company that number of Firm Shares which
represents the same proportion of the total number of Firm Shares to be sold by
the Company pursuant to this Agreement as the number of Firm Shares set forth
opposite the name of such Underwriter in Schedule I hereto represents of the
total number of shares of the Firm Shares to be purchased by all Underwriters
pursuant to this Agreement, as adjusted by you in such manner as you deem
advisable to avoid fractional shares. In making this Agreement, each Underwriter
is contracting
8.
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severally and not jointly; except as provided in paragraphs (b) and (c) of this
Section 2, the agreement of each Underwriter is to purchase only the respective
number of shares of the Firm Shares specified in Schedule I.
(b) If for any reason one or more of the Underwriters shall fail or
refuse (otherwise than for a reason sufficient to justify the termination of
this Agreement under the provisions of Section 8 or 9 hereof) to purchase and
pay for the number of Shares agreed to be purchased by such Underwriter or
Underwriters, the Company shall immediately give notice thereof to you, and the
non-defaulting Underwriters shall have the right within 24 hours after the
receipt by you of such notice to purchase, or procure one or more other
Underwriters to purchase, in such proportions as may be agreed upon between you
and such purchasing Underwriter or Underwriters and upon the terms herein set
forth, all or any part of Shares which such defaulting Underwriter or
Underwriters agreed to purchase. If the non-defaulting Underwriters fail so to
make such arrangements with respect to all such shares and portion, the number
of Shares which each non-defaulting Underwriter is otherwise obligated to
purchase under this Agreement shall be automatically increased on a pro rata
basis to absorb the remaining shares and portion which the defaulting
Underwriter or Underwriters agreed to purchase; provided, however, that the non-
defaulting Underwriters shall not be obligated to purchase the portion which the
defaulting Underwriter or Underwriters agreed to purchase if the aggregate
number of such Shares exceeds 10% of the total number of Shares which all
Underwriters agreed to purchase hereunder. If the total number of Shares which
the defaulting Underwriter or Underwriters agreed to purchase shall not be
purchased or absorbed in accordance with the two preceding sentences, the
Company shall have the right, within 24 hours next succeeding the 24-hour period
above referred to, to make arrangements with other underwriters or purchasers
satisfactory to you for purchase of such Shares and portion on the terms herein
set forth. In any such case, either you or the Company shall have the right to
postpone the Closing Date determined as provided in Section 4 hereof for not
more than seven business days after the date originally fixed as the Closing
Date pursuant to Section 4 in order that any necessary changes in the
Registration Statement, the Prospectus or any other documents or arrangements
may be made. If neither the non-defaulting Underwriters nor the Company shall
make arrangements within the 24-hour periods stated above for the purchase of
all of the Shares which the defaulting Underwriter or Underwriters agreed to
purchase hereunder, this Agreement shall be terminated without further act or
deed and without any liability on the part of the Company to any non-defaulting
Underwriter and without any liability on the part of any non-defaulting
Underwriter to the Company. Nothing in this paragraph (b), and no action taken
hereunder, shall relieve any defaulting Underwriter from liability in respect of
any default of such Underwriter under this Agreement.
(c) On the basis of the representations, warranties and covenants
herein contained, and subject to the terms and conditions herein set forth, the
Company grants an option to the several Underwriters to purchase, severally and
not jointly, up to _____________ Optional Shares from the Company at the same
price per share as the Underwriters shall pay for the Firm Shares. Said option
may be exercised only to cover over-allotments in the sale of the Firm Shares by
the Underwriters and may be exercised in whole or in part at any time on or
before the thirtieth day after the date of this Agreement upon written or
telegraphic notice by you to the Company setting forth the aggregate number of
Optional Shares as to which the several Underwriters are exercising the option.
Delivery of certificates for the Optional Shares, and
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payment therefor, shall be made as provided in Section 4 hereof. The number of
Optional Shares to be purchased by each Underwriter shall be the same percentage
of the total number of Optional Shares to be purchased by the several
Underwriters as such Underwriter is purchasing of the Firm Shares, as adjusted
by you in such manner as you deem advisable to avoid fractional shares.
Section 3. Offering by Underwriters.
(a) The terms of the initial public offering by the Underwriters of
the Shares to be purchased by them shall be as set forth in the Prospectus. The
Underwriters may from time to time change the public offering price after the
closing of the initial public offering and increase or decrease the concessions
and discounts to dealers as they may determine.
(b) The information (insofar as such information relates to the
Underwriters) set forth in the last paragraph on the front cover page and under
"Underwriting" in the Registration Statement, any Preliminary Prospectus and the
Prospectus relating to the Shares constitutes the only information furnished by
the Underwriters to the Company for inclusion in the Registration Statement, any
Preliminary Prospectus, and the Prospectus, and you on behalf of the respective
Underwriters represent and warrant to the Company that the statements made
therein are correct.
Section 4. Delivery of and Payment for the Shares.
(a) Delivery of certificates for the Firm Shares and the Optional
Shares (if the option granted by Section 2(c) hereof shall have been exercised
not later than 7:00 A.M., San Francisco time, on the date two business days
preceding the Closing Date), and payment therefor, shall be made at the office
of ________________________, _________, at 7:00 a.m., San Francisco time, on the
fourth business day after the date of this Agreement, or at such time on such
other day, not later than seven full business days after such fourth business
day, as shall be agreed upon in writing by the Company and you. The date and
hour of such delivery and payment (which may be postponed as provided in Section
2(b) hereof) are herein called the "Closing Date".
(b) If the option granted by Section 2(c) hereof shall be exercised
after 7:00 a.m., San Francisco time, on the date two business days preceding the
Closing Date, delivery of certificates for the shares of Optional Shares, and
payment therefor, shall be made at the office of __________________,
_____________, at 7:00 a.m., San Francisco time, on the third business day after
the exercise of such option.
(c) Payment for the shares purchased from the Company shall be made
to the Company or its order by (i) one or more certified or official bank check
or checks in next day funds (and the Company agrees not to deposit any such
check in the bank on which drawn until the day following the date of its
delivery to the Company or the Custodian, as the case may be) or (ii) federal
funds wire transfer. Such payment shall be made upon delivery of certificates
for the shares to you for the respective accounts of the several Underwriters
(including without limitation by "full-fast" electronic transfer by Depository
Trust Company) against receipt therefor signed by you. Certificates for the
shares to be delivered to you shall be registered in
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such name or names and shall be in such denominations as you may request at
least one business day before the Closing Date, in the case of Firm Shares, and
at least one business day prior to the purchase thereof, in the case of the
Optional Shares. Such certificates will be made available to the Underwriters
for inspection, checking and packaging at the offices of agent of Volpe Brown
Whelan & Company, LLC's clearing agent, Bear Stearns Securities Corp., on the
business day prior to the Closing Date or, in the case of the Optional Shares,
by 3:00 p.m., New York time, on the business day preceding the date of purchase.
It is understood that you, individually and not on behalf of the
Underwriters, may (but shall not be obligated to) make payment to the Company
for shares to be purchased by any Underwriter whose check shall not-have been
received by you on the Closing Date or any later date on which Optional Shares
are purchased for the account of such Underwriter. Any such payment by you
shall not relieve such Underwriter from any of its obligations hereunder.
Section 5. Covenants of the Company. The Company covenants and agrees as
follows:
(a) The Company will (i) prepare and timely file with the
Commission under Rule 424(b) a Prospectus containing information previously
omitted at the time of effectiveness of the Registration Statement in reliance
on Rule 430A and (ii) not file any amendment to the Registration Statement or
supplement to the Prospectus of which you shall not previously have been advised
and furnished with a copy or to which you shall have reasonably objected in
writing or which is not in compliance with the Securities Act or the rules and
regulations of the Commission.
(b) The Company will promptly notify each Underwriter in the event
of (i) the request by the Commission for amendment of the Registration Statement
or for supplement to the Prospectus or for any additional information, (ii) the
issuance by the Commission of any stop order suspending the effectiveness of the
Registration Statement, (iii) the institution or notice of intended institution
of any action or proceeding for that purpose, (iv) the receipt by the Company of
any notification with respect to the suspension of the qualification of the
shares for sale in any jurisdiction, or (v) the receipt by it of notice of the
initiation or threatening of any proceeding for such purpose. The Company will
make every reasonable effort to prevent the issuance of such a stop order and,
if such an order shall at any time be issued, to obtain the withdrawal thereof
at the earliest possible moment.
(c) The Company will (i) on or before the Closing Date, deliver to
you a signed copy of the Registration Statement as originally filed and of each
amendment thereto filed prior to the time the Registration Statement becomes
effective and, promptly upon the filing thereof, a signed copy of each post-
effective amendment, if any, to the Registration Statement (together with, in
each case, all exhibits thereto unless previously furnished to you) and will
also deliver to you, for distribution to the Underwriters, a sufficient number
of additional conformed copies of each of the foregoing (but without exhibits)
so that one copy of each may be distributed to each Underwriter, (ii) as
promptly as possible deliver to you and send to the several Underwriters, at
such office or offices as you may designate, as many copies of the Prospectus as
you may reasonably request, and (iii) thereafter from time to time during the
period in which a prospectus is required by law to be delivered by an
Underwriter or dealer, likewise send to the
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Underwriters as many additional copies of the Prospectus and as many copies of
any supplement to the Prospectus and of any amended prospectus, filed by the
Company with the Commission, as you may reasonably request for the purposes
contemplated by the Securities Act.
