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AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON MARCH 31, 2000
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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HANDSPRING, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3571 77-0490705
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
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189 BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 230-5000
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE, OF
REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
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BERNARD WHITNEY
CHIEF FINANCIAL OFFICER
189 BERNARDO AVENUE
MOUNTAIN VIEW, CALIFORNIA 94043
(650) 230-5000
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPIES TO:
DENNIS R. DEBROECK, ESQ. WILLIAM M. KELLY, ESQ.
ROBERT A. FREEDMAN, ESQ. DAVIS POLK & WARDWELL
AUSTIN CHOI, ESQ. 1600 EL CAMINO REAL
BENJAMIN HADARY, ESQ. MENLO PARK, CALIFORNIA
FENWICK & WEST LLP (650) 752-2000
TWO PALO ALTO SQUARE
PALO ALTO, CALIFORNIA 94306
(650) 494-0600
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [ ]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act of 1933, 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 of 1933, 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 of 1933, 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. [ ]
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CALCULATION OF REGISTRATION FEE
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TITLE OF EACH CLASS PROPOSED MAXIMUM AMOUNT OF
OF SECURITIES TO BE REGISTERED AGGREGATE OFFERING PRICE(1) REGISTRATION FEE
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Common stock, $0.001 par value per share............. $300,000,000 $79,200
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(1) Estimated solely for the purpose of computing the amount of the registration
fee pursuant to Rule 457(o) under the Securities Act of 1933.
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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 WHICH SPECIFICALLY STATES THAT THIS REGISTRATION
STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH SECTION 8(A) OF
THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT SHALL BECOME
EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID SECTION 8(A),
MAY DETERMINE.
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THE INFORMATION IN THIS PROSPECTUS IS NOT COMPLETE AND MAY BE CHANGED. WE
MAY NOT SELL THESE SECURITIES UNTIL THE REGISTRATION STATEMENT FILED WITH
THE SECURITIES AND EXCHANGE COMMISSION IS EFFECTIVE. THIS PROSPECTUS IS
NOT AN OFFER TO SELL THESE SECURITIES AND IT IS NOT SOLICITING OFFERS TO
BUY THESE SECURITIES IN ANY STATE WHERE THE OFFER OR SALE IS NOT
PERMITTED.
SUBJECT TO COMPLETION, DATED MARCH 31, 2000
Shares
[Logo]
HANDSPRING, INC.
Common Stock
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Prior to this offering, there has been no public market for our common
stock. The initial public offering price of the common stock is expected to be
between $ and $ per share. We have applied to list our common stock on
The Nasdaq Stock Market's National Market under the symbol " ".
The underwriters have an option to purchase a maximum of additional
shares to cover over-allotments of shares.
INVESTING IN OUR COMMON STOCK INVOLVES RISKS. SEE "RISK FACTORS" ON PAGE 7.
UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS HANDSPRING, INC.
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Per Share............................................ $ $ $
Total................................................ $ $ $
Delivery of the shares of common stock will be made on or about
, 2000.
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.
CREDIT SUISSE FIRST BOSTON
MERRILL LYNCH & CO.
DONALDSON, LUFKIN & JENRETTE
U.S. BANCORP PIPER JAFFRAY
The date of this prospectus is , 2000.
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DESCRIPTION OF GRAPHICS
INSIDE FRONT COVER
The right two-thirds of the page is a snapshot of the front of a Visor handheld
computer. It is set at an angle on the page. The display shows a page from the
calendar with entries. The left one-third of the page shows five snapshots of
the Visor handheld computer set at a 45 degree angle on the page and in a
column, with the display of each showing a different function of the unit. The
five displays from the top of the page to the bottom of the page are: calendar,
city time, memo list, to do list and the calculator. There are no captions.
INSIDE BACK COVER
The left two-thirds of the page is a snapshot of the back of a Visor
heldheld computer that is actual size. A module is half-inserted into the
Springboard expansion slot. The right one-third of the page shows five snapshots
of other modules for the Springboard expansion slot in a column inserted inside
a device. Each screenshot shows the springboard module applications. There are
no captions.
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TABLE OF CONTENTS
PAGE
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PROSPECTUS SUMMARY.................. 4
RISK FACTORS........................ 7
SPECIAL NOTE REGARDING FORWARD-
LOOKING STATEMENTS................ 19
USE OF PROCEEDS..................... 20
DIVIDEND POLICY..................... 20
CAPITALIZATION...................... 21
DILUTION............................ 22
SELECTED CONSOLIDATED FINANCIAL
DATA.............................. 23
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS..................... 24
PAGE
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BUSINESS............................ 29
MANAGEMENT.......................... 40
RELATED PARTY TRANSACTIONS.......... 49
PRINCIPAL STOCKHOLDERS.............. 51
DESCRIPTION OF CAPITAL STOCK........ 53
SHARES ELIGIBLE FOR FUTURE SALE..... 55
UNDERWRITING........................ 57
NOTICE TO CANADIAN RESIDENTS........ 59
LEGAL MATTERS....................... 60
EXPERTS............................. 60
WHERE YOU MAY FIND MORE
INFORMATION....................... 60
INDEX TO FINANCIAL STATEMENTS....... F-1
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YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR TO
WHICH WE HAVE REFERRED YOU. WE HAVE NOT AUTHORIZED ANYONE TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT. THIS DOCUMENT MAY ONLY BE USED WHERE IT IS LEGAL
TO SELL THESE SECURITIES. THE INFORMATION IN THIS DOCUMENT MAY ONLY BE ACCURATE
ON THE DATE OF THIS DOCUMENT.
Except as otherwise indicated, information in this prospectus is based on
the following assumptions:
- the conversion of all our outstanding shares of preferred stock into
shares of common stock immediately upon the closing of this offering;
- the exercise of an outstanding right to purchase 596,895 shares of common
stock at an exercise price of $2.513 per share immediately upon the
closing of this offering;
- no exercise of the underwriters' over-allotment option;
- our reincorporation into Delaware, upon approval of our stockholders,
prior to the closing of this offering; and
- a 3-for-1 stock split of our common stock in March 2000.
Handspring, the Handspring logo, Springboard and Visor are our trademarks.
Palm, Palm OS operating system and HotSync are trademarks of Palm, Inc. All
other trademarks or trade names appearing elsewhere in this prospectus are the
property of their respective owners.
DEALER PROSPECTUS DELIVERY OBLIGATION
UNTIL , 2000 (25 DAYS AFTER THE COMMENCEMENT OF THIS
OFFERING), ALL DEALERS THAT EFFECT TRANSACTIONS IN THESE SECURITIES, WHETHER OR
NOT PARTICIPATING IN THIS OFFERING, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE DEALER'S OBLIGATION TO DELIVER A PROSPECTUS WHEN
ACTING AS AN UNDERWRITER AND WITH RESPECT TO UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
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PROSPECTUS SUMMARY
This summary highlights information contained elsewhere in this prospectus.
This summary is not complete and does not contain all of the information you
should consider before buying shares in this offering. You should read the
entire prospectus carefully.
HANDSPRING, INC.
We are a leading provider of handheld computers. Our first product, the
Visor handheld computer, is a personal organizer that is enhanced by an open
expansion slot, which we refer to as our Springboard platform. Since its
introduction in October 1999, our Visor has won numerous awards, including PC
Magazine's annual "Technical Excellence" award for handheld devices, first place
in CNET.com's Consumer Electronics "Top Ten Must-Haves" and inclusion in
Business Week's "Best Products of the Year." More than 2,000 developers have
registered with Handspring to create modules that can be easily snapped into the
Springboard expansion slot. Examples of modules commercially available or in
development include content such as books and games, consumer applications such
as an MP3 player, a digital camera and a global positioning system receiver and
communications applications such as wireless modems and two-way pagers offering
Internet and intranet connectivity. We will continue to be an innovator in
designing expandable handheld devices that enable new mobile computing and
communications applications.
The handheld computing and communications industry is growing rapidly as
users, particularly mobile professionals, increasingly rely on electronic
management of critical personal and professional information, interaction with
Internet-based information resources and mobile voice and data communications.
This increased need for productivity and connectivity "anywhere, anytime" has
led to a wide array of handheld devices. Some handheld devices focus on handheld
computing functions, including calendar and contact management, while others
focus on communications functions, including voice communications, email and
Internet access.
While demand for these devices has grown rapidly, we believe that product
evolution in this sector is still in its early stage. International Data
Corporation estimates that worldwide shipments of smart handheld devices will
grow from approximately 6.8 million units in 1998 to approximately 35.5 million
units in 2003. We believe that the emergence of more powerful, flexible devices
with increased functionality and broad consumer applications will further expand
the potential market for handheld computing and communications devices. The key
challenge in addressing this market is designing a device that is small, elegant
and easy to use, yet flexible enough to support a wide variety of personal
preferences and professional requirements.
Our product design team has extensive experience in handheld computing
design. Our Visor handheld computer combines the functionality of a handheld
organizer with the flexibility of our Springboard expansion slot. The result is
a flexible, open platform that enables users to customize their handheld device
to deliver a broad range of computing and communications applications. Key
elements of our solution include:
- EASY TO USE PRODUCTS. Our Visor handheld computers are designed to
delight our customers by providing a simple, intuitive solution for their
computing, communications, information and entertainment needs. Our
products require little technical knowledge to operate effectively. For
example, users can simply insert modules into our Springboard expansion
slot without the need to separately install or delete software. In
addition, our customers can synchronize their Visors' data with their
desktop computers by pressing one button.
- FLEXIBLE PLATFORM. Our Springboard expansion slot allows users to add and
remove modules to customize the functions of their Visor handheld
computers. To encourage widespread
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module development, our Springboard expansion slot was designed to
provide developers with great flexibility in the size, form and
functionality of the modules they create.
- OPEN DEVELOPMENT ENVIRONMENT. Our Springboard technology provides an open
platform to developers, with all documentation available on our Web site,
allowing them to create modules without paying royalties or license fees.
We offer a wide variety of marketing and support programs to help our
developers build successful businesses based on Springboard modules.
- VALUE LEADERSHIP. Our products are designed to combine superior
functionality with competitive pricing in order to drive widespread
adoption within the broad consumer market.
- COMPATIBILITY. The compatibility of our products with the Palm OS
operating system, which we have licensed from Palm, allows our Visor
handheld computers to run thousands of applications developed for that
operating system.