(d) If at any time during the period in which a prospectus is
required by law to be delivered by an Underwriter or dealer any event relating
to or affecting the Company, or of which the Company shall be advised in writing
by you, shall occur as a result of which it is necessary, in the opinion of
counsel for the Company or of counsel for the Underwriters, to supplement or
amend the Prospectus in order to make the Prospectus not misleading in the light
of the circumstances existing at the time it is delivered to a purchaser of the
shares, the Company will forthwith prepare and file with the Commission a
supplement to the Prospectus or an amended prospectus so that the Prospectus as
so supplemented or amended will not contain any 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 existing at the time such
Prospectus is delivered to such purchaser, not misleading. If, after the initial
public offering of the shares by the Underwriters and during such period, the
Underwriters shall propose to vary the terms of offering thereof by reason of
changes in general market conditions or otherwise, you will advise the Company
in writing of the proposed variation, and, if in the opinion either of counsel
for the Company or of counsel for the Underwriters such proposed variation
requires that the Prospectus be supplemented or amended, the Company will
forthwith prepare and file with the Commission a supplement to the Prospectus or
an amended prospectus setting forth such variation. The Company authorizes the
Underwriters and all dealers to whom any of the shares may be sold by the
several Underwriters to use the Prospectus, as from time to time amended or
supplemented, in connection with the sale of the shares in accordance with the
applicable provisions of the Securities Act and the applicable rules and
regulations thereunder for such period.
(e) Prior to the filing thereof with the Commission, the Company
will submit, to you, for your information, a copy of any post-effective
amendment to the Registration Statement and any supplement to the Prospectus or
any amended prospectus proposed to be filed.
(f) The Company will cooperate, when and as requested by you, in the
qualification of the shares for offer and sale under the securities or blue sky
laws of such jurisdictions as you may designate and, during the period in which
a prospectus is required by law to be delivered by an Underwriter or dealer, in
keeping such qualifications in good standing under said securities or blue sky
laws; provided, however, that the Company shall not be obligated to file any
general consent to service of process or to qualify as a foreign corporation in
any jurisdiction in which it is not so qualified. The Company will, from time to
time, prepare and file such statements, reports, and other documents as are or
may be required to continue such qualifications in effect for so long a period
as you may reasonably request for distribution of the shares.
(g) During a period of five years commencing with the date hereof,
the Company will furnish to you, and to each Underwriter who may so request in
writing, copies of all periodic and special reports furnished to stockholders of
the Company and of all information, documents and reports filed with the
Commission (including the Report on Form SR required by Rule 463 of the
Commission under the Securities Act).
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(h) Not later than the 45th day following the end of the fiscal
quarter first occurring after the first anniversary of the Effective Date, the
Company will make generally available to its security holders an earnings
statement in accordance with Section 11(a) of the Securities Act and Rule 158
thereunder.
(i) For a period of one year commencing with the date hereof, the
Company agrees, at the Company's expense, to cause the Company's regularly
engaged independent certified public accountant to review (but not audit) the
Company's financial statements in accordance with the procedures specified by
the American Institute of Certified Public Accountants for a review of interim
financial information as described in Statement on Auditing Standards No. 71
"Interim Financial Information" for each of the three fiscal quarters prior to
the announcement of quarterly financial information, the filing of the Company's
Quarterly Report on Form 10-Q with the Commission and the mailing of quarterly
financial information to stockholders of the Company.
(j) The Company agrees to pay all costs and expenses incident to
the performance of its obligations under this Agreement, including all costs and
expenses incident to (i) the preparation, printing and filing with the
Commission and the National Association of Securities Dealers, Inc. ("NASD") of
the Registration Statement, any Preliminary Prospectus and the Prospectus, (ii)
the furnishing to the Underwriters and the persons designated by them of copies
of any Preliminary Prospectus and of the several documents required by paragraph
(c) of this Section 5 to be so furnished, (iii) the printing of this Agreement
and related documents delivered to the Underwriters, (iv)the preparation,
printing and filing of all supplements and amendments to the Prospectus referred
to in paragraph (d) of this Section 5, (v) the furnishing to you and the
Underwriters of the reports and information referred to in paragraph (g) of this
Section 5 and (vi) the printing and issuance of stock certificates, including
the transfer agent's fees.
(k) The Company agrees to reimburse you, for the account of the
several Underwriters, for blue sky fees and related disbursements (including
counsel fees and disbursements and cost of printing memoranda for the
Underwriters) paid by or for' the account of the Underwriters or their counsel
in qualifying the shares under state securities or blue sky laws and in the
review of the offering by the NASD.
(l) The provisions of paragraphs (i) and (j) of this Section are
intended to relieve the Underwriters from the payment of the expenses and costs
which the Company hereby agrees to pay and shall not affect any agreement which
the Company may make, or may have made, for the sharing of any such expenses and
costs.
(m) The Company hereby agrees that, without the prior written
consent of Volpe Brown Whelan & Company, LLC, the Company will not, for a period
of 180 days following the date the Registration Statement becomes effective, (i)
offer, sell, contract to sell, make any short sale (including without limitation
short against the box), pledge, or otherwise dispose of, directly or indirectly,
any shares of Common Stock or any options to acquire shares of Common Stock or
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire Common Stock (including without limitation, Common
Stock of the Company which may be deemed to be beneficially owned in accordance
with the rules and
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regulations of the Commission) other than the exercise or conversion of
outstanding options, warrants or convertible securities, or (ii) enter into any
swap or other agreement that transfers, in whole or in part, any of the economic
consequences or ownership of Common Stock, whether any such transaction
described in clause (i) or (ii) above is to be settled by delivery of Common
Stock or such other securities, in cash or otherwise; provided, however, that
bona fide gift transactions and transfers which will not result in any change in
beneficial ownership may be permitted if the transferee enters into a lock-up
agreement in substantially the same form covering the remainder of the lock-up
period. The foregoing sentence shall not apply to the shares to be sold to the
Underwriters pursuant to this Agreement.
(n) If at any time during the 25-day period after the Registration
Statement becomes effective any rumor, publication or event relating to or
affecting the Company shall occur as a result of which in your opinion the
market price for the shares has been or is likely to be materially affected
(regardless of whether such rumor, publication or event necessitates a
supplement to or amendment of the Prospectus), the Company will, after written
notice from you advising the Company to the effect set forth above, forthwith
prepare, consult with you concerning the substance of, and disseminate a press
release or other public statement, reasonably satisfactory to you, responding to
or commenting on such rumor, publication or event.
(o) The Company is familiar with the Investment Company Act of
1940, as amended, and has in the past conducted its affairs, and will in the
future conduct its affairs, in such a manner to ensure that the Company was not
and will not be an "investment company" or a company "controlled" by an
"investment company" within the meaning of the Investment Company Act of 1940,
as amended, and the rules and regulations thereunder.
Section 6. Indemnification and Contribution.
(a) The Company agrees to indemnify and hold harmless each
Underwriter and each person (including each partner or officer thereof) who
controls any Underwriter within the meaning of Section 15 of the Securities Act
from and against any and all losses, claims, damages or liabilities, joint or
several, to which such indemnified parties or any of them may become subject
under the Securities Act, the Securities Exchange Act of 1934, as amended (the
"Exchange Act"), or the common law or otherwise, and the Company agrees to
reimburse each such Underwriter and controlling person for any legal or other
expenses (including, except as otherwise hereinafter provided, reasonable fees
and disbursements of counsel) incurred by the respective indemnified parties in
connection with defending against any such losses, claims, damages or
liabilities or in connection with any investigation or inquiry of, or other
proceeding which may be brought against, the respective indemnified parties, in
each case arising out of or based upon (i) any untrue statement or alleged
untrue statement of a material fact contained in the Registration Statement
(including the Prospectus as part thereof and any Rule 462(b) registration
statement) or any post-effective amendment thereto (including any Rule 462(b)
registration statement), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, or (ii) any untrue statement or alleged untrue statement
of a material fact contained in any Preliminary Prospectus or the Prospectus (as
amended or as supplemented if the Company shall have filed with the Commission
any amendment thereof or supplement thereto) or the omission
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or alleged omission to state therein a material fact necessary in order to make
the statements therein, in the light of the circumstances under which they were
made, not misleading; provided, however, that (1) the indemnity agreements of
the Company contained in this paragraph (a) shall not apply to any such losses,
claims, damages, liabilities or expenses if such statement or omission was made
in reliance upon and in conformity with information furnished as herein stated
or otherwise furnished in writing to the Company by or on behalf of any
Underwriter for use in any Preliminary Prospectus or the Registration Statement
or the Prospectus or any such amendment thereof or supplement thereto, (2) the
indemnity agreement contained in this paragraph (a) with respect to any
Preliminary Prospectus shall not inure to the benefit of any Underwriter from
whom the person asserting any such losses, claims, damages, liabilities or
expenses purchased the shares which is the subject thereof (or to the benefit of
any person controlling such Underwriter) if at or prior to the written
confirmation of the sale of such Stock a copy of the Prospectus (or the
Prospectus as amended or supplemented) was not sent or delivered to such person
and the untrue statement or omission of a material fact contained in such
Preliminary Prospectus was corrected in the Prospectus (or the Prospectus as
amended or supplemented) unless the failure is the result of noncompliance by
the Company with paragraph (c) of Section 5 hereof. The indemnity agreements of
the Company contained in this paragraph (a) and the representations and
warranties of the Company contained in Section 1 hereof shall remain operative
and in full force and effect regardless of any investigation made by or on
behalf of any indemnified party and shall survive the delivery of and payment
for the shares.