Our objective is to become a global market leader in the handheld computing
and communications marketplace. Key elements of our strategy include:
- DEVELOP PRODUCTS BASED ON CUSTOMER FOCUSED DESIGN AND INNOVATION. We
intend to continue building on the history of innovation of key members
of our management and product development teams, who founded and led the
Palm Computing business from its inception until the founding of
Handspring in mid-1998.
- PENETRATE LARGE AND GROWING HANDHELD COMPUTING AND COMMUNICATIONS
MARKET. Our Visor handheld computer's Springboard expandability,
organizer functionality and competitive pricing provide us with immediate
access to the large and growing handheld computing and communications
market.
- ESTABLISH MULTIPLE REVENUE SOURCES. We intend to derive additional
sources of revenue from internally developed Springboard modules,
distribution of Springboard modules developed by third parties and
product accessories.
- ESTABLISH A STRONG BRAND IDENTITY. Our goal is to establish Handspring as
the premier brand in the consumer handheld computing market by creating
an image that is innovative, fun, smart, approachable, compelling and
personal.
- ADDRESS ADDITIONAL MARKETS BY ATTRACTING AND SUPPORTING THE DEVELOPMENT
COMMUNITY. Our goal is to develop a competitive advantage from a large
and innovative developer community focused on our Springboard platform.
These developers will enable Handspring to sell into new and broader
areas, such as the education and medical device markets.
- LEVERAGE OUTSOURCE MODEL. Our strategy is to focus on what we do best,
creating innovative products. We believe that by outsourcing many other
functions, including manufacturing, order fulfillment and repair, we will
keep the number of our employees small relative to our scale. This
strategy will allow us to be more creative, flexible, aggressive and
competitive.
We initiated our product launch exclusively through our handspring.com Web
site. Beginning in March 2000, we extended our distribution to include initially
three national retailers, Best Buy, CompUSA and Staples. We plan to work closely
with these partners to provide an outstanding retail point of purchase presence,
and to enable an efficient channel for broad consumer availability of our
products. We recently announced the establishment of offices in Europe and Japan
in order to start building our business in those markets.
We were incorporated in California as JD Technology, Inc. in July 1998 and
changed our name to Handspring, Inc. in November 1998. We expect to be
reincorporated in Delaware in April 2000. Our principal executive offices are
located at 189 Bernardo Avenue, Mountain View, California, and our telephone
number is (650) 230-5000. Our Web site address is www.handspring.com. The
information on the Web site is not part of this prospectus.
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THE OFFERING
Common stock offered.................... shares
Common stock to be outstanding after the
offering................................ shares
Use of proceeds......................... For general corporate purposes,
including working capital.
Proposed Nasdaq National Market
Symbol..................................
The number of shares of our common stock to be outstanding after this
offering is based on the number outstanding on January 1, 2000, and excludes:
- 11,735,049 shares subject to options outstanding as of January 1, 2000 at
a weighted average exercise price of $0.42 per share, and
- 3,441,027 shares that are available for issuance under our stock option
plans.
After January 1, 2000, we adopted stock option and purchase plans with a
total of shares available for issuance and increased the shares
available for issuance under an existing option plan by 3,000,000 shares.
SUMMARY CONSOLIDATED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD FROM PERIOD FROM
JULY 29, 1998 JULY 29, 1998 SIX MONTHS
(DATE OF INCEPTION) TO (DATE OF INCEPTION) TO ENDED
JUNE 30, 1999 DECEMBER 31, 1998 JANUARY 1, 2000
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CONSOLIDATED STATEMENT OF OPERATION DATA:
Revenue....................................... $ -- $ -- $ 15,790
Cost of revenue............................... -- -- 10,822
Amortization of deferred stock compensation... 3,646 1,590 10,952
Total costs and operating expenses............ 8,835 2,409 36,768
Loss from operations.......................... (8,835) (2,409) (20,978)
Net loss...................................... (8,357) (2,267) (20,487)
Basic and diluted net loss per share.......... $ (1.06) $ (0.32) $ (1.10)
Shares used in calculating basic and diluted
net loss per share.......................... 7,848 7,189 18,609
JANUARY 1, 2000
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PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
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CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments........ $ 21,782 $23,282
Working capital............................................. 10,138 11,638
Total assets................................................ 29,570 31,070
Long-term liabilities....................................... 96 96
Mandatory redeemable convertible preferred stock............ 27,962 -- --
Total stockholders' equity (deficit)........................ (13,096) 16,366
See Note 2 to the notes to our consolidated financial statements for an
explanation of the determination of the number of shares used in computing per
share data.
The pro forma column in the consolidated balance sheet data reflects the
automatic conversion of all shares of preferred stock into common stock and the
exercise of an outstanding right to purchase 596,895 shares of common stock at
an exercise price of $2.513 per share immediately upon the closing of this
offering. The pro forma as adjusted column in the consolidated balance sheet
data reflects the receipt of the net proceeds from the sale of shares of common
stock offered by us at the assumed initial public offering price of $ per
share, after deducting the estimated underwriting discounts and commissions and
offering expenses payable by us.
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RISK FACTORS
You should carefully consider the risks described below before making a
decision to buy our common stock. The risks and uncertainties described below
are not the only ones we face. Additional risks and uncertainties not presently
known to us or that we currently deem immaterial may also materialize and impair
our business operations. If any of the following risks actually materializes,
our business could be harmed. In that case, the trading price of our common
stock could decline, and you might lose all or part of your investment. You
should also refer to the other information set forth in this prospectus,
including our financial statements and the related notes.
RISKS RELATED TO OUR BUSINESS AND INDUSTRY
OUR LIMITED OPERATING HISTORY MAKES IT DIFFICULT FOR YOU TO EVALUATE OUR
BUSINESS AND PROSPECTS.
We incorporated in July 1998. We did not start selling our Visor handheld
computer or generating revenue until the quarter ended January 1, 2000.
Accordingly, we are still in the early stages of development and have only a
limited operating history upon which you can evaluate our business. The revenue
and income potential of our products and business are unproven. You should
consider our chances of financial and operational success in light of the risks,
uncertainties, expenses, delays and difficulties associated with starting a new
business in a highly competitive field, many of which may be beyond our control.
If we fail to address these risks, uncertainties, expenses, delays and
difficulties, the value of your investment will decline.
FLUCTUATIONS IN OUR QUARTERLY REVENUES AND OPERATING RESULTS MIGHT LEAD TO
REDUCED PRICES FOR OUR STOCK.
Given our lack of operating history, you should not rely on
quarter-to-quarter comparisons of our results of operations as an indication of
our future performance. In some future periods, our results of operations could
be below the expectations of investors and public market analysts, if any choose
to follow our stock. In this event, the price of our common stock would likely
decline. Factors that are likely to cause our results to fluctuate include the
following:
- the announcement and timely introduction of new products by us and our
competitors;
- the timing and the availability of software programs and Springboard
modules that are compatible with our products;
- market acceptance of existing and future versions of our products and
compatible Springboard modules;
- fluctuations in the royalty rates and manufacturing costs we pay to
produce our handheld computers;
- the seasonality of our product sales;
- our ability to avoid potential system failures on our Web site;
- the price of products that both we and our competitors offer; and
- the mix of products that we offer.
WE HAVE A HISTORY OF LOSSES, WE EXPECT LOSSES TO CONTINUE AND WE MIGHT NOT
ACHIEVE OR MAINTAIN PROFITABILITY.
Our accumulated deficit as of January 1, 2000 was approximately $28.8
million. We had net losses of approximately $8.4 million for the period from
July 29, 1998 (date of inception) to June 30,
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1999 and $20.5 million in the first six months of fiscal 2000. To date we have
funded our operations primarily through the sale of equity securities. Moreover,
we expect to incur significant operating expenses. We also expect to incur
substantial non-cash costs relating to the amortization of deferred
compensation, which will contribute to our net losses. As of January 1, 2000, we
had a total of $34.4 million of deferred compensation to be amortized. As a
result, we expect to continue to incur losses into calendar year 2001. Even if
we ultimately do achieve profitability, we may not be able to sustain or
increase profitability on a quarterly or annual basis. If our revenue grows more
slowly than we anticipate, or if our operating expenses exceed our expectations
and cannot be adjusted accordingly, our business will be harmed. See "Selected
Consolidated Financial Data" and "Management's Discussion and Analysis of
Financial Condition and Results of Operations" for a more complete description
of our historical losses.
WE DEPEND HEAVILY UPON OUR LICENSE FROM PALM, INC. AND OUR FAILURE TO MAINTAIN
THIS LICENSE COULD SERIOUSLY HARM OUR BUSINESS.
We rely on technologies that we license or acquire from third parties,
including Palm. Our failure to maintain these licenses could seriously harm our
business. The Palm OS operating system is integrated with our
internally-developed software and hardware, and is used to enhance the value of
our products. Our license of the Palm OS operating system is critical to our
Visor handheld computer. The license agreement extends until September 2003 and
may be renewed for successive one-year terms if both parties agree. It is
possible that Palm will choose not to renew the license at the end of its term
for competitive or other reasons. Upon expiration or termination of the Palm OS
operating system license agreement, other than due to our breach, we may choose
to keep the license granted under the agreement for two years following the
expiration or termination. However, the license during this two-year period is
limited and does not entitle us to upgrades to the Palm OS operating system. If
we were not a licensee of the Palm OS operating system, we would be required to
license a substitute operating system, which could be less desirable and could
be costly in terms of cash and other resources. In the alternative, we could
develop our own operating system, which would take considerable time, resources
and expense, would divert our engineers' attention from product innovations and
would not have the advantage of Palm OS operating system applications
compatability. In addition, we may not assign that license agreement to a third
party without the written consent of Palm unless it is to a purchaser of
substantially all of our assets who is not a competitor of Palm. The existence
of these license termination provisions may have an anti-takeover effect in that
it could discourage competitors of Palm from acquiring us.
A SIGNIFICANT PORTION OF OUR REVENUES HAS BEEN DERIVED FROM SALES ON OUR WEB
SITE AND SYSTEM FAILURES OR DELAYS HAVE IN THE PAST AND MIGHT IN THE FUTURE HARM
OUR BUSINESS.
To date, we have generated a significant portion of our revenue through our
Web site. As a result, our business depends on our ability to maintain and
expand our computer systems. We must also protect our computer systems against
damage from fire, water, power loss, telecommunications failures, computer
viruses, vandalism and other malicious acts and similar unexpected adverse
events. During our initial product launch, we experienced system interruptions
and slowdowns due to an improper design and implementation of our Web site from
which consumers purchase our products. This caused long wait times on our Web
site, long delivery times, lost orders, lost revenues and harm to our
reputation. Despite precautions we have taken, unanticipated problems affecting
our systems could again in the future cause temporary interruptions or delays in
the services we provide. Our customers might become dissatisfied by any system
failure or delay that interrupts our ability to provide service to them or slows
our response time. Sustained or repeated system failures or delays would affect
our reputation, which would harm our business. Slow response time or system
failures could also result from straining the capacity of our systems due to an
increase in the volume of traffic
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on our Web site. While we carry business interruption insurance, it might not be
sufficient to cover any serious or prolonged emergencies.
IF WE FAIL TO KEEP UP WITH RAPID TECHNOLOGICAL CHANGE AND EVOLVING INDUSTRY
STANDARDS, OUR PRODUCTS COULD BECOME LESS COMPETITIVE OR OBSOLETE.
The market for our products is characterized by rapidly changing
technology, evolving industry standards, changes in customer needs, heavy
competition and frequent new product introductions. If we fail to modify or
improve our products in response to changes in technology or industry standards,
our products could rapidly become less competitive or obsolete. Our future
success will depend, in part, on our ability to:
- use leading technologies effectively;
- continue to develop our technical expertise;
- enhance our current products and develop new products that meet changing
customer needs;
- time new product introductions in a way that minimizes the impact of
customers delaying purchases of existing products in anticipation of new
product releases;
- adjust the prices of our existing products to increase customer demand;
- successfully advertise and market our products; and
- influence and respond to emerging industry standards and other
technological changes.
We must respond to changing technology and industry standards in a timely
and cost-effective manner. We may not be successful in effectively using new
technologies, developing new products or enhancing our existing products on a
timely basis. These new technologies or enhancements may not achieve market
acceptance. Our pursuit of necessary technology may require substantial time and
expense. We may need to license new technologies to respond to technological
change. These licenses may not be available to us on terms that we can accept.
Finally, we may not succeed in adapting our products to new technologies as they
emerge.
IF WE ARE NOT SUCCESSFUL IN THE DEVELOPMENT AND INTRODUCTION OF NEW PRODUCTS,
DEMAND FOR OUR PRODUCTS COULD DECREASE.
We depend on our ability to develop new or enhanced products that achieve
rapid and broad market acceptance. We may fail to identify new product
opportunities successfully and develop and bring to market new products in a
timely manner. In addition, our product innovations may not achieve the market
penetration or price stability necessary for profitability.
As the uses for our Visor handheld computer and potential uses for our
Springboard slot continue to evolve, we plan to develop additional complementary
products and services as additional sources of revenue. Accordingly, we may
change our business model to take advantage of new business opportunities,
including business areas in which we do not have extensive experience. For
example, we may create products that rely on a wireless infrastructure. If we
fail to develop these or other products successfully, our business would be
harmed.
IF POPULAR SPRINGBOARD MODULES ARE NOT DEVELOPED FOR OUR VISOR HANDHELD
COMPUTER, DEMAND FOR OUR PRODUCTS MAY BE LIMITED.
To differentiate our products from competitors and attract large numbers of
consumer purchasers of our products, we and third parties need to develop
compelling Springboard modules for our Visor handheld computer. We may be unable
to attract a sufficient number of talented third-party Springboard module
developers because of our relatively small market share in the handheld
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computer industry or for technological or other reasons. There is a limited
number of Springboard modules available for sale. If Springboard module
developers fail to anticipate market needs in a timely manner, or if there is
not a successful distribution outlet for the sale of Springboard modules, demand
for our Visor handheld computer may diminish.
OUR REPUTATION COULD BE HARMED IF THE SPRINGBOARD MODULES DEVELOPED BY THIRD
PARTIES ARE DEFECTIVE.
Because we offer an open development environment, third party developers
are free to design, market and sell modules for our Springboard slot without our
consent, endorsement or certification. Nevertheless our reputation is
inextricably tied to the Springboard modules designed for our Visor handheld
computer. If modules sold by third parties are defective or are of poor quality,
our reputation could be harmed and the demand for our Visor handheld computer
and modules could decline.
IF THE EXPANDABLE DESIGN OF OUR PRODUCTS IS NOT ACCEPTED BY CONSUMERS, OUR
REVENUES WILL FAIL TO MEET OUR EXPECTATIONS.
Much of the perceived value of our Visor handheld computer lies in the
Springboard expansion slot, which enables users to add functions by inserting
modules into the base device. Many of these modules will perform functions that
are today generally performed by a dedicated standalone device. While we believe
that the simple customization provided by the Springboard slot will be
attractive to users, the uniqueness of the feature combined with the recent
introduction of the product make it unclear whether consumers will prefer our
approach as compared either to multiple dedicated devices or to other designs
for multifunction devices.
IF WE FAIL TO ACCURATELY ANTICIPATE DEMAND FOR OUR PRODUCTS, WE MAY NOT BE ABLE
TO SECURE SUFFICIENT QUANTITIES OR COST-EFFECTIVE PRODUCTION OF OUR HANDHELD
COMPUTERS OR WE COULD HAVE COSTLY EXCESS PRODUCTION.
Because we have a limited operating history and did not begin selling our
products until October 1999, we have very little information about demand for
our products. The demand for our products depends on many factors and is
difficult to forecast. We experienced product shortages when we introduced our
Visor handheld computer because we underestimated initial demand. We expect that
it will become even more difficult to forecast demand as we introduce and
support multiple products and as competition in the market for our products
intensifies. Significant unanticipated fluctuations in demand could cause
problems in our operations.
If demand does not develop as expected, we could have excess production
resulting in excess inventories of finished products and components, which would
use cash. We have limited capability to reduce manufacturing capacity within a
90-day period. Excess materials would likely result in material scrap and
obsolesence costs.
If demand exceeds our expectations, we will need to rapidly increase
production at our third-party manufacturers. We will also need our suppliers to
provide additional volumes of components, which may not be possible within our
timeframe. For example, some components, including plastics, require a lead time
of approximately three months to increase quantity. Even if we are able to
obtain enough components, our third-party manufacturers might not be able to
produce enough of our products as fast as we need them. The inability of either
our manufacturers or our suppliers to increase production rapidly enough could
cause us to fail to meet customer demand. In addition, rapid increases in
production levels to meet unanticipated demand could result in higher costs for
manufacturing and supply of components and other expenses. These higher costs
would lower our profit margins.
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IF ANY OF OUR MANUFACTURING PARTNERS FAIL TO PRODUCE QUALITY PRODUCTS ON TIME
AND IN SUFFICIENT QUANTITIES, OUR REPUTATION AND RESULTS OF OPERATIONS WOULD
SUFFER.
We depend on third-party manufacturers to produce sufficient volume of our
handheld devices, modules and accessories in a timely fashion and at
satisfactory quality levels. The cost, quality and availability of third-party
manufacturing operations are essential to the successful production and sale of
our products. We have a manufacturing agreement with Flextronics under which we
order products on a purchase order basis in accordance with a forecast. The
absence of dedicated capacity under our manufacturing agreement means that, with
little or no notice, Flextronics could refuse to continue to manufacture all or
some of the units of our devices that we require or change the terms under which
it manufactures our device products. If Flextronics were to stop manufacturing
our devices, we may be unable to replace the lost manufacturing capacity on a
timely basis and our results of operations could be harmed. In addition, if
Flextronics were to change the terms under which they manufacture for us, our
manufacturing costs could increase and our profitability could suffer.
Our reliance on third-party manufacturers exposes us to the following risks
outside our control:
- unexpected increases in manufacturing and repair costs;
- interruptions in shipments if one of our manufacturers is unable to
complete production;
- inability to control quality of finished products;
- inability to control delivery schedules;
- unpredictability of manufacturing yields; and
- potential lack of adequate capacity to fill all or a part of the services
we require.
OUR PRODUCTION WOULD BE SERIOUSLY HARMED IF OUR SUPPLIERS ARE NOT ABLE TO MEET
OUR DEMAND AND ALTERNATIVE SOURCES ARE NOT AVAILABLE.
Our products contain components, including liquid crystal displays, touch
panels, memory chips and microprocessors, that are procured from a variety of
suppliers. We do not carry any inventory of our products or product components.
We rely on our suppliers to deliver necessary components in a timely manner
based on forecasts that we provide. The cost, quality and availability of
components are essential to the successful production and timely sale of our
products.
Some components, such as displays, power supply integrated circuits,
microprocessors and certain discrete components, come from sole or single source
suppliers. Alternative sources are not currently available for these sole and
single source components. If suppliers are unable to meet our demand for sole
source components and if we are unable to obtain an alternative source or if the
price for an alternative source is prohibitive, our ability to maintain timely
and cost-effective production of our handheld computer products would be
seriously harmed. In addition, because we rely on purchase orders rather than
long-term contracts with our suppliers, including our sole and single source
suppliers, we cannot predict with certainty our ability to procure components in
the longer term. If we receive a smaller allocation of components than is
necessary to manufacture products in quantities sufficient to meet customer
demand, customers could choose to purchase competing products.
WE RELY ON THIRD PARTIES FOR ORDER FULFILLMENT, REPAIR SERVICES AND TECHNICAL
SUPPORT. OUR REPUTATION AND RESULTS OF OPERATIONS COULD BE HARMED BY OUR
INABILITY TO CONTROL THEIR OPERATIONS.
We rely on third parties to package and ship customer orders, repair units
and provide technical support. If our order fulfillment services, repair
services or technical support services are interrupted or experience quality
problems, our ability to meet customer demands would be harmed, causing a loss
of revenue and harm to our reputation. Although we have the ability to add new
service providers
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or replace existing ones, transition difficulties and lead times involved in
developing additional or new third party relationships could cause interruptions
in services and harm our business.
WE EXPECT TO FACE SEASONALITY IN OUR SALES, WHICH COULD CAUSE OUR QUARTERLY
OPERATING RESULTS TO FLUCTUATE.
We expect to experience seasonality in the sales of our products. We
anticipate sales to be higher in our second fiscal quarter due to increased
consumer spending patterns on electronic devices during the holiday season. We
also expect that sales may decline during the summer months because of typical
slower consumer spending in this period. These seasonal variations in our sales
may lead to fluctuations in our quarterly operating results.