(b) Each Underwriter severally agrees to indemnify and hold
harmless the Company, each of its officers who signs the Registration Statement
on his own behalf or pursuant to a power of attorney, each of its directors,
each other Underwriter and each person (including each partner or officer
thereof) who controls the Company or any such other Underwriter within the
meaning of Section 15 of the Securities Act, from and against any and all
losses, claims, damages or liabilities, joint or several, to which such
indemnified parties or any of them may become subject under the Securities Act,
the Exchange Act, or the common law or otherwise and to reimburse each of them
for any legal or other expenses (including, except as otherwise hereinafter
provided, reasonable fees and disbursements of counsel) incurred by the
respective indemnified parties in connection with defending against any such
losses, claims, damages or liabilities or in connection with any investigation
or inquiry of, or other proceeding which may be brought against, the respective
indemnified parties, in each case arising out of or based upon (i) any untrue
statement or alleged untrue statement of a material fact contained in the
Registration Statement (including the Prospectus as part thereof and any Rule
462(b) registration statement) or any post-effective amendment thereto
(including any Rule 462(b) registration statement) or the omission or alleged
omission to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading or (ii) any untrue
statement or alleged untrue statement of a material fact contained in the
Prospectus (as amended or as supplemented if the Company shall have filed with
the Commission any amendment thereof or supplement thereto) or the omission or
alleged omission to state therein a material fact necessary in order to make the
statements therein, in the light of the circumstances under which they were
made, not misleading, if such statement or omission was made in reliance upon
and in conformity with information furnished as herein stated or otherwise
furnished in writing to the Company by or on behalf of such indemnifying
Underwriter for use in the Registration Statement or the Prospectus or any such
amendment thereof or supplement thereto. The indemnity agreement of each
Underwriter contained in this paragraph
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(b) shall remain operative and in full force and effect regardless of any
investigation made by or on behalf of any indemnified party and shall survive
the delivery of and payment for the shares.
(c) Each party indemnified under the provision of paragraphs (a)
and (b) of this Section 6 agrees that, upon the service of a summons or other
initial legal process upon it in any action or suit instituted against it or
upon its receipt of written notification of the commencement of any
investigation or inquiry of, or proceeding against, it in respect of which
indemnity may be sought on account of any indemnity agreement contained in such
paragraphs, it will promptly give written notice (the "Notice") of such service
or notification to the party or parties from whom indemnification may be sought
hereunder. No indemnification provided for in such paragraphs shall be available
to any party who shall fail so to give the Notice if the party to whom such
Notice was not given was unaware of the action, suit, investigation, inquiry or
proceeding to which the Notice would have related and was prejudiced by the
failure to give the Notice, but the omission so to notify such indemnifying
party or parties of any such service or notification shall not relieve such
indemnifying party or parties from any liability which it or they may have to
the indemnified party for contribution or otherwise than on account of such
indemnity agreement. Any indemnifying party shall be entitled at its own expense
to participate in the defense of any action, suit or proceeding against, or
investigation or inquiry of, an indemnified party. Any indemnifying party shall
be entitled, if it so elects within a reasonable time after receipt of the
Notice by giving written notice (the "Notice of Defense") to the indemnified
party, to assume (alone or in conjunction with any other indemnifying party or
parties) the entire defense of such action, suit, investigation, inquiry or
proceeding, in which event such defense shall be conducted, at the expense of
the indemnifying party or parties, by counsel chosen by such indemnifying party
or parties and reasonably satisfactory to the indemnified party or parties;
provided, however, that (i) if the indemnified party or parties reasonably
determine that there may be a conflict between the positions of the indemnifying
party or parties and of the indemnified party or parties in conducting the
defense of such action, suit, investigation, inquiry or proceeding or that there
may be legal defenses available to such indemnified party or parties different
from or in addition to those available to the indemnifying party or parties,
then counsel for the indemnified party or parties shall be entitled to conduct
the defense to the extent reasonably determined by such counsel to be necessary
to protect the interests of the indemnified party or parties and (ii) in any
event, the indemnified party or parties shall be entitled to have counsel chosen
by such indemnified party or parties participate in, but not conduct, the
defense. If, within a reasonable time after receipt of the Notice, an
indemnifying party gives a Notice of Defense and the counsel chosen by the
indemnifying party or parties is reasonably satisfactory to the indemnified
party or parties, the indemnifying party or parties will not be liable under
paragraphs (a) through (c) of this Section 6 for any legal or other expenses
subsequently incurred by the indemnified party or parties in connection with the
defense of the action, suit, investigation, inquiry or proceeding, except that
(A) the indemnifying party or parties shall bear the legal and other expenses
incurred in connection with the conduct of the defense as referred to in clause
(i) of the proviso to the preceding sentence and (B) the indemnifying party or
parties shall bear such other expenses as it or they have authorized to be
incurred by the indemnified party or parties. If, within a reasonable time after
receipt of the Notice, no Notice of Defense has been given, the indemnifying
party or parties shall be responsible for any legal or other expenses incurred
by the indemnified party or parties in connection with the defense of the
action, suit, investigation, inquiry or proceeding.
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(d) If the indemnification provided for in this Section 6 is
unavailable or insufficient to hold harmless an indemnified party under
paragraph (a) or (b) of this Section 6, then each indemnifying party, in lieu of
indemnifying such indemnified party, shall contribute to the amount paid or
payable by such indemnified party as a result of the losses, claims, damages or
liabilities referred to in paragraph (a) or (b) of this Section 6 (i) in such
proportion as is appropriate to reflect the relative benefits received by each
indemnifying party from the offering of the shares or (ii) if the allocation
provided by clause (i) above is not permitted by applicable law, in such
proportion as is appropriate to reflect not only the relative benefits referred
to in clause (i) above but also the relative fault of each indemnifying party in
connection with the statements or omissions that 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 respective proportions as the total net proceeds from the offering
of the shares received by the Company and the total underwriting discount
received by the Underwriters, as set forth in the table on the cover page of the
Prospectus, bear to the aggregate public offering price of the shares. 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 each
indemnifying party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission.
The parties agree that it would not be just and equitable if
contributions pursuant to this paragraph (d) were to be 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 into account
the equitable considerations referred to in the first sentence of this paragraph
(d). The amount paid by an indemnified party as a result of the losses, claims,
damages or liabilities, or actions in respect thereof, referred to in the first
sentence of this paragraph (d) shall be deemed to include any legal or other
expenses reasonably incurred by such indemnified party in connection with
investigation, preparing to defend or defending against any action or claim
which is the subject of this paragraph (d). Notwithstanding the provisions of
this paragraph (d), no Underwriter shall be required to contribute any amount in
excess of the underwriting discount applicable to the shares purchased by such
Underwriter. No person guilty of fraudulent misrepresentation (within the
meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. The Underwriters' obligations in this paragraph (d) to
contribute are several in proportion to their respective underwriting
obligations and not joint.
Each party entitled to contribution agrees that upon the service of
a summons or other initial legal process upon it in any action instituted
against it in respect of which contribution may be sought, it will promptly give
written notice of such service to the party or parties from whom contribution
may be sought, but the omission so to notify such party or parties of any such
service shall not relieve the party from whom contribution may be sought from
any obligation it may have hereunder or otherwise (except as specifically
provided in paragraph (c) of this Section 6).
(e) The Company will not, without the prior written consent of each
Underwriter, settle or compromise or consent to the entry of any judgment in any
pending or
17.
<PAGE>
threatened claim, action, suit or proceeding in respect of which indemnification
may be sought hereunder (whether or not such Underwriter or any person who
controls such Underwriter within the meaning of Section 15 of the Securities Act
or Section 20 of the Exchange Act is a party to such claim, action, suit or
proceeding) unless such settlement, compromise or consent includes an
unconditional release of such Underwriter and each such controlling person from
all liability arising out of such claim, action, suit or proceeding.
Section 7. Reimbursement of Certain Expenses. In addition to their other
obligations under Section 6 of this Agreement, the Company hereby agrees to
reimburse on a monthly basis the Underwriters for all reasonable legal and other
expenses incurred in connection with investigating or defending any claim,
action, investigation, inquiry or other proceeding arising out of or based upon
any statement or omission, or any alleged statement or omission, described in
paragraph (a) of Section 6 of this Agreement, notwithstanding the absence of a
judicial determination as to the propriety and enforceability of the obligations
under this Section 7 and the possibility that such payments might later be held
to be improper; provided, however, that (i) to the extent any such payment is
ultimately held to be improper, the persons receiving such payments shall
promptly refund them and (ii) such persons shall provide to the Company, upon
request, reasonable assurances of their ability to effect any refund, when and
if due.
Section 8. Termination. This Agreement may be terminated by you at any
time prior to the Closing Date by giving written notice to the Company in
accordance with Section 9, or if after the date of this Agreement trading in the
Common Stock shall have been suspended, or if there shall have occurred (i) the
engagement in hostilities or an escalation of major hostilities by the United
States or the declaration of war or a national emergency by the United States on
or after the date hereof, (ii) any outbreak of hostilities or other national or
international calamity or crisis or change in economic or political conditions
if the effect of such outbreak, calamity, crisis or change in economic or
political conditions in the financial markets of the United States or the
Company's industry sector would, in the Underwriters' reasonable judgment, make
the offering or delivery of the shares impracticable, (iii) suspension of
trading in securities generally or a material adverse decline in value of
securities generally on the New York Stock Exchange, the American Stock
Exchange, or The Nasdaq Stock Market, or limitations on prices (other than
limitations on hours or numbers of days of trading) for securities on either
such exchange or system, (iv) the enactment, publication, decree or other
promulgation of any federal or state statute, regulation, rule or order of, or
commencement of any proceeding or investigation by, any court, legislative body,
agency or other governmental authority which in the Underwriters' reasonable
opinion materially and adversely affects or will materially or adversely affect
the business or operations of the Company, (v) declaration of a banking
moratorium by either federal or New York State authorities or (vi) the taking of
any action by any federal, state or local government or agency in respect of its
monetary or fiscal affairs which in the Underwriters' reasonable opinion has a
material adverse effect on the securities markets in the United States. If this
Agreement shall be terminated pursuant to this Section 8, there shall be no
liability of the Company to the Underwriters and no liability of the
Underwriters to the Company; provided, however, that in the event of any such
termination the Company agrees to indemnify and hold harmless the Underwriters
from all costs or expenses incident to the performance of the obligations of the
Company under this Agreement, including all costs and expenses referred to in
paragraphs (i) and (j) of Section 5 hereof.