OUR FAILURE TO DEVELOP BRAND RECOGNITION COULD LIMIT OR REDUCE THE DEMAND FOR
OUR PRODUCTS.
We believe that continuing to strengthen our brand will be critical to
increasing demand for, and achieving widespread acceptance of, our handheld
computer products. Some of our competitors and potential competitors have better
name recognition and powerful brands. Promoting and positioning our brand will
depend largely on the success of our marketing efforts, our ability and the
ability of third party developers to deliver software and Springboard modules
that are engaging to our users and our ability to provide high quality support.
To promote our brand, we expect to increase our marketing expenditures and
otherwise increase our financial commitment to creating and maintaining brand
loyalty among users. Brand promotion activities may not yield increased revenues
or customer loyalty and, even if they do, any increased revenues may not offset
the expenses we incur in building and maintaining our brand.
WE EXPECT TO INCREASE OUR RELIANCE ON RETAILERS TO SELL OUR PRODUCTS, AND
DISRUPTIONS IN THIS CHANNEL WOULD HARM OUR ABILITY TO GENERATE REVENUES FROM THE
SALE OF OUR HANDHELD COMPUTERS.
We sell the substantial majority of our products directly through our
handspring.com Web site. We recently entered into agreements with Best Buy,
CompUSA (and Wynit, Inc., a supplier to CompUSA) and Staples to resell our
products in their stores. Because we expect to increase the portion of our
products we sell to retailers, we are subject to many risks, including the
following:
- retailers may not maintain inventory levels sufficient to meet customer
demand;
- if we reduce the prices of our products, we may have to compensate
retailers for the difference between the higher price they paid to buy
their inventory and the new lower prices;
- product returns could increase as a result of our strategic interest in
assisting retailers in balancing inventories;
- retailers may emphasize our competitors' products or decline to carry our
products;
- we may not be able to attract or retain a sufficient number of qualified
retailers;
- conflict may develop between our retail distribution channel and direct
sales through our handspring.com Web site; and
- gross margins would decrease as sales through the retailers increase.
IF WE ARE UNABLE TO COMPETE EFFECTIVELY WITH EXISTING OR NEW COMPETITORS, OUR
RESULTING LOSS OF COMPETITIVE POSITION COULD RESULT IN PRICE REDUCTIONS, FEWER
CUSTOMER ORDERS, REDUCED MARGINS AND LOSS OF MARKET SHARE.
The market for handheld computing and communication products is highly
competitive and we expect competition to increase in the future. Some of our
competitors or potential competitors have significantly greater financial,
technical and marketing resources than we do. These competitors may be able to
respond more rapidly than us to new or emerging technologies or changes in
customer
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requirements. They may also devote greater resources to the development,
promotion and sale of their products than we do.
Our handheld computers compete with a variety of handheld devices,
including keyboard-based devices, sub-notebook computers, smart phones and
two-way pagers. Our principal competitors include:
- Palm, from whom we license the Palm OS operating system;
- licensees of the Microsoft Windows CE operating system, including Casio,
Compaq, Hewlett-Packard and Sharp;
- members of the Symbian consortium, including Psion, Ericsson and
Motorola; and
- other Palm OS operating system licensees, including Nokia, Sony and
QUALCOMM.
We expect our competitors to continue to improve the performance of their
current products and to introduce new products, services and technologies.
Successful new product introductions or enhancements by our competitors could
reduce sales and the market acceptance of our products, cause intense price
competition or make our products obsolete. To be competitive, we must continue
to invest significant resources in research and development, sales and marketing
and customer support. We cannot be sure that we will have sufficient resources
to make these investments or that we will be able to make the technological
advances necessary to be competitive. Increased competition could result in
price reductions, fewer customer orders, reduced margins and loss of market
share. Our failure to compete successfully against current or future competitors
could seriously harm our business.
OUR MANAGEMENT AND INTERNAL SYSTEMS MIGHT BE INADEQUATE TO HANDLE OUR POTENTIAL
GROWTH.
We have experienced rapid growth and expansion since our inception. From
July 29, 1998 to February 26, 2000, we increased the number of our employees
from two to 114. This growth has placed, and will continue to place, a
significant strain on our management and information systems and operational and
financial resources. To manage future growth, our management must continue to
improve our operational and financial systems and expand, train, retain and
manage our employee base. Our management may not be able to manage our growth
effectively. If our systems, procedures and controls are inadequate to support
our operations, our expansion would be halted and we could lose our opportunity
to gain significant market share. Any inability to manage growth effectively may
harm our business.
OUR PRODUCTS MAY CONTAIN ERRORS OR DEFECTS, WHICH COULD RESULT IN THE REJECTION
OF OUR PRODUCTS AND DAMAGE TO OUR REPUTATION, AS WELL AS LOST REVENUES, DIVERTED
DEVELOPMENT RESOURCES AND INCREASED SERVICE COSTS AND WARRANTY CLAIMS.
Our Visor handheld computer and Springboard modules are complex and must
meet stringent user requirements. We must develop our products quickly to keep
pace with the rapidly changing handheld computing and communications market.
Products as sophisticated as ours are likely to contain undetected errors or
defects, especially when first introduced or when new models or versions are
released. In addition, we have been selling our products for only a very short
period of time. In the future, we may experience delays in releasing new
products as problems are corrected. Our products may not be free from errors or
defects after commercial shipments have begun, which could result in the
rejection of our products, damage to our reputation, lost revenues, diverted
development resources and increased customer service and support costs and
warranty claims. In addition, some undetected errors or defects may only become
apparent as new functions are added to our Visor handheld computer through the
use of future Springboard modules. Currently, consumers may return their Visor
handheld computer for any reason within 30 days of purchase. In addition, we
warrant
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that our hardware will be free of defects for one year from date of purchase.
Delays, costs and damage to our reputation due to product defects could harm our
business.
IF WE LOSE OUR KEY PERSONNEL, WE MAY NOT BE ABLE TO MANAGE OUR BUSINESS
SUCCESSFULLY.
Our future success depends to a significant extent on the continued service
of our key technical, sales and senior management personnel and their ability to
execute our growth strategy. In particular, we rely on Jeffrey C. Hawkins, our
Chief Product Officer, Donna L. Dubinsky, our Chief Executive Officer, and
Edward T. Colligan, our Senior Vice President, Marketing and Sales. The loss of
the services of any of our senior level management, or other key employees,
could harm our business. Our future performance will depend, in part, on the
ability of our executive officers to work together effectively. Our executive
officers may not be successful in carrying out their duties or running our
company. Any dissent among executive officers could impair our ability to make
strategic decisions quickly in a rapidly changing market.
IF WE FAIL TO ATTRACT, RETAIN AND MOTIVATE QUALIFIED EMPLOYEES, OUR ABILITY TO
EXECUTE OUR BUSINESS PLAN WOULD BE COMPROMISED.
Our future success also depends on our ability to attract, retain and
motivate highly skilled employees. Competition for employees in our industry is
intense. Although we provide compensation packages that include stock options,
cash incentives and other employee benefits, we may be unable to retain our key
employees or to attract, assimilate and retain other highly qualified employees
in the future. For example, after this offering, fluctuations in the market
price of our common stock could lead potential and existing employees to believe
that our equity incentives are less attractive, which could adversely affect our
ability to attract and retain qualified employees. We expect to experience
difficulty in hiring and retaining highly skilled employees with appropriate
qualifications.
WE DEPEND ON PROPRIETARY RIGHTS TO DEVELOP AND PROTECT OUR TECHNOLOGY.
Our success and ability to compete substantially depends on our internally
developed proprietary technologies, which we protect through a combination of
patent, copyright, trade secret and trademark laws. No U.S. or foreign patents
have been granted to us and only three U.S. patent applications have been filed.
Patent applications or trademark registrations may not be approved. Even if they
are approved, our patents or trademarks may be successfully challenged by others
or invalidated. In addition, any patents that may be granted to us may not
provide us a significant competitive advantage. If our trademark registrations
are not approved because third parties own these trademarks, our use of these
trademarks would be restricted unless we enter into arrangements with the
third-party owners, which might not be possible on commercially reasonable terms
or at all. If we fail to protect or enforce our intellectual property rights
successfully, our competitive position could suffer.
We may be required to spend significant resources to monitor and police our
intellectual property rights. We may not be able to detect infringement and may
lose competitive position in the market before we do so. In addition,
competitors may design around our technology or develop competing technologies.
Intellectual property rights may also be unavailable or limited in some foreign
countries, which could make it easier for competitors to capture market share.
WE COULD BE SUBJECT TO CLAIMS OF INFRINGEMENT OF THIRD-PARTY INTELLECTUAL
PROPERTY, WHICH COULD RESULT IN SIGNIFICANT EXPENSE AND LOSS OF INTELLECTUAL
PROPERTY RIGHTS.
Our industry is characterized by uncertain and conflicting intellectual
property claims and frequent intellectual property litigation, especially
regarding patent rights. From time to time, third parties may assert patent,
copyright, trademark and other intellectual property rights to technologies
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that are important to our business. We may receive notices of claims that our
products infringe or may infringe these rights. Any litigation to determine the
validity of these claims, including claims arising through our contractual
indemnification of our business partners, regardless of their merit or
resolution, would likely be costly and time consuming and divert the efforts and
attention of our management and technical personnel. We cannot assure you that
we would prevail in this litigation given the complex technical issues and
inherent uncertainties in intellectual property litigation. If this litigation
resulted in an adverse ruling, we could be required to:
- pay substantial damages;
- cease the manufacture, use or sale of infringing products;
- discontinue the use of certain technology; or
- obtain a license under the intellectual property rights of the third
party claiming infringement, which license may not be available on
reasonable terms, or at all.
In addition, suits against Palm involving the Palm OS operating system,
which we license from Palm, could adversely affect us. This result could disrupt
our operations and cost us money. See "We depend heavily upon our license from
Palm and others and our failure to maintain these third party licenses could
seriously harm our business."
Palm is a defendant in several patent infringement lawsuits involving the
Palm OS operating system, which we license from Palm. Although we are not a
party to these cases and we are indemnified by Palm for damages arising from
lawsuit of this type, we could still be adversely affected by a determination
adverse to Palm as a result of market uncertainty or product changes that could
arise from such a determination.
OUR FUTURE RESULTS COULD BE HARMED BY ECONOMIC, POLITICAL, REGULATORY AND OTHER
RISKS ASSOCIATED WITH INTERNATIONAL SALES AND OPERATIONS.