18.
<PAGE>
Section 9. Conditions of Underwriters' Obligations. The obligations of
the several Underwriters to purchase and pay for the shares shall be subject to
the performance by the Company of all its obligations to be performed hereunder
at or prior to the Closing Date or any later date on which Optional Shares are
to be purchased, as the case may be, and to the following further conditions:
(a) The Registration Statement shall have become effective; and no
stop order suspending the effectiveness thereof shall have been issued and no
proceedings therefor shall be pending or threatened by the Commission.
(b) The legality and sufficiency of the sale of the shares
hereunder and the validity and form of the certificates representing the shares,
all corporate proceedings and other legal matters incident to the foregoing, and
the form of the Registration Statement and of the Prospectus (except as to the
financial statements contained therein), shall have been approved at or prior to
the Closing Date by Pillsbury Madison & Sutro LLP, counsel for the Underwriters.
(c) You shall have received from Cooley Godward LLP, counsel for
the Company, an opinion, addressed to the Underwriters and dated the Closing
Date, covering the matters set forth in Annex A hereto, and if Optional Shares
are purchased at any date after the Closing Date, additional opinions from each
such counsel, addressed to the Underwriters and dated such later date,
confirming that the statements expressed as of the Closing Date in such opinions
remain valid as of such later date.
(d) You shall be satisfied that (i) as of the Effective Date, the
statements made in the Registration Statement and the Prospectus were true and
correct, and neither the Registration Statement nor the Prospectus omitted to
state any material fact required to be stated therein or necessary in order to
make the statements therein, respectively, not misleading; (ii) since the
Effective Date, no event has occurred which should have been set forth in a
supplement or amendment to the Prospectus which has not been set forth in such a
supplement or amendment; (iii) since the respective dates as of which
information is given in the Registration Statement in the form in which it
originally became effective and the Prospectus contained therein, there has not
been any material adverse change or any development involving a prospective
material adverse change in or affecting the business, properties, financial
condition or results of operations of the Company, whether or not arising from
transactions in the ordinary course of business, and, since such dates, except
in the ordinary course of business, neither the Company nor any of its
subsidiaries has entered into any material transaction not referred to in the
Registration Statement in the form in which it originally became effective and
the Prospectus contained therein; (iv) the Commission has not issued any order
preventing or suspending the use of the Prospectus or any Preliminary Prospectus
filed as a part of the Registration Statement or any amendment thereto; no stop
order suspending the effectiveness of the Registration Statement has been
issued; and to the best knowledge of the respective signers, no proceedings for
that purpose have been instituted or are pending or contemplated under the
Securities Act; (v) neither the Company nor any of its subsidiaries has any
material contingent obligations which are not disclosed in the Registration
Statement and the Prospectus; (vi) there are not any pending or known threatened
legal proceedings to which the Company or any of its subsidiaries is a party or
of which property of the Company or any of its subsidiaries is the subject which
are material and which are not disclosed in the Registration Statement and the
Prospectus; (vii) there are not any
19.
<PAGE>
franchises, contracts, leases or other documents which are required to be filed
as exhibits to the Registration Statement which have not been filed as required;
and (vii) the representations and warranties of the Company herein are true and
correct in all material respects as of the Closing Date or any later date on
which Optional Shares are to be purchased, as the case may be.
(e) You shall have received on the Closing Date and on any later
date on which Optional Shares are purchased a certificate, dated the Closing
Date or such later date, as the case may be, and signed by the President and the
Chief Financial Officer of the Company, stating that the respective signers of
said certificate have carefully examined the Registration Statement in the form
in which it originally became effective and the Prospectus contained therein and
any supplements or amendments thereto, and that the statements included in
clauses (i) through (viii) of paragraph (d) of this Section 9 are true and
correct.
(f) You shall have received on the Closing Date from
PriceWaterhouseCoopers LLP, a letter or letters, addressed to the Underwriters
and dated the Closing Date and any later date on which Optional Shares are
purchased, confirming that they are independent public accountants with respect
to the Company within the meaning of the Securities Act and the applicable
published rules and regulations thereunder and based upon the procedures
described in their letter delivered to you concurrently with the execution of
this Agreement (the "Original Letter"), but carried out to a date not more than
three business days prior to the Closing Date or such later date on which
Optional Shares are purchased (i) confirming, to the extent true, that the
statements and conclusions set forth in the Original Letter are accurate as of
the Closing Date or such later date, as the case may be, and (ii) setting forth
any revisions and additions to the statements and conclusions set forth in the
Original Letter which are necessary to reflect any changes in the facts
described in the Original Letter since the date of the Original Letter or to
reflect the availability of more recent financial statements, data or
information. The letters shall not disclose any change, or any development
involving a prospective change, in or affecting the business or properties of
the Company or any of its subsidiaries which, in your sole judgment, makes it
impractical or inadvisable to proceed with the public offering of the shares or
the purchase of the Optional Shares as contemplated by the Prospectus.
(g) You shall have received from PricewaterhouseCoopers LLP a
letter stating that their review of the Company's system of internal accounting
controls, to the extent they deemed necessary in establishing the scope of their
examination of the Company's financial statements as at December 31, 1998, did
not disclose any weakness in internal controls that they considered to be
material weaknesses.
(h) You shall have been furnished evidence in usual written or
telegraphic form from the appropriate authorities of the several jurisdictions,
or other evidence satisfactory to you, of the qualification referred to in
paragraph (f) of Section 5 hereof.
(i) Prior to the Closing Date, the shares to be issued and sold by
the Company shall have been duly authorized for listing by the Nasdaq National
Market upon official notice of issuance.
20.
<PAGE>
(j) On or prior to the Closing Date, you shall have received from
all directors, officers, and each holder of shares of the outstanding Common
Stock stockholders agreements, in form reasonably satisfactory to Volpe Brown
Whelan & Company, LLC, stating that without the prior written consent of Volpe
Brown Whelan & Company, LLC, such person or entity will not, for a period of 180
days following the date the Registration Statement became effective (i) offer,
sell, contract to sell, make any short sale (including without limitation short
against the box), pledge, or otherwise dispose of, directly or indirectly, any
shares of Common Stock or any options to acquire shares of Common Stock or
securities convertible into or exchangeable or exercisable for or any other
rights to purchase or acquire Common Stock (including without limitation, Common
Stock of the Company which may be deemed to be beneficially owned in accordance
with the rules and regulations of the Commission) other than the exercise or
conversion of outstanding options, warrants or convertible securities or (ii)
enter into any swap or other agreement that transfers, in whole or in part, any
of the economic consequences or ownership of Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise; provided,
however, that bona fide gift transactions and transfers which will not result in
any change in beneficial ownership may be permitted if the transferee enters
into a lock-up agreement in substantially the same form covering the remainder
of the lock-up period.
All the agreements, opinions, certificates and letters mentioned
above or elsewhere in this Agreement shall be deemed to be in compliance with
the provisions hereof only if Pillsbury Madison & Sutro LLP, counsel for the
Underwriters, shall be satisfied that they comply in form and scope.
In case any of the conditions specified in this Section 9 shall not
be fulfilled, this Agreement may be terminated by you by giving notice to the
Company. Any such termination shall be without liability of the Company to the
Underwriters and without liability of the Underwriters to the Company; provided,
however, that (i) in the event of such termination, the Company agrees to
indemnify and hold harmless the Underwriters from all costs or expenses incident
to the performance of the obligations of the Company under this Agreement,
including all costs and expenses referred to in paragraphs (i) and (j) of
Section 5 hereof, and (ii) if this Agreement is terminated by you because of any
refusal, inability or failure on the part of the Company to perform any
agreement herein, to fulfill any of the conditions herein, or to comply with any
provision hereof other than by reason of a default by any of the Underwriters,
the Company will reimburse the Underwriters severally upon demand for all
out-of-pocket expenses (including reasonable fees and disbursements of counsel)
that shall have been incurred by them in connection with the transactions
contemplated hereby.
Section 10. Conditions of the Obligation of the Company. The obligation
of the Company to deliver the shares shall be subject to the conditions that (a)
the Registration Statement shall have become effective and (b) no stop order
suspending the effectiveness thereof shall be in effect and no proceedings
therefor shall be pending or threatened by the Commission.
In case either of the conditions specified in this Section 10 shall
not be fulfilled, this Agreement may be terminated by the Company by giving
notice to you. Any such termination shall be without liability of the Company to
the Underwriters and without liability of the Underwriters to the Company;
provided, however, that in the event of any such termination the
21.
<PAGE>
Company agrees to indemnify and hold harmless the Underwriters from all costs or
expenses incident to the performance of the obligations of the Company under
this Agreement, including all costs and expenses referred to in paragraphs (i)
and (j) of Section 5 hereof.
Section 11. Persons Entitled to Benefit of Agreement. This Agreement
shall inure to the benefit of the Company and the several Underwriters and, with
respect to the provisions of Section 6 hereof, the several parties (in addition
to the Company and the several Underwriters) indemnified under the provisions of
said Section 6, and their respective personal representatives, successors and
assigns. Nothing in this Agreement is intended or shall be construed to give to
any other person, firm or corporation any legal or equitable remedy or claim
under or in respect of this Agreement or any provision herein contained. The
term "successors and assigns" as herein used shall not include any purchaser, as
such purchaser, of any of the shares from any of the several Underwriters.
Section 12. Notices. Except as otherwise provided herein, all
communications hereunder shall be in writing or by telegraph and, if to the
Underwriters, shall be mailed, telegraphed or delivered to Volpe Brown Whelan &
Company, LLC, One Maritime Plaza, San Francisco, California 94111, Attention:
James M.P. Feuille; and if to the Company, shall be mailed, telegraphed or
delivered to it at its office, 800 El Camino Real, Suite 400, Menlo Park,
California 94025, Attention: Wesley S. Saia; All notices given by telegraph
shall be promptly confirmed by letter.
Section 13. Miscellaneous. The reimbursement, indemnification and
contribution agreements contained in this Agreement and the representations,
warranties and covenants in this Agreement shall remain in full force and effect
regardless of (a) any termination of this Agreement, (b) any investigation made
by or on behalf of any Underwriter or controlling person thereof, or by or on
behalf of the Company or their respective directors or officers, and (c)
delivery and payment for the shares under this Agreement; provided, however,
that if this Agreement is terminated prior to the Closing Date, the provisions
of paragraphs (l), (m) and (n) of Section 5 hereof shall be of no further force
or effect.
Section 14. Partial Unenforceability. The invalidity or unenforceability
of any Section, paragraph or provision of this Agreement shall not affect the
validity or enforceability of any other Section, paragraph or provision hereof.
If any Section, paragraph or provision of this Agreement is for any reason
determined to be invalid or unenforceable, there shall be deemed to be made such
minor changes (and only such minor changes) as are necessary to make it valid
and enforceable.
Section 15. Applicable Law. This Agreement shall be governed by and
construed in accordance with the internal laws (and not the laws pertaining to
conflicts of laws) of the State of California.
Section 16. General. This Agreement constitutes the entire agreement of
the parties to this Agreement and supersedes all prior written or oral and all
contemporaneous oral agreements, understandings and negotiations with respect to
the subject matter hereof. This Agreement may be executed in several
counterparts, each one of which shall be an original, and all of which shall
constitute one and the same document.
22.
<PAGE>
In this Agreement, the masculine, feminine and neuter genders and the
singular and the plural include one another. The section headings in this
Agreement are for the convenience of the parties only and will not affect the
construction or interpretation of this Agreement. This Agreement may be amended
or modified, and the observance of any term of this Agreement may be waived,
only by a writing signed by the Company and you.
[Remainder of page intentionally left blank]
23.
<PAGE>
If the foregoing is in accordance with your understanding of our
agreement, kindly sign and return to us the enclosed copies hereof, whereupon,
when confirmed and accepted by the underwriters as evidenced by the signature of
Volpe Brown Whelan & Company, LLC below, it will become a binding agreement
among the Company and the several Underwriters, including you, all in accordance
with its terms.
Very truly yours,
BE INCORPORATED
By:
------------------------------------
Title:
---------------------------------
The foregoing Underwriting
Agreement is hereby confirmed
and accepted by us in San
Francisco, California as of
the date first above written.
VOLPE BROWN WHELAN & COMPANY, LLC
NEEDHAM & COMPANY, INC.
Acting for ourselves and as
Representatives of the several
Underwriters named in the
attached Schedule A
VOLPE BROWN WHELAN & COMPANY, LLC
By:
------------------------------------
Authorized Signatory
Title:
---------------------------------
24.
<PAGE>
Schedule I
UNDERWRITERS
Number of
Shares
to be
Underwriters Purchased
- -------------------------------------------------------------
VOLPE BROWN WHELAN & COMPANY, LLC ...............
NEEDHAM & COMPANY ...............................
Total ...........................................
==========
I-1.
<PAGE>
Annex A
Matters to be Covered in the Opinion of Cooley Godward LLP
Counsel for the Company
(i) Each of the Company and its subsidiaries has been duly
incorporated and is validly existing as a corporation in good standing under the
laws of the jurisdiction of its incorporation, is duly qualified as a foreign
corporation and in good standing in each state of the United States of America
in which the nature of its business or its ownership or leasing of property
requires such qualification, and has full corporate power and authority to own
or lease its properties and conduct its business as described in the
Registration Statement; all the issued and outstanding capital stock of each of
the subsidiaries of the Company has been duly authorized and validly issued and
is fully paid and nonassessable, and is owned by the Company free and clear of
all liens, encumbrances and security interests, and to the best of such
counsel's knowledge, no options, warrants or other rights to purchase,
agreements or other obligations to issue or other rights to convert any
obligations into shares of capital stock or ownership interests in such
subsidiaries are outstanding;
(ii) The authorized capital stock of the Company consists of
78,000,000 shares of Common Stock, $0.001 par value, of which there are
outstanding _____________ shares, and 2,000,000 shares of Common Stock, $0.001
par value, of which there are outstanding ____________ shares; all of the
outstanding shares of such capital stock (including the Firm Shares and the
Optional Shares issued, if any) have been duly authorized and validly issued and
are fully paid and nonassessable; any Optional Shares purchased after the
Closing Date have been duly authorized and, when issued and delivered to, and
paid for by, the Underwriters as provided in the Underwriting Agreement, will be
validly issued and fully paid and nonassessable; and no preemptive rights of, or
rights of refusal in favor of, stockholders exist with respect to the Shares, or
the issue and sale thereof, pursuant to the Certificate of Incorporation or
Bylaws of the Company or any other instrument and, to the knowledge of such
counsel, there are no contractual preemptive rights that have not been waived,
rights of first refusal or rights of co-sale which exist with respect to the
issue and sale of the Shares by the Company;
(iii) The Registration Statement has become effective under the
Securities Act and, to the best of such counsel's knowledge, no stop order
suspending the effectiveness of the Registration Statement or suspending or
preventing the use of the Prospectus is in effect and no proceedings for that
purpose have been instituted or are pending or contemplated by the Commission;
(iv) The Registration Statement and the Prospectus (except as to the
financial statements and schedules and other financial data contained therein,
as to which such counsel need express no opinion) comply as to form in all
material respects with the requirements of the Securities Act and with the rules
and regulations of the Commission thereunder;
(v) The information required to be set forth in the Registration
Statement in answer to Items 9, 10 (insofar as it relates to such counsel) and
11(c) of Form S-1 is to the best of such counsel's knowledge accurately and
adequately set forth therein in all material respects or
A-1.
<PAGE>
no response is required with respect to such Items, and, to the best of such
counsel's knowledge, the description of the Company's stock option plans and the
options granted and which may be granted thereunder set forth in the Prospectus
accurately and fairly presents the information required to be shown with respect
to said plans and options to the extent required by the Securities Act and the
rules and regulations of the Commission thereunder;
(vi) Such counsel does not know of any franchises, contracts, leases,
documents or legal proceedings, pending or threatened, which in the opinion of
such counsel are of a character required to be described in the Registration
Statement or the Prospectus or to be filed as exhibits to the Registration
Statement, which are not described and filed as required;
(vii) The Underwriting Agreement has been duly authorized, executed
and delivered by the Company;
(viii) The Company has full corporate power and authority to enter into
the Underwriting Agreement and to sell and deliver the Shares to be sold by it
to the several Underwriters; the Underwriting Agreement is a valid and binding
agreement of the Company enforceable in accordance with its terms, except as
enforceability may be limited by general equitable principles, bankruptcy,
insolvency, reorganization, moratorium or other laws affecting creditor's rights
generally and except as to those provisions relating to indemnity or
contribution for liabilities arising under federal and state securities laws (as
to which no opinion need be expressed).
(ix) The issue and sale by the Company of the Shares sold by the
Company as contemplated by the Underwriting Agreement will not conflict with, or
result in a breach of, or constitute a default under the Certificate of
Incorporation or Bylaws of the Company or any of its subsidiaries, as amended,
or any agreement or instrument known to such counsel, which is filed as an
Exhibit to the Registration Statement, and which the Company or any of its
subsidiaries is a party or by which any of its properties may be bound, or any
applicable law or regulation, or so far as is known to such counsel, any order,
writ, injunction or decree, of any jurisdiction, court or governmental
instrumentality;
(x) All holders of securities of the Company having rights to the
registration of shares of Common Stock, or other securities, because of the
filing of the Registration Statement by the Company have waived such rights or
such rights have expired by reason of lapse of time following notification of
the Company's intent to file the Registration Statement.
(xi) No consent, approval, authorization or order of any court or
governmental agency or body is required for the consummation of the transactions
contemplated in the Underwriting Agreement, except such as have been obtained
under the Securities Act and such as may be required under state securities or
blue sky laws in connection with the purchase and distribution of the Shares by
the Underwriters and the clearance of the offering with the NASD.
___________________________
In addition, such opinion shall also contain a statement that such counsel
has participated in conferences with officers and representatives of the
Company, representative of the
A-2.
<PAGE>
independent public accountants for the Company and the Underwriters at which
the contents of the Registration Statement and the Prospectus and related
matters were discussed and, although they have not verified the accuracy or
completeness as of the statement contained in the Registration Statement or
Prospectus, no facts have come to the attention of such counsel which would
lead such counsel to believe that either the Registration Statement at the
time it became effective (including the information deemed to be part of the
Registration Statement at the time of effectiveness pursuant to Rule 430A(b)
or Rule 434, if applicable), or any amendment thereof made prior to the
Closing Date as of the date of such amendment, contained an untrue statement
of a material fact or omitted to state any material fact necessary to make the
statements therein not misleading or that the Prospectus as of its date (or
any amendment thereof or supplement thereto made prior to the Closing Date as
of the date of such amendment or supplement) and as of the Closing Date
contained or contains an untrue statement of a material fact or omitted or
omits to state any material fact necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading. It
being understood that in all such cases such counsel need express no belief or
opinion with respect to the financial statements and schedules and other
financial and statistical data derived therefrom).
In rendering such opinion, such counsel may rely (A) as to matters
involving the application of laws other than the General Corporation Law of the
State of Delaware, the General Corporation Law of the State of California or the
federal law of the United States, to the extent such counsel deems proper and to
the extent specified in such opinion, if at all, upon an opinion or opinions (in
form and substance reasonably satisfactory to Underwriters' Counsel) of other
counsel reasonably acceptable to Underwriters' Counsel, familiar with the
applicable laws; (B) as to matters of fact, to the extent they deem proper, on
certificates of responsible officers of the Company and certificates or other
written statements of officers of departments of various jurisdictions having
custody of documents respecting the corporate existence or good standing of the
Company, provided that copies of any such statements or certificates shall be
delivered to the Underwriters' Counsel. The opinion of such counsel for the
Company shall state that the opinion of any such other counsel is in form
reasonably satisfactory to such counsel and, in their opinion, you and they are
justified in relying thereon.