To date, we have generated substantially all of our revenue from sales in
the United States. We expect to introduce products for sale in selected
international markets in 2000. To the extent that our revenue from international
operations represents an increasing portion of our total revenue, we will be
subject to increased exposure to international risks. In addition, the facility
where our Visor handheld computers are manufactured today is located outside the
United States. A substantial number of our material suppliers are based outside
of the United States, and are subject to a wide variety of international risks.
Accordingly, our future results could be harmed by a variety of factors,
including:
- changes in foreign currency exchange rates;
- changes in a specific country's or region's political or economic
conditions, particularly in emerging markets;
- trade protection measures and import or export licensing requirements;
- development risks and expenses associated with customizing our products
for local languages;
- potentially negative consequences from changes in tax laws;
- impact of natural disasters with an inability of the local government to
quickly provide recovery services;
- difficulty in managing widespread sales and manufacturing operations; and
- less effective protection of intellectual property.
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WE MAY PURSUE STRATEGIC ACQUISITIONS AND WE COULD FAIL TO SUCCESSFULLY INTEGRATE
ACQUIRED BUSINESSES.
We expect to evaluate acquisition opportunities that could provide us with
additional product or services offerings, technologies or additional industry
expertise. Any future acquisition could result in difficulties assimilating
acquired operations and products, diversion of capital and management's
attention away from other business issues and opportunities and amortization of
acquired intangible assets. Integration of acquired companies may result in
problems related to integration of technology and management teams. Our
management has had limited experience in assimilating acquired organizations and
products into our operations. We could fail to integrate the operations,
personnel or products that we may acquire in the future. If we fail to
successfully integrate acquisitions, our business could be materially harmed.
WE MIGHT NEED ADDITIONAL CAPITAL IN THE FUTURE AND ADDITIONAL FINANCING MIGHT
NOT BE AVAILABLE.
We currently anticipate that our available cash resources, combined with
the net proceeds from this offering and financing available under our existing
loan agreement, will be sufficient to meet our anticipated working capital and
capital expenditure requirements for the next 12 months. However, our resources
may prove to be insufficient for these working capital and capital expenditure
requirements. We may need to raise additional funds through public or private
debt or equity financing in order to:
- take advantage of opportunities, including the purchase of technologies
or acquisitions of complementary businesses;
- develop new products or services; or
- respond to competitive pressures.
Any additional financing we need may not be available on terms acceptable
to us, or at all. If adequate funds are not available or are not available on
acceptable terms, we might not be able to take advantage of unanticipated
opportunities, develop new products or services or otherwise respond to
unanticipated competitive pressures, and our business could be harmed. Our
forecast of the period of time through which our financial resources will be
adequate to support our operations is a forward-looking statement that involves
risks and uncertainties, and actual results could vary materially as a result of
a number of factors, including those set forth in this "Risk Factors" section.
RISKS RELATED TO THIS OFFERING
THE PRICE OF OUR COMMON STOCK IS LIKELY TO BE VOLATILE AND SUBJECT TO WIDE
FLUCTUATIONS.
The market price of the securities of technology-related companies have
been especially volatile. Thus, the market price of our common stock is likely
to be subject to wide fluctuations. If our revenues do not grow or grow more
slowly than we anticipate, or, if operating or capital expenditures exceed our
expectations and cannot be adjusted accordingly, or if some other event
adversely affects us, the market price of our common stock could decline. In
addition, if the market for technology-related stocks or the stock market in
general experiences a loss in investor confidence or otherwise fails, the market
price of our common stock could fall for reasons unrelated to our business,
results of operations and financial condition. The market price of our stock
also might decline in reaction to events that effect other companies in our
industry even if these events do not directly affect us. The initial public
offering price of the common stock will be determined through negotiations
between the representatives of the underwriters and us and may not be
representative of the price that will prevail in the open market. You might be
unable to resell your shares of our common stock at or above the offering price.
In the past, companies that have experienced volatility
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in the market price of their stock have been the subject of securities class
action litigation. If we were to become the subject of securities class action
litigation, it could result in substantial costs and a diversion of management's
attention and resources.
PROVISIONS IN OUR CHARTER DOCUMENTS MIGHT DETER A COMPANY FROM ACQUIRING US.
We have adopted a classified board of directors. In addition, our
stockholders are unable to call special meetings of stockholders, to act by
written consent, to remove any director or the entire board of directors without
a super majority vote or to fill any vacancy on the board of directors. Our
stockholders must also meet advance notice requirements for stockholder
proposals. Our board of directors may also issue preferred stock without any
vote or further action by the stockholders. These provisions and other
provisions under Delaware law could make it more difficult for a third party to
acquire us, even if doing so would benefit our stockholders. See "Description of
Capital Stock" for a more complete description of the anti-takeover provisions
of our charter and Delaware law.
OUR OFFICERS AND DIRECTORS EXERT SUBSTANTIAL INFLUENCE OVER US.
We anticipate that our executive officers, our directors and entities
affiliated with them together will beneficially own approximately % of our
outstanding common stock following the completion of this offering. As a result,
these stockholders will be able to exercise substantial influence over all
matters requiring approval by our stockholders, including the election of
directors and approval of significant corporate transactions. This concentration
of ownership may also have the effect of delaying or preventing a change in our
control that may be viewed as beneficial by other stockholders.
MANAGEMENT COULD INVEST OR SPEND THE PROCEEDS OF THIS OFFERING IN WAYS WITH
WHICH OUR STOCKHOLDERS MIGHT NOT AGREE.
We have no specific allocations for the net proceeds of this offering.
Consequently, management will retain a significant amount of discretion over the
application of these proceeds. Because of the number and variability of factors
that will determine our use of these proceeds, our applications may vary
substantially from our current intentions to invest the net proceeds of the
offering in short-term, interest-bearing, investment-grade securities.
FUTURE SALES OF SHARES BY EXISTING STOCKHOLDERS COULD AFFECT OUR STOCK PRICE.
If our existing stockholders sell substantial amounts of our common stock
in the public market following this offering, the market price of our common
stock could decline. Based on shares outstanding as of January 1, 2000, upon
completion of this offering we will have outstanding approximately
shares of common stock, assuming the exercise of an outstanding right to
purchase 596,895 shares of common stock and no exercise of the underwriters'
over-allotment option. Of these shares, only the shares of common
stock sold in this offering will be freely tradeable, without restriction, in
the public market. After the lockup agreements pertaining to this offering
expire 180 days from the date of this prospectus, an additional 75,050,571
shares will be eligible for sale in the public market at various times, subject
to volume limitations under Rule 144 of the Securities Act of 1933 and various
vesting agreements. In addition, the 11,735,049 shares subject to outstanding
options and 3,441,027 shares reserved for future issuance under our stock option
and purchase plans will become eligible for sale in the public market to the
extent permitted by the provisions of various vesting agreements, the lock-up
agreements and Rules 144 and 701 under the Securities Act. See "Shares Eligible
for Future Sale" for more information regarding shares of our common stock that
may be sold by existing stockholders after the closing of this offering.
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YOU WILL INCUR IMMEDIATE AND SUBSTANTIAL DILUTION.
The initial public offering price is substantially higher than the pro
forma net book value per share of the outstanding common stock. As a result, if
you purchase common stock in this offering, you will incur immediate and
substantial dilution in the amount of $ per share. In addition, we have
issued options to acquire common stock at prices significantly below the initial
public offering price. To the extent these outstanding options are exercised,
you will be further diluted. See "Dilution" for a more complete description of
the dilution that you will incur.
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SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
We have made statements under the captions "Prospectus Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and in other sections of this prospectus that
are forward-looking statements. In some cases, you can identify these statements
by forward-looking words such as "may," "might," "will," "should," "expects,"
"plans," "anticipates," "believes," "estimates," "predicts," "potential" or
"continue," the negative of these terms and other comparable terminology. These
forward-looking statements, which are subject to risks, uncertainties and
assumptions about us, may include projections of our future financial
performance, our anticipated growth strategies and anticipated trends in our
business. These statements are only predictions based on our current
expectations and projections about future events. There are important factors
that could cause our actual results, level of activity, performance or
achievements to differ materially from the results, level of activity,
performance or achievements expressed or implied by the forward-looking
statements, including those factors discussed under the caption entitled "Risk
Factors." You should specifically consider the numerous risks outlined under
"Risks Factors."
Although we believe the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. Moreover, neither we nor any other person
assumes responsibility for the accuracy and completeness of any of these
forward-looking statements. We are under no duty to update any of these
forward-looking statements after the date of this prospectus to conform our
prior statements to actual results or revised expectations.
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USE OF PROCEEDS
We estimate that the net proceeds to us from the sale of
shares of common stock in this offering will be approximately $
million, or approximately $ million if the underwriters exercise their
over-allotment option in full, at an assumed initial public offering price of
$ per share, after deducting the estimated underwriting discounts and
commissions and offering expenses payable by us.
The principal purposes of this offering are to obtain additional working
capital, establish a public market for our common stock and facilitate our
future access to public capital markets. We currently expect to use the net
proceeds from this offering for general corporate purposes, including sales and
marketing expenses and working capital. Our management will retain broad
discretion in the allocation of the net proceeds of this offering. The amounts
we actually spend will depend on a number of factors, including the amount of
our future revenues and other factors described elsewhere in this prospectus. We
may use a portion of the net proceeds to acquire or invest in complementary
businesses, technologies, products or services. We have no present commitments
or agreements with respect to any acquisition or investment. Pending these uses,
we intend to invest the net proceeds in short-term, interest-bearing,
investment-grade securities.
DIVIDEND POLICY
We have never declared or paid cash dividends on our capital stock. We
currently expect to retain earnings, if any, to finance the growth and
development of our business. Therefore, we do not anticipate declaring or paying
cash dividends on our common stock in the foreseeable future. In addition, under
our loan agreement with Comdisco, Inc., we cannot declare or pay any cash
dividend without the prior written consent of Comdisco.
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CAPITALIZATION
The following table sets forth our capitalization as of January 1, 2000.
Our capitalization is presented:
- on an actual basis;
- on a pro forma basis to reflect the conversion of our outstanding
preferred stock into common stock and the exercise of an outstanding
right to purchase 596,895 shares of common stock at an exercise price of
$2.513 per share immediately prior to the closing of this offering; and
- on a pro forma as adjusted basis to reflect the sale of the shares of
common stock offered by us at an assumed initial public offering price of
$ per share, after deducting the estimated underwriting discounts and
commissions and offering expenses payable by us.