<PAGE>
Exhibit 10.11
BE INCORPORATED
SOFTWARE DISTRIBUTION AGREEMENT
This Software Distribution Agreement (the "Agreement") is made and entered into
this 5 day of November, 1998 ("Effective Date"), by and between Be Incorporated,
- -------- -
a California corporation having its principal office at 800 El Camino Real,
Suite 300, Menlo Park, California 94025 ("Be"), and Plat'Home Co Ltd, a Japanese
corporation having its principal office at Narita Building, 2-3-6 Sotokanda,
Chiyoda-ku, Tokyo, Japan 101 ("PLATHOME").
In consideration of the mutual covenants and agreements hereinafter set forth,
the parties agree as follows:
1. Definitions. For purposes of this Agreement:
1.1 BeOS. "BeOS" shall mean all or part of those computer programs owned
by or licensed to Be and Licensed Components in machine executable
object code form that make up the BeOS(TM) [*].
1.2 End User. "End User" means a licensee of the BeOS who acquires such
for use rather than distribution or resale.
1.3 End User Documentation. "End User Documentation" shall mean Be's
standard user manuals and other written and graphic materials provided
by Be for distribution to End Users [*].
1.4 Licensed Components. "Licensed Components" shall mean certain
components of the BeOS which have been licensed to Be, with the right
to further sublicense such components.
2. Rights and Restrictions.
2.1 Appointment; License Grant. Be hereby appoints PLATHOME as a non-
exclusive reseller of the BeOS in Japan during the term of this
Agreement. [*] There are no implied licenses under this Agreement, and
any rights not expressly granted to PLATHOME hereunder are reserved by
Be.
(a) BeOS. Subject to the terms of this Agreement, Be grants to
PLATHOME a non-exclusive, nontransferable right, during and for the
term of this Agreement, to market, sell and distribute (through its
normal distribution channels) the BeOS in Japan only. PLATHOME shall
cause each copy of the BeOS distributed to End Users by PLATHOME, or
by any other third party which PLATHOME grants redistribution rights,
to be
[*] Certain information in this exhibit has been omitted and filed separately
with the Commission. Confidential Treatment has been requested with
respect to the omitted portions.
<PAGE>
subject to an End User License Agreement containing terms that
are no less restrictive of Be's rights than the provisions
contained in Be's standard software end user license attached
hereto as Exhibit A; and any redistribution or resale rights in
the BeOS granted by PLATHOME to any third party shall be subject
to limitations and restrictions at least as great as those set
forth herein.
(b) Trademarks. Subject to the restrictions set forth in
Section 8 and the terms of this Agreement and solely in
connection with PLATHOME's distribution of the BeOS, Be grants to
PLATHOME a limited right to use the trademarks, trade names and
other marketing names used by Be in connection with the BeOS, a
current list of which is set forth in Exhibit B (the "Trademarks
and Trade Names").
2.2 License Restrictions.
(a) PLATHOME acknowledges and agrees that the BeOS contains Be's
proprietary information and in order to protect such information,
PLATHOME shall not, nor shall it allow a third party to, [*]
(b) Except as explicitly set forth in this Agreement, PLATHOME
shall not [*].
(c) PLATHOME shall not [*] without Be's prior written consent.
PLATHOME's rights granted under this Agreement do not include the
right [*].
3. Order, Delivery and Payment.
3.1 Price. PLATHOME shall [*] for copies of the BeOS ordered under
this Agreement. Subject to Section 3.2, Be may change the price
by providing PLATHOME with thirty (30) days prior written notice.
3.2 [*] If the [*] of the BeOS is [*] Be during the term of this
Agreement, Be shall [*]. If the [*] of the BeOS is [*] Be shall
[*]
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to
the omitted portions.
<PAGE>
[*] as of the effective date of the [*].
3.3 Payment. PLATHOME shall pay to Be the amount due for copies of the BeOS
purchased by PLATHOME hereunder [*] for such amount. All such payments
shall be in U.S. Dollars. Any amount not paid when due will [*].
3.4 Terms. The terms and conditions of this Agreement shall apply to all orders
by PLATHOME for the BeOS and supersede any different or additional terms
on purchase orders from, or any general conditions maintained by PLATHOME.
PLATHOME shall submit written orders, by mail, fax or other method, for the
BeOS in accordance with the then-current order processing procedures
established by Be. Be shall use reasonable efforts to make deliveries of
orders so accepted by the requested delivery dates, but Be shall not be
liable for any damages to PLATHOME or to any other person for Be's failure
to fill any orders, or for any delay in delivery or error in filling any
orders for any reason whatsoever.
3.5 Shipments. All shipments will be made [*] warehouse facility to the
delivery address specified by [*]. Delivery will be deemed complete and
risk of loss or damage to the BeOS will pass [*].
3.6 Acceptance. Each shipment shall be deemed accepted by PLATHOME upon
delivery by Be.
3.7 Taxes and Duties. In addition to any other payments due under this
Agreement, PLATHOME agrees to pay, indemnify and hold Be harmless from any
sales, use, excise, import or export, value added or similar tax or duty,
and any other tax or duty not based on Be's net income, including any
penalties and interest, and all government permit, license, customs and
similar fees, and any costs associated with the collection or withholding
of any of the foregoing.
4. UPDATES. Be may from time to time, in its sole discretion, make updates and
bug-fixes to the BeOS publicly available to End Users from Be's website. Be
is under no obligation to provide PLATHOME with any new products or version
of the BeOS.
5. Marketing Obligations. In accordance with the standards set forth in Section
8 PLATHOME shall [*].
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to
the omitted portions.
<PAGE>
6. [*]
[*] Be [*] that, [*], including [*]; (ii) it has not [*] under this
agreement; (iii) it will [*] the BeOS, the result of which would
[*] the BeOS [*] under the terms of this Agreement; and (iv) [*] Be [*]
PLATHOME any [*] business from PLATHOME [*].
[*] Be DISCLAIMS ALL WARRANTIES, EXPRESS OR IMPLIED, INCLUDING, BUT NOT
LIMITED TO, THE IMPLIED WARRANTIES OF TITLE, MERCHANTABILITY, FITNESS FOR A
PARTICULAR PURPOSE AND NONINFRINGEMENT.
6.3 Support. [*] PLATHOME shall make no warranties to End Users on behalf
of Be and agrees to indemnify and hold Be harmless from any third party
claims based on warranties given in violation of this Agreement.
7. Limitation of Liability.
[*] SHALL BE LIABLE TO [*] UNDER THIS AGREEMENT, OR ARISING OUT OF OR IN
CONNECTION WITH THE USE OF THE LICENSES GRANTED HEREUNDER, FOR ANY AMOUNTS
REPRESENTING LOSS OF PROFITS, LOSS OF BUSINESS OR DATA, OR INDIRECT,
CONSEQUENTIAL OR PUNITIVE DAMAGES OF THE OTHER PARTY, WHETHER IN AN ACTION
IN CONTRACT OR TORT OR BASED ON A WARRANTY, EVEN IF [*] HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES.
8. Trademarks, Markings.
8.1 Trademarks and Trade Names. During the term of this Agreement, in
connection with PLATHOME's advertising, promotion and marketing of the BeOS and
in related product brochures and other materials, PLATHOME will use the
Trademarks. Be may from time to time attach other or additional Trademarks or
names to the BeOS. Be grants no other rights than expressly granted
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to
the omitted portions.
<PAGE>
hereunder, and PLATHOME acknowledges Be's exclusive ownership of such marks
and names worldwide. PLATHOME agrees not to take any action inconsistent
with such ownership and further agrees to take, at Be's expense, any
action, including without limitation, the conduct of legal proceedings,
which Be deems necessary to establish and preserve Be's exclusive rights in
and to its Trademarks and trade names.
8.2 Markings. Any reproduction of Be's Trademarks, logos, symbols and
other identifying marks shall be true reproductions. PLATHOME will not
remove or make or permit alterations to any labels or other identifying
markings placed by Be on the BeOS, or its packaging or Documentation.
8.3 Use of Be's Marks and Names. PLATHOME [*] Be's Trademarks in PLATHOME's
[*] subject to Be's prior written approval, which approval shall not be
unreasonably withheld or delayed.
8.4 Use of PLATHOME's Names. Be [*] PLATHOME's name in Be [*], subject to
PLATHOME's prior written approval, which approval shall not unreasonably
withheld or delayed.
9. Confidentiality; Proprietary Rights.
[*] shall be held in confidence by the parties and shall not be
disclosed by either party to any outside party without the prior written
consent of the other party; [*] In such case, [*] shall only occur when [*]
has [*] that is [*].
9.2 Confidential Information. The term "Confidential Information" means
any technical or non-technical information relating to Be, the BeOS,
Documentation and PLATHOME proprietary information, such as product plans,
costs, prices, names, finances, marketing plans, business opportunities,
personnel and the like, which is disclosed by one party ("Disclosing
Party") to the other party ("Receiving Party") [*].
9.3 No Use of Confidential Information for Own Purpose. During this
Agreement, and for [*] after the termination of this Agreement,
Receiving Party agrees to keep Confidential Information of Disclosing
Party in confidence, and shall neither disclose it to any third party nor
use the same for any purposes other than those contained in this Agreement.
[*]
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with repsect to
the omitted portions.