JANUARY 1, 2000
------------------------------------
PRO FORMA
ACTUAL PRO FORMA AS ADJUSTED
-------- --------- -----------
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
Long-term liabilities................................ $ 96 $ 96 $
Mandatory redeemable convertible preferred stock,
$0.001 par value per share, 9,300,000 shares
authorized, 9,005,430 shares issued and
outstanding, actual, no shares authorized,
issued or outstanding, pro forma and pro forma
as adjusted..................................... 27,962 --
Stockholders' equity (deficit):
Preferred stock, $0.001 par value per share, no
shares authorized, actual or pro forma,
10,000,000 shares authorized, pro forma as
adjusted, no shares issued or outstanding,
actual, pro forma or pro forma as adjusted...... -- --
Common stock, $0.001 par value per share,
105,000,000 shares authorized, actual and pro
forma, 47,437,386 shares issued and outstanding,
actual, 75,050,571 shares issued and
outstanding, pro forma, 1,000,000,000 shares
authorized, shares issued and
outstanding pro forma as adjusted............... 1,150 30,612
Additional paid-in capital......................... 48,999 48,999
Deferred stock compensation........................ (34,401) (34,401)
Accumulated deficit................................ (28,844) (28,844)
-------- --------
Total stockholders' equity (deficit)............ (13,096) 16,366
-------- --------
Total capitalization............................ $ 14,962 $ 16,462
======== ========
The common stock to be outstanding after the offering, as of January 1,
2000, excludes:
- 11,735,049 shares of our common stock subject to options outstanding as
of January 1, 2000 at a weighted average exercise price of $0.42 per
share; and
- 3,441,027 additional shares of our common stock that are available for
issuance under our stock option and purchase plans.
After January 1, 2000, we adopted stock option and purchase plans with a
total of shares available for issuance and increased the shares
available for issuance under an existing option plan by 3,000,000 shares.
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DILUTION
Our pro forma net tangible book value as of January 1, 2000 was
approximately $ million, or $ per share of common stock. Our pro forma
net tangible book value per share represents our total tangible assets less
total liabilities divided by the pro forma total number of shares of common
stock outstanding at such date, assuming the conversion of all outstanding
shares of preferred stock into shares of common stock and the exercise of an
outstanding right to purchase 596,895 shares of common stock at an exercise
price of $2.513 per share immediately prior to the closing of this offering. The
dilution in pro forma net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of our
common stock in this offering and the net tangible book value per share of our
common stock immediately following this offering.
Without taking into account any changes in net tangible book value after
January 1, 2000, other than to give effect to the sale of the shares of common
stock offered by us at an assumed initial public offering price of $ per
share, after deducting the estimated underwriting discounts and commissions and
offering expenses payable by us, our pro forma net tangible book value as of
January 1, 2000 would have been approximately $ million or $ per share
of common stock. This amount represents an immediate increase in pro forma net
tangible book value of $ per share to the existing stockholders and an
immediate dilution in pro forma net tangible book value of $ per share to
new investors purchasing shares in this offering. The following table
illustrates the dilution in pro forma net tangible book value per share to new
investors.
Assumed initial public offering price per share............. $
Pro forma net tangible book value per share as of January
1, 2000................................................ $
Increase per share attributable to new investors..........
-------
Pro forma net tangible book value per share after the
offering.................................................. $
-------
Dilution per share to new investors.........................
=======
The following table summarizes on a pro forma basis as of January 1, 2000,
the number of shares of common stock purchased from us, the total consideration
paid to us and the average price per share paid by existing stockholders and to
be paid by new investors purchasing shares of common stock in this offering at
an assumed initial public offering price of $ per share, before deducting
estimated underwriting discounts and commissions and offering expenses payable
by us.
SHARES PURCHASED TOTAL CONSIDERATION
------------------- -------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
-------- ------- -------- -------- -------------
Existing stockholders............. % $ % $
New investors.....................
-------- --- ------- ---
Total........................... 100%
======== === ======= ===
The above information assumes no exercise of the underwriters'
over-allotment option and excludes exercises of stock options after January 1,
2000. As of January 1, 2000, there were outstanding options to purchase a total
of 11,735,049 shares of our common stock at a weighted average exercise price of
$0.42 per share. To the extent any of these options are exercised, there will be
further dilution to new investors.
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SELECTED CONSOLIDATED FINANCIAL DATA
The following selected consolidated financial data should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and our consolidated financial statements and related
notes included elsewhere in this prospectus. The selected consolidated balance
sheet data as of June 30, 1999 and the selected consolidated statement of
operations data for the period from July 29, 1998 (date of inception) to June
30, 1999 have been derived from our audited consolidated financial statements,
and are included elsewhere in this prospectus. The consolidated statement of
operations data for the period from July 29, 1998 (date of inception) to
December 31, 1998 and the six-month period ended January 1, 2000, and the
consolidated balance sheet data at January 1, 2000, are derived from unaudited
interim financial statements included elsewhere in this prospectus. The
unaudited financial statements have been prepared on substantially the same
basis as the audited financial statements and, in the opinion of management,
include all adjustments, consisting only of normal recurring adjustments,
necessary for a fair presentation of the results of operations for such periods.
Historical results are not necessarily indicative of the results to be expected
in the future, and results of interim periods are not necessarily indicative of
results for the entire year.
PERIOD FROM PERIOD FROM
JULY 29, 1998 JULY 29, 1998 SIX MONTHS
(DATE OF INCEPTION) (DATE OF INCEPTION) TO ENDED
TO JUNE 30, 1999 DECEMBER 31, 1998 JANUARY 1, 2000
------------------- ---------------------- ---------------
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CONSOLIDATED STATEMENT OF OPERATIONS
DATA:
Revenue.............................. $ -- $ -- $ 15,790
------- ------- --------
Costs and operating expenses:
Cost of revenue................... -- -- 10,822
Research and development.......... 2,738 367 4,618
Selling, general and
administrative.................. 2,451 452 10,376
Amortization of deferred stock
compensation.................... 3,646 1,590 10,952
------- ------- --------
Total costs and operating
expenses..................... 8,835 2,409 36,768
------- ------- --------
Loss from operations.............. (8,835) (2,409) (20,978)
Interest and other income, net....... 478 142 491
------- ------- --------
Net loss............................. $(8,357) $(2,267) $(20,487)
======= ======= ========
Basic and diluted net loss per
share............................. $ (1.06) $ (0.32) $ (1.10)
======= ======= ========
Shares used in calculating basic and
diluted net loss per share........ 7,848 7,189 18,609
======= ======= ========
JUNE 30, JANUARY 1,
1999 2000
-------- ----------
(IN THOUSANDS)
CONSOLIDATED BALANCE SHEET DATA:
Cash and cash equivalents and short-term investments...... $13,767 $ 21,782
Working capital........................................... 12,526 10,138
Total assets.............................................. 15,063 29,570
Long-term liabilities..................................... -- 96
Redeemable convertible preferred stock.................... 17,972 27,962
Total stockholders' (deficit)............................. (4,198) (13,096)
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
The following discussion of our results of operations and financial
condition should be read in conjunction with the consolidated financial
statements and other financial information included in this prospectus. This
discussion contains forward-looking statements that involve risks and
uncertainties. Our actual results may be materially different from those
anticipated in these forward-looking statements resulting from various factors,
including those discussed under "Risk Factors" and elsewhere in this prospectus.
OVERVIEW
We were incorporated in July 1998 to develop innovative handheld computers
that are fun, smart, approachable, compelling and personal. Our business is
focused on the sale of our Visor handheld computer, Springboard modules that we
have developed and related accessories. Shipments of these products began in
October 1999. Since then we have sold our products through our Web site. In late
March 2000, we began shipping our products to selected retailers.
During the period from inception to June 30, 1999, our operating activities
were focused on developing our products, obtaining license rights, establishing
third party manufacturing and distribution relationships, recruiting personnel
and raising capital. During that period, we incurred expenses and generated no
revenue. As a result of our limited operations during our first fiscal year, we
have not provided a discussion of our results for that year. We first recognized
revenue in the second quarter of fiscal 2000. The following discussion compares
the period from inception to December 31, 1998 with the six-month period ended
January 1, 2000. For the purpose of this discussion, when we refer to the period
ended December 31, 1998, we are referring to the period from inception to
December 31, 1998.
During fiscal 1999 our fiscal months coincided with calendar month ends.
Effective July 1, 1999, we changed our fiscal year to a 52-53 week fiscal year
ending on the Saturday nearest to June 30. Unless otherwise stated, all years
and dates refer to our fiscal year and fiscal periods.
We expect to experience seasonality in the sales of our products. We
anticipate sales to be higher in our second fiscal quarter due to increased
consumer spending patterns on electronic devices during the holiday season. We
also expect that sales may decline during the summer months because of typical
decreased consumer spending patterns during this period. These seasonal
variations in our sales may lead to fluctuations in our quarterly operating
results.
RESULTS OF OPERATIONS
Revenue. Revenue is comprised almost entirely of sales of our handheld
computer devices and related peripherals and accessories. We recognize revenue
from product sales, net of any discounts, when the products are shipped to
customers. Outbound shipping charges are included in net revenue. We began
shipping products in October 1999 for orders received through our handspring.com
Web site, resulting in revenue of $15.8 million during the six months ended
January 1, 2000.
Cost of revenue. Cost of revenue consists primarily of materials, labor,
royalty expenses, warranty expenses and freight. Cost of revenue was $10.8
million during the six months ended January 1, 2000.
Research and development. Research and development expenses consist
principally of salaries and related personnel expenses, consultant fees and the
cost of materials and software used in product development. Research and
development expenses increased from $367,000 during the period ended December
31, 1998 to $4.6 million during the six months ended January 1, 2000. The
increase is primarily associated with the hiring of personnel devoted to the
development of new products. We
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believe that continued investment in research and development is critical to
attaining our strategic objectives and we expect research and development
expenses to increase in the future.
Selling, general and administrative. Selling, general and administrative
expenses consist primarily of Web site design and maintenance expenses, salaries
and related expenses, trade show exhibit expenses, promotional and advertising
costs, accounting and administrative expenses, costs for legal and professional
services and general corporate expenses. Selling, general and administrative
expenses increased from $452,000 during the period ended December 31, 1998 to
$10.4 million during the six months ended January 1, 2000 due to a general
increase in the level of operations, including more personnel and larger
facilities.
Amortization of deferred stock compensation. We granted stock options to
our officers and employees at prices subsequently deemed to be below the fair
value of the underlying stock. The cumulative difference between the fair value
of the underlying stock at the date the options were granted and the exercise
price of the granted options was $49.0 million at January 1, 2000. This amount
is being amortized, using the multiple option method, over the four-year vesting
period of the granted options. Accordingly, our results of operations will
include amortization of deferred stock compensation at least through fiscal
2004. We recognized $1.6 million of this expense during the period ended
December 31, 1998 and $11.0 million during the six months ended January 1, 2000.
Subsequent to January 1, 2000, we granted options to purchase 3,840,200
shares of our common stock at exercise prices ranging from $1.33 to $20.00 per
share. The amortization of deferred stock compensation to be recorded in the
third quarter of fiscal 2000 including amortization on these options granted
subsequent to January 1, 2000, amounts to $24.4 million.
Interest and other income, net. Interest and other income, net increased
from $142,000 during the period ended December 31, 1998 to $491,000 during the
six months ended January 1, 2000. The increase was primarily a result of
increased interest income from higher average cash and cash equivalents and
short-term investments balances during the six months ended January 1, 2000 as
compared with the period ended December 31, 1998.
QUARTERLY RESULTS OF OPERATIONS
The following table shows unaudited consolidated statements of operations
data for each of the six fiscal quarters ended January 1, 2000. The information
for each of these quarters has been prepared on the same basis as the audited
consolidated financial statements included in this prospectus. In the opinion of
management, all necessary adjustments, which consist only of normal and
recurring accruals, have been included to fairly present the unaudited quarterly
results. These data should be read together with our consolidated financial
statements and the notes to those
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27
statements included in this prospectus. The historical financial information for
any quarter is not necessarily indicative of results for any future period.
PERIOD FROM THREE MONTHS ENDED
JULY 29, 1998 ---------------------------------------------------------------
(DATE OF INCEPTION) TO DECEMBER 31, MARCH 31, JUNE 30, OCTOBER 2, JANUARY 1,
SEPTEMBER 30, 1998 1998 1999 1999 1999 2000
---------------------- ------------ --------- -------- ----------- -----------
(IN THOUSANDS)
CONSOLIDATED STATEMENTS OF
OPERATIONS DATA:
Revenue..................... $-- $ -- $ -- $ -- $ -- $ 15,790
--- ------- ------- ------- ------- --------
Costs and operating
expenses:
Cost of revenue........... -- -- -- -- -- 10,822
Research and
development............ -- 367 770 1,601 2,472 2,146
Selling, general and
administrative......... 9 443 446 1,553 3,656 6,720
Amortization of deferred
stock compensation..... -- 1,590 835 1,221 3,221 7,731
--- ------- ------- ------- ------- --------
Total costs and
operating expenses... 9 2,400 2,051 4,375 9,349 27,419
--- ------- ------- ------- ------- --------
Loss from operations........ (9) (2,400) (2,051) (4,375) (9,349) (11,629)
Interest and other income,
net....................... -- 142 159 177 283 208
--- ------- ------- ------- ------- --------
Net loss.................... $(9) $(2,258) $(1,892) $(4,198) $(9,066) $(11,421)
=== ======= ======= ======= ======= ========
Before the second quarter of fiscal 2000, our operations were limited and
consisted primarily of start-up activities. During the second quarter of fiscal
2000 we began shipping products, resulting in revenue of $15.8 million and
associated cost of revenue of $10.8 million.
Our operating expenses were minimal during the first quarter of fiscal
1999, as we were incorporated in July 1998 and had no development,
manufacturing, selling or marketing personnel. There has been a consistent
increase in research and development expenses as we have grown, due to our
continuous focus on the development of new products. Selling, general and
administrative expenses have also steadily increased with a general increase in
the level of operations and personnel.
Interest and other income, net consists primarily of interest income and
has fluctuated over the quarters with the average cash and cash equivalents
balance, as well as short-term investments. Most of our cash has been provided
by private placement financing, and is used in operations. We sold Series A
convertible preferred stock in October 1998 for net proceeds of $18.0 million,
and sold Series B convertible preferred stock in July 1999 for net proceeds of
$10.0 million.
Our limited operating history makes the prediction of future operating
results difficult. We have a history of losses and we expect to continue to
incur losses into calendar year 2001. We believe that period-to-period
comparisons of our operating results should not be relied upon as predictive of
future performance. In some future periods, our results of operations could be
below the expectations of investors and public market analysts, if any choose to
follow our stock. In this event, the price of our common stock would likely
decline.
LIQUIDITY AND CAPITAL RESOURCES
Since inception, we have funded our operations primarily from the sale of
preferred stock, through which we raised net proceeds of $28.0 million through
January 1, 2000. As of January 1, 2000 cash and cash equivalents were $18.8
million and short-term investments were $3.0 million. We also have a $6.0
million subordinated debt facility, which is available until June 2000.
Borrowings
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bear interest at 10.0% per annum, and are collateralized by substantially all of
our assets. Without the lender's consent, we may not incur any other
indebtedness in excess of $1.0 million. There has been no drawdown on this
facility to date. In addition, we have a secured equipment lease facility with
this lender that allows a maximum borrowing of $1.0 million, of which $904,000
was available as of January 1, 2000.
Net cash provided by operating activities for the six months ended January
1, 2000 was $911,000, primarily attributable to an increase in accounts payable
and accrued liabilities of $13.3 million and the amortization of deferred stock
compensation of $11.0 million. These sources of cash were largely offset by a
net loss of $20.5 million and an increase in accounts receivable of $2.5 million
and an increase in other assets of $530,000. We generated cash from operations
during this period primarily due to the rapid payment cycle associated with
direct sales through our Web site. During the period ended December 31, 1998 net
cash used in operating activities was $679,000, which was primarily attributable
to a net loss of $2.3 million and an increase in other assets of $204,000,
partially offset by the amortization of deferred stock compensation of $1.6
million and an increase in accounts payable and accrued liabilities of $210,000.
Net cash used in investing activities for the six months ended January 1,
2000 was $236,000, and primarily consisted of purchases of property and
equipment of $3.6 million as well as short-term investments of $2.0 million.
These cash usages were offset by $5.3 million received from maturities and sales
of short-term investments. During the period ended December 31, 1998 net cash
used in investing activities was $4.2 million, and was attributable to purchases
of short-term investments of $3.9 million as well as property and equipment of
$247,000.
Net cash provided by financing activities totaled $10.6 million during the
six months ended January 1, 2000, primarily due to net proceeds of $10.0 million
received from the issuance of Series B redeemable convertible preferred stock.
We received an additional $601,000 from the issuance of common stock upon
exercise of stock options by employees. During the period ended December 31,
1998 net cash provided by financing activities was $18.0 million, almost
entirely attributable to the issuance of Series A redeemable convertible
preferred stock.
Our future capital requirements will depend upon many factors, including
the timing of research and product development efforts and expansion of our
marketing efforts. We believe that the net proceeds of this offering, together
with our cash, cash equivalents and short-term investments, will be sufficient
to meet our working capital needs for at least the next 12 months. To the extent
that we grow more rapidly than expected in the future, we may need additional
cash to finance our operating and investing needs. Our management intends to
invest the cash received from this offering in excess of current operating
requirements in short-term, interest-bearing, investment-grade securities.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Sensitivity. We maintain a short-term investment portfolio
consisting mainly of fixed income securities with an average maturity of less
than one year. The market value of this portfolio was $3.0 million at January 1,
2000. These available-for-sale securities are subject to interest rate risk and
will fall in value if market interest rates increase. We have the ability to
hold our fixed income investments until maturity, and therefore we do not expect
our operating results or cash flows to be affected to any significant degree by
the effect of a sudden change in market interest rates on our securities
portfolio. We do not hedge any interest rate exposures.
Foreign Currency Exchange Risk. We have not had any significant
transactions in foreign currencies, nor did we have any significant balances
that were due or payable in foreign currencies at January 1, 2000. Therefore, a
hypothetical 10.0% change in foreign currency rates would not have a
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significant impact on our financial position and results of operations. We do
not currently hedge any of our foreign currency exposure.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 133, Accounting for
Derivatives and Hedging Activities. SFAS No. 133 establishes accounting and
reporting standards for derivative investments, including certain derivative
instruments embedded in other contracts, and for hedging activities. In July
1999, the FASB issued SFAS No. 137, Accounting for Derivative and Hedging
Activities -- Deferral of the Effective Date of FASB Statement No. 133. SFAS No.
137 deferred the effective date of SFAS No. 133 until fiscal years beginning
after June 15, 2000. We will adopt SFAS No. 133 during fiscal 2001. To date, we
have not engaged in derivative or hedging activities.
IMPACT OF THE YEAR 2000
We have not experienced any year 2000-related disruption in the operation
of our systems. Although most year 2000 problems should have become evident on
January 1, 2000 or on the so-called "century leap year" algorithm, additional
year 2000-related problems may become evident after these dates. We are not
aware of any material problems with our clients or vendors. Accordingly, we do
not anticipate incurring material expenses or experiencing any material
operational disruptions as a result of any year 2000 issues.
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BUSINESS
OVERVIEW
We are a leading provider of handheld computers. Our first product, the
Visor handheld computer, is a personal organizer that is enhanced by an open
expansion slot, which we refer to as our Springboard platform. Since its
introduction in October 1999, our Visor has won numerous awards, including PC
Magazine's annual "Technical Excellence" award for handheld devices, first place
in CNET.com's Consumer Electronics "Top Ten Must-Haves" and inclusion in
Business Week's "Best Products of the Year." More than 2,000 developers have
registered with Handspring to create modules that can be easily snapped into the
Springboard expansion slot. Examples of modules commercially available or in
development include content such as books and games, consumer applications such
as an MP3 player, a digital camera and a global positioning system receiver and
communications applications such as wireless modems and two-way pagers offering
Internet and intranet connectivity. We will continue to be an innovator in
designing expandable handheld devices that enable new mobile computing and
communications applications.
INDUSTRY OVERVIEW
The handheld computing and communications industry is growing rapidly as
users, particularly mobile professionals, increasingly rely on electronic
management of critical personal and professional information, interaction with
Internet-based information resources and mobile voice and data communications.
This increased need for productivity and connectivity "anywhere, anytime" has
led to a wide array of handheld devices. Some handheld devices focus on handheld
computing functions, including calendar and contact management, while others
focus on communications functions, including voice and data communications,
paging, email and Internet access.