<PAGE>
[*] Nothwithstanding the foregoing, Receiving Party shall have no
confidentiality obligation and no use restriction with respect to any
information that it can sufficiently document that:
(a) the Disclosing Party approved, by prior written consent,
Receiving Party to release or disclose to any third parties;
(b) the Receiving Party already knew, without obligation to keep it
confidential, when received from Disclosing Party;
(c) the Receiving Party received in good faith from a third party
lawfully in possession thereof and having no similar obligation to
keep such information confidential;
(d) was or becomes publicly known to Receiving Party at or after the
Receiving Party received it from Disclosing Party through no fault of
Receiving Party;
(e) the Disclosing Party furnished to a third party without a similar
restriction;
(f) the Receiving Party independently developed without using the
Disclosing Party's Confidential Information; or
(g) is disclosed pursuant to the requirement of a governmental agency
or disclosure is required by operation of law, provided Disclosing
Party shall be given written notice prior to any such disclosure and
an opportunity to challenge such requirement or seek an appropriate
protective order.
9.4 PLATHOME's Ownership. All PLATHOME Confidential Information furnished
to Be pursuant to this Agreement shall remain the property of PLATHOME. All
trademarks, trade names, and other proprietary material furnished by
PLATHOME to Be shall remain the property of PLATHOME. [*].
9.5 Be's Ownership. All Be Confidential Information furnished to PLATHOME
pursuant to this Agreement shall remain the property of Be. All trademarks,
trade names, and other proprietary material furnished by Be to PLATHOME
shall remain the property of Be. [*].
10 Infringement Indemnity.
10.1 Be's Indemnity.
(a) Be shall, at its own expense, defend and hold harmless
PLATHOME against any third party claim, action, suit or proceeding,
that the [*] or the [*]. Be shall indemnify PLATHOME for all losses,
damages and all
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with repsect to
the omitted portions.
<PAGE>
reasonable expenses and costs incurred by PLATHOME as a result
of a final judgement entered against PLATHOME in any such claim,
action, suit or proceeding; provided that PLATHOME gives Be
prompt written notice of any such claim, grants Be control of
the defense and any settlement thereof, and reasonably
cooperates with Be at Be's expense.
(b) If the BeOS, in whole or in part, are or in Be's opinion may
become,[*] of, or if it is judicially determined that the BeOS,
in whole or in part, infringe any third party's U.S. copyright
or patent right, or if the BeOS' use is enjoined, then Be may,
at its option and expense: (1) procure for PLATHOME the right to
continue the BeOS' sale and use; (2) replace or modify the BeOS
so as not to infringe such third party's copyright or patent
right while conforming, as closely as possible, to the End User
Documentation, or (3) terminate this Agreement as to the BeOS.
The foregoing remedial actions shall[*] and[*].
10.2 Limitation of Liability; Exclusive Remedy. (a) Be will have no
liability under Section 10.1 for any infringement claim based
upon: (i) the[*]not listed in this Agreement;(ii) componets or
software which were not manufactured by Be; and (iii) any[*].
(b) SECTIONS 10.1 AND 10.2 STATE Be'S ENTIRE OBLIGATION AND
LIABILITY WITH RESPECT TO ANY CLAIMS OF PATENT, COPYRIGHT OR
OTHER PROPRIETARY RIGHT INFRINGEMENT.
11. PLATHOME's Indmenity. PLATHOME shall, at its own expense, defend and
hold harmless Be against any third party claim, action, suit or
proceeding: (a)[*] any PLATHOME Product[*] or the[*] or (b) resulting
from PLATHOME's[*]. PLATHOME shall indemnify Be for all losses, damages
and all reasonable expenses and costs incurred by Be as a result of a
final judgment entered against Be in any such claim, action, suit or
proceeding; provided that Be gives PLATHOME prompt written notice of any
such claim, grants PLATHOME control of the defense and any settlement
thereof, and reasonably cooperates with PLATHOME at PLATHOME's expense.
12. Term and Termination.
12.1 Term. The term of this Agreement shall begin on the Effective Date
and expire on December 31, 1999 (the "initial Term"), but this Agreement
may be extended by mutual written consent of the parties. Nothing in
this Agreement will be construed as requiring either party to renew or
extend this Agreement.
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to
the omitted portions.
<PAGE>
Notwithstanding the foregoing, this Agreement may be terminated pursuant to
Section 12.2 below.
12.2 Termination. In the event of a default by PLATHOME of any of its
obligations hereunder, Be may immediately terminate this Agreement by
providing notice to PLATHOME.[*] Each party understands that the rights of
termination or expiration hereunder are absolute. Neither party shall incur
any liability whatsoever for any damage, loss or expenses of any kind
suffered or incurred by the other arising from or incident to any
termination of this Agreement by such party or any expiration hereof which
complies with the terms of this Agreement whether or not such party is
aware of any such damage, loss or expenses. In particular, without in any
way limiting the foregoing, neither party shall be entitled to any damages
on account of prospective profits or anticipated sales. PLATHOME agrees to
waive the benefit of any law or regulation providing compensation to
PLATHOME arising from the termination or failure to renew this Agreement
and PLATHOME hereby represents and warrants that such waiver is irrevocable
and enforceable by Be.
12.3 Effect of Termination. Upon termination or expiration of this
Agreement:
(a) All licenses and rights granted to PLATHOME under this Agreement
shall terminate;
(b) Each Party shall promptly return to the other all marketing and
selling materials, all manuals, all technical data and all other
documents and copies thereof previously supplied by such other party,
except such documents as are necessary for returning party to provide
support to its End Users;
(c) PLATHOME shall cease using Be's name, trademarks and trade names
and refrain thereafter from representing itself as an OEM of Be;
(d) Termination by either party under this Agreement shall not affect
the sublicenses previously granted by PLATHOME to End Users; and
(e) Any other rights of either party which may have accrued up to the
date of such termination or expiration shall not be affected.
13. General Terms.
13.1 Assignment. Neither party shall have the right to assign its rights
and obligations pursuant to this Agreement, in whole or in part, without
the other party's prior written consent, such consent not be unreasonably
withheld. Each party must notify the other if such party intends to effect
a Change of Control, and any attempted assignment or delegation in
violation of this Section 13.1 shall be void and of no effect.
13.2 Right to Enter Agreement. Each party has full power and authority to
enter into and perform this Agreement, and the person signing this
Agreement on behalf of each has been properly authorized and empowered to
enter into this
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to
the omitted portions.
<PAGE>
Agreement. Each party further acknowledges that it has read this
Agreement, understands it, and agrees to be bound by it.
13.3 Notices. All notices, request, consents and other communications
required or permitted under this Agreement shall be in writing and shall be
deemed effective when mailed by registered or certified mail, postage
prepaid, or transmitted by facsimile to PLATHOME and Be at their respective
addresses and representatives as set forth on the signature page below.
Either party may change its address by written notice to the other.
13.4 Severability and Headings. If any of the provisions, or portions
thereof, of this Agreement is held by a court of competent jurisdiction to
be invalid under any applicable statute or rule of law, the parties agree
that such invalidity shall not affect the validity of the remaining
portions of this Agreement and further agree to substitute for the invalid
provision a valid provision which most closely approximates the intent and
economic effect of the invalid provision. Headings used in this Agreement
are for reference purposes only and in no way define, limit, construe or
describe the scope or extent of such section, or in any way affect this
Agreement.
13.5 Non-Waiver. No term or provisions hereof shall be deemed waived and
no breach excused, unless such waiver or consent shall be in writing and
signed by the party claimed to have waived or consented. Any consent by any
party to, or waiver of, a breach by the other, whether express or implied,
shall not constitute a consent to, waiver of, or excuse for any other
different or subsequent breach.
13.6 Force Majeure. If the performance of this Agreement, or any
obligation hereunder, except the making of payments hereunder, is
prevented, restricted or interfered with by reason of fire, flood,
earthquake, acts of God, explosion or other casualty of war, labor dispute,
inability to procure or obtain delivery of parts, supplies, or power,
violence, any law, order, regulation, ordinance, demand or requirement of
any governmental agency, or any other act or condition whatsoever beyond
the reasonable control of the affected party, the party so affected, upon
giving prompt notice to the other party, will be excused from such
performance to the extent of such prevention, restriction or interference.
13.7 Independent Contractor. The parties' relationship shall be solely
that of independent contractor and nothing contained in this Agreement
shall be construed to make either party an agent, partner, co-venturer,
representative or principal of the other for any purpose, and neither party
shall have any right whatsoever to incur any liability or obligation on
behalf of or binding upon the other party.
13.8 Survival. Sections 1, 2.2, 6.1, 6.2, 7, 9, 12.2 and 13 of this
Agreement shall survive the termination of this Agreement.
13.9 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California, excluding its conflicts of law
principles. Any suit hereunder shall be brought in the federal or state
courts in Santa Clara County, California and PLATHOME submits to the
jurisdiction thereof. The
<PAGE>
parties exclude the application of the 1980 United Nations Convention on
Contracts for the International Sale of Goods if applicable.
13.10 Entire Agreement; Amendment. This Agreement, including each of the
exhibits attached hereto, which are hereby incorporated into and made a
part of this Agreement, constitute the final, complete and exclusive entire
agreement between the parties with respect to the subject matter hereof and
supersedes any previous proposals, negotiations, agreements arrangements,
or warranties, whether verbal or written, made between the parties with
respect to such subject matter. It is expressly understood and agreed that
sales conditions of the BeOS as contained in orders or any other form or
request submitted by PLATHOME to Be shall be subject to the provisions of
this Agreement, and in no event shall the terms and conditions set forth in
such order or other business form, whether it is Be's standard or not, be
applicable to the transactions between the parties under this Agreement.
This Agreement shall control over any additional or conflicting term in any
of PLATHOME's purchase orders or other business forms. This Agreement may
only be amended or modified by mutual agreement of authorized
representatives of the parties in writing.