While demand for these devices has grown rapidly, we believe that product
evolution in this sector is still in its early stage. International Data
Corporation estimates that worldwide shipments of smart handheld devices will
grow from approximately 6.8 million units in 1998 to approximately 35.5 million
units in 2003. We believe that the emergence of more powerful, flexible devices
with increased functionality and broad consumer applications will further expand
the potential market for handheld computing and communications devices. Key
factors driving widespread consumer adoption of handheld computing and
communications devices include:
DEMANDS OF A MOBILE SOCIETY. As our society becomes ever more mobile,
consumers are demanding the same productivity and communications capability on
the road as they get at their desks. This demand is at the heart of a powerful
cycle: new devices enable new applications, which in turn enable greater
mobility, which only increases the demand for more functional devices.
Reductions in device size and cost and improvements in functionality, storage
capacity and reliability are all fostering these trends. Each turn of the cycle
drives increased volume, with the result that a product category once targeted
at upscale "mobile professionals" is increasingly becoming a mass consumer
product sector.
NEED FOR MOBILE INTERNET AND INTRANET ACCESS. The growing prominence of the
Internet and corporate intranets in users' everyday lives is increasing demand
for access "anywhere, anytime". Demand for mobile data Internet applications
such as email, stock quotes and trading, news, content and location-based
services continues to increase. In addition, workers and their employers are
demanding mobile access to corporate intranets to obtain critical business
information such as inventory levels and customer profiles.
IMPROVEMENT IN WIRELESS COMMUNICATIONS ENABLE COMPELLING
APPLICATIONS. Digital wireless communications have become widely adopted due to
declining consumer costs, expanding network coverage and the availability of
extended service features such as voice and text messaging. Digital
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wireless technologies, which are currently designed for voice transmission and
allow only limited data transmission capabilities, are evolving towards more
advanced technologies enabling higher data transmission rates at lower costs.
Widespread deployment of these technologies in wireless networks will
increasingly enable the delivery of higher bandwidth applications such as
streaming video and audio to handheld communications devices. Dataquest
estimates that the number of wireless data subscribers worldwide will grow from
approximately 14 million at the end of 1998 to approximately 102 million at the
end of 2003.
PROLIFERATION OF DIGITAL CONSUMER APPLICATIONS. The development of
applications for the digital delivery of consumer products and services, such as
photographs, music, video games, news, books, driving directions, weather and
stock quotes and trading, has accelerated as physical products and services are
increasingly being replaced with bytes of data. This trend has contributed to
the success of new consumer products such as MP3 players and digital cameras.
GROWING, INNOVATIVE DEVELOPER COMMUNITY. As the handheld computing and
communications device market has grown to millions of units, a large and growing
community of independent developers is driving new applications and
functionality. Developers are creating software applications and complementary
hardware peripherals and accessories that address new markets. This innovation
is in turn creating new market opportunities and is stimulating increased demand
for handheld devices.
These trends are accelerating toward the emergence of a device that
integrates handheld computing applications and a broad range of communications
functions. Current handheld products provide consumers with limited choices,
typically between a simple device without expandability or a complex,
multi-function device that is expensive, heavy and difficult to use. We believe
the key challenge is one of design. The handheld device must be small, elegant
and easy to use, yet flexible enough to support a wide variety of personal
preferences and professional requirements.
THE HANDSPRING SOLUTION
Our product design team has extensive experience in handheld computing
design. Our Visor handheld computer combines the functionality of a handheld
organizer with the flexibility of our Springboard expansion slot. The result is
a flexible, open platform that enables users to customize their handheld device
to deliver a broad range of computing and communications applications. Key
elements of our solution include:
EASY TO USE PRODUCTS. Our Visor handheld computers are designed to delight
our customers by providing a simple, intuitive solution for their computing,
communications, information and entertainment needs. Our products need little
technical knowledge to operate effectively. For example, users can simply insert
modules into our Springboard expansion slot without the need to separately
install or delete software. In addition, our customers can easily synchronize
their Visors' data with their desktop computers by pressing one button.
FLEXIBLE PLATFORM. The Springboard expansion slot allows users to add and
remove modules to customize the functions of their Visor computers. To encourage
widespread module development, the Springboard expansion slot was designed to
provide developers with great flexibility in the size, form and functionality of
the modules they create. The Springboard modules commercially available or in
development address a wide range of applications including:
- content, such as books and games;
- consumer applications, such as MP3 players, digital cameras and global
positioning system receiver modules;
- Internet and intranet connectivity; and
- communications capabilities, such as pager and modem modules.
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OPEN DEVELOPMENT ENVIRONMENT. Our Springboard technology provides an open
platform to developers, with all documentation available on our Web site,
allowing developers to create modules without paying royalties or license fees.
We offer a wide variety of marketing and support programs to help our developers
build successful businesses based on Springboard modules. To enable broad module
production and distribution, we assist developers in relationships with
suppliers and manufacturers and in marketing their modules.
VALUE LEADERSHIP. Our products are designed to combine superior
functionality with competitive pricing in order to drive widespread adoption
within the broad consumer market. Our Springboard platform allows users to
achieve optimal price performance, by enabling users to pay only for the
features and functionality they will actually use.
COMPATIBILITY. The compatibility of our products with the Palm OS operating
system, which we have licensed from Palm, allows our Visor handheld computers to
run thousands of applications developed for the Palm OS operating system. These
applications can be installed through the docking cradle, over the Internet or
through infrared transmission from another device. In addition, our products can
be synchronized with many of the widely used desktop organizer software
packages, including Microsoft Outlook, and can easily import personal data from
another Palm OS operating system device.
BUSINESS STRATEGY
Our objective is to become a global market leader in the handheld computing
and communications marketplace. We will continue to be an innovator in designing
expandable handheld devices that enable new mobile computing and communications
applications. Key elements of our strategy include:
DEVELOP PRODUCTS BASED ON CUSTOMER FOCUSED DESIGN AND INNOVATION. Our
business is founded on the notion that we must constantly innovate in order to
design simple, yet powerful, products that delight our customers. Key members of
our management and product development teams have a history of innovation and
technology leadership in the handheld computing markets, having founded and led
the Palm Computing business from its inception until the founding of Handspring
in mid-1998. Handspring's first product, the Visor handheld computer, builds on
this experience. We intend to continue to develop innovative handheld computing
products.
PENETRATE LARGE AND GROWING HANDHELD COMPUTING AND COMMUNICATIONS
MARKET. Our Visor handheld computer's Springboard expandability, organizer
functionality and competitive pricing provide us with immediate access to the
large and growing handheld computing and communications market. Our initial
strategy was to enter the market quickly by selling exclusively through our Web
site. To further expand our distribution, we began shipping our products to
selected retailers in late March 2000. We also plan to expand our available
market by entering international markets as well as the enterprise, education
and government markets.
ESTABLISH MULTIPLE REVENUE SOURCES. Currently, almost all of our revenues
come from the sale of our Visor handheld computers. We intend to derive
additional sources of revenue from internally developed Springboard modules,
distribution of Springboard modules developed by third parties and product
accessories. We are developing new products to address the wireless and Internet
access markets. In addition, we intend to license our Springboard technology to
other companies.
ESTABLISH A STRONG BRAND IDENTITY. Our goal is to establish Handspring as
the premier brand in the consumer handheld computing market by creating an image
that is innovative, fun, smart, approachable, compelling and personal. We will
build on our brand awareness through innovative products, advertising, strategic
promotional relationships and creative marketing. In addition, we believe that
our promotion of the Springboard platform, along with our support of the module
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developer community, will broaden consumer awareness of our products and enhance
our brand identity.
ADDRESS ADDITIONAL MARKETS BY ATTRACTING AND SUPPORTING THE DEVELOPMENT
COMMUNITY. Our goal is to develop a competitive advantage from a large and
innovative developer community focused on our Springboard platform. These
developers will enable Handspring to sell into new and broader areas, such as
the education and medical device markets. For example, the development of the
sensor modules for education and science by Imagiworks facilitates our access to
the education market. We encourage developers through open, royalty-free
developer tools, access to our technical developer support and to manufacturing
partners and module distribution through the handspring.com Web site.
LEVERAGE OUTSOURCE MODEL. Our strategy is to focus on what we do best,
creating innovative products. We believe that by outsourcing many other
functions, including manufacturing, order fulfillment and repair, we will keep
the number of employees small relative to our scale. This strategy will allow us
to be more creative, flexible, aggressive and competitive. In addition, our
outsource model lets us scale quickly, reduce fixed costs and select best of
breed outsource partners.
PRODUCTS
Our first product, the Visor handheld computer, is a personal organizer
that is enhanced by an open expansion slot, which were refer to as our
Springboard platform. Since its introduction in October 1999, our Visor has won
numerous awards, including PC Magazine's annual "Technical Excellence" award,
first place in CNET.com's Consumer Electronics "Top Ten Must-Haves" and
inclusion in Business Week's "Best Products of the Year."
Our Visor is a sleek, compact and lightweight handheld computer, with
dimensions of 4.8" x 3.0" x 0.7", and a weight of 5.4 ounces. Each Visor
includes a Springboard expansion slot, stylus writing utensil, infrared
transceiver, backlight display and a hard cover. A microphone is included in
each Visor, which allows developers to create communications modules based on
this feature. Our Visor is compatible with thousands of software applications
developed for the Palm OS operating system. The Visor contains Microsoft Windows
and Macintosh desktop synchronization software, including the ability to
synchronize with Microsoft Outlook.
Our Visor handheld also runs organizer applications, including an address
book, date book, to-do list, memo pad, calculator, expense system, email
compatibility and a world clock. The Visor's docking cradle, together with the
bundled HotSync software, allows customers to easily and quickly synchronize, or
exchange, data between the Visor and their desktop or laptop computer.
Our Visor handheld computer is attractively priced and is currently
available in two different models: Visor and Visor Deluxe. The Visor features
two megabytes of RAM memory and a Universal Serial Bus (USB) docking cradle with
desktop software for a retail price of $179. Two megabytes of RAM memory stores
approximately 6,000 addresses, five years of appointments, 1,500 to do items,
1,500 memos and 200 email messages. The Visor Deluxe sells for $249 and includes
eight megabytes of RAM memory, a USB docking cradle with desktop software and a
case. The Visor Deluxe is available in five colors: ice, green, blue, orange and
graphite. In addition, we sell the Visor