13.11 Attorney's Fees. If any legal action is brought to construe or
enforce any provision of this Agreement, the prevailing party shall be
entitled to receive its attorneys' fees and court costs in addition to any
other relief it may receive.
In Witness Whereof, the parties have caused this Software Distribution
Agreement to be executed as of the date first written above.
Be PLATHOME
800 El Camino Real, Suite 400 Narita Building, 2-3-6 Sotokanda
Menlo Park, CA 94025 Chiyoda-ku Tokyo, Japan 101
By: /s/ Jim Cook By: /s/ Tomoyasn Suzuki
------------------------------- ---------------------------------
Name: Jim Cook Name: Tomoyasn Suzuki
----------------------------- -------------------------------
Title: VP Sales Title: Executive Vice President
---------------------------- ------------------------------
Date: 5 Nov 98 Date: 9 Nov 98
----------------------------- -------------------------------
<PAGE>
EXHIBIT A
BE INCORPORATED - SHRINKWRAP LICENSE AGREEMENT
NOTICE: READ THIS BEFORE INSTALLING THE BEOS.
BY INSTALLING THE BEOS YOU AGREE THAT YOU HAVE READ THIS LICENSE, THAT YOU ARE
BOUND BY ITS TERMS AND THAT IT IS THE ONLY AGREEMENT BETWEEN US REGARDING THE
PROGRAM AND DOCUMENTATION.
INSTALLING THE BEOS INDICATES YOUR ACCEPTANCE OF THESE TERMS AND CONDITIONS.
READ ALL OF THE TERMS AND CONDITIONS OF THIS LICENSE AGREEMENT PRIOR TO
INSTALLING. IF YOU DO NOT ACCEPT THESE TERMS, YOU MUST RETURN THE BEOS AND ANY
UNOPENED PACKAGE (PACKET AND ALL OTHER MATERIALS) WITHIN 5 DAYS OF OBTAINING
THE BEOS, WITH YOUR RECEIPT, AND YOUR MONEY WILL BE RETURNED.
PLEASE NOTE THAT YOU MAY NOT USE, COPY, MODIFY OR TRANSFER THE PROGRAM OR
DOCUMENTATION OR ANY COPY, EXCEPT AS EXPRESSLY PROVIDED IN THIS AGREEMENT.
LICENSE. This software program and documentation are licensed, not sold, to
you. You have a non-exclusive and nontransferable right to use the enclosed
program and documentation. This program can only be used on a single computer
located in the United States and its territories or any other country to which
this software is legally exported. You may physically transfer the program from
one computer to another provided that the program is used on only one computer
at a time. This software is considered to be in use on a computer when it is
loaded into the temporary memory (i.e. RAM) or installed into the permanent
memory (e.g. hard drive) of that computer, except that a copy installed on a
network server for the sole purpose of distribution to other computers is not
"in use." You may merge it into another program for your use on a single
machine. You agree that the program and documentation belong to Be Incorporated
and its licensors. You agree to use your best efforts to prevent and protect the
contents of the program and documentation from unauthorized disclosure or use.
Be Incorporated and its licensors reserve all rights not expressly granted to
you.
LIMITATIONS ON USE. You may not rent, lease, sell or otherwise transfer or
distribute copies of the program or documentation to others. You may not modify
or translate the program or the documentation without the prior written consent
of Be Incorporated. You may not reverse assemble, reverse compile or otherwise
attempt to create the source code from the program. Licensee shall not use Be
Incorporated's name or refer to Be Incorporated directly or indirectly in any
papers, articles, advertisements, sales presentations, news releases or releases
to any third party without the prior written approval of Be Incorporated for
each such use. Licensce shall not release the results of any performance or
functional evaluation of any program to any third party without prior written
approval of Be Incorporated for each such release.
BACKUP AND TRANSFER. You may make one copy of the program for backup purposes
if Be Incorporated's copyright notice is included. You may not sublicense the
program, or assign, delegate or otherwise transfer this license or any of the
related rights or obligations for any reason. Any attempt to make any such
sublicense, assignment, delegation or other transfer by you shall be void.
COPYRIGHT. The program and related documentation are copyrighted. You may not
copy any documentation. You may not copy the program (or this license) except
to provide a backup copy and to load the program into the computer as part of
executing the program. Any and all other copies of the program made by you are
in violation of this license.
OWNERSHIP. You agree that you neither own nor hereby acquire any claim or right
of ownership to the program and documentation or to any related patents,
copyrights, trademarks or other intellectual property. You own only the
magnetic or other physical media on which the program and related documentation
are recorded or fixed. Be Incorporated and its licensors retain all right,
title and interest in and to the documentation and all copies and the program
recorded on the original media and all subsequent copies of the program at all
times, regardless of the form or media in or on which the original or other
copies may subsequently exist. This license is not a sale of the original or
any subsequent copy.
<PAGE>
TERM AND TERMINATION. This license is effective until terminated. You may
terminate this license at any time by destroying the program and documentation
and the permitted backup copy. This license automatically terminates if you fail
to comply with its terms and conditions. You agree that, upon such termination,
you will destroy (or permanently erase) all copies of the program and
documentation. You also agree that, upon termination, you will return the
original program and documentation to Be Incorporated, together with any other
material you have received from Be Incorporated in connection with the program.
LIMITED WARRANTY. Be Incorporated warrants the medial on which the program is
furnished to be free from defects in materials and workmanship under normal use
for 30 days from the date that you obtain the program. EXCEPT FOR THIS LIMITED
WARRANTY, BE INCORPORATED AND ITS LICENSORS PROVIDE THE PROGRAM AND THE
DOCUMENTATION "AS IS" WITHOUT WARRANTY OF ANY KIND EITHER EXPRESS, IMPLIED OR
STATUTORY, INCLUDING BUT NOT LIMITED TO THE IMPLIED WARRANTIES OF TITLE,
MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND NON-INFRINGEMENT.
Some states do not allow the exclusion of implied warranties, so the above
exclusion may not apply to you. This warranty gives you specific legal rights
and you may also have other rights which vary from state to state.
The BeOS may have been delivered to you bundled with third party software
applications not owned by Be Incorporated. SUCH THIRD PARTY SOFTWARE IS
PROVIDED TO YOU "AS IS" AND WITHOUT WARRANTY OF ANY KIND BY BE INCORPORATED
EITHER EXPRESS, IMPLIED OR STATUTORY, INCLUDING BUT NOT LIMITED TO THE IMPLIED
WARRANTIES OF TITLE, MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND
NON-INFRINGEMENT. Your rights and warranties, if any, regarding such third party
software are governed by such third party's own end user license agreement and
not by Be Incorporated.
LIMITATION OF REMEDIES. Be Incorporated and its licensor's entire liability and
your exclusive remedy in connection with the program and the documentation shall
be that you are entitled to return the defective media containing the program
together with the documentation to the merchant. At the option of the merchant,
you may receive replacement media containing the program and documentation that
conforms with the limited warranty or a refund of the amount paid by you. IN NO
EVENT WILL BE INCORPORATED OR ITS LICENSORS BE LIABLE FOR ANY INDIRECT DAMAGES
OR OTHER RELIEF ARISING OUT OF YOUR USE OR INABILITY TO USE THE PROGRAM OR ANY
THIRD PARTY APPLICATIONS INCLUDING, BY WAY OF ILLUSTRATION AND NOT LIMITATION,
LOST PROFITS, LOST BUSINESS OR LOST OPPORTUNITY, OR ANY SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES ARISING OUT OF SUCH USE OR INABILITY TO USE THE PROGRAM OR
ANY THIRD PARTY APPLICATIONS, EVEN IF BE INCORPORATED, ITS LICENSORS OR AN
AUTHORIZED BE INCORPORATED DEALER, DISTRIBUTOR OR SUPPLIER HAS BEEN ADVISED OF
THE POSSIBILITY OF SUCH DAMAGES, OR FOR ANY CLAIM BY ANY OTHER PARTY.
Some states do not allow the exclusion or limitation of incidental or
consequential damages so the above limitation or exclusion may not apply to you.
This license will be governed by the laws of the State of California as applied
to transactions taking place wholly within California residents.
U.S. GOVERNMENT RIGHTS LEGEND. The program is a "commercial item," as that term
is defined at 48 C.F.R. 2.101 (OCT 1995), consisting of "commercial computer
software" and "commercial computer software documentation," as such terms are
used in 48 C.F.R. 12.212 (SEPT 1995) and is provided to the U.S. Government only
as a commercial end item. Consistent with 48 C.F.R. 12.212 and 48 C.F.R.
227.7202-1 through 227.7202-4 (JUNE 1995), all U.S. Government End Users
acquire the program with only those rights set forth herein.
<PAGE>
Exhibit B
Trademarks and Trade names
Be Trademarks and Trade Names:
Be Incorporated(R) (as registered in Japan)
BeOS(TM)
[*]
[*] Certain information on this page has been omitted and filed separately with
the Commission. Confidential Treatment has been requested with respect to
the omitted portions.
<PAGE>
Exhibit C
[*]
[*] Certain information on this page has been omitted and filed separetely with
the Commission. Confidential Treatment has been requested with respect to
the omitted portions.
<PAGE>
EXHIBIT 23.1
Consent of PricewaterhouseCoopers LLP
Independent Accountants
We hereby consent to the use in this Registration Statement on Form S-1 of our
report dated April 2, 1999 relating to the financial statements which includes
an explanatory paragraph regarding the ability to continue as a going concern,
and our report dated April 2, 1999 on the financial statement schedule of Be
Incorporated and its subsidiaries and of our report dated April 9, 1999
relating to the financial statements of StarCode Software, Inc., which appear
in such Registration Statement. We also consent to the references to us under
the headings, "Experts" and "Selected Financial Data" in such Registration
Statement.
/s/ PricewaterhouseCoopers LLP
San Jose, California
June 21, 1999
1
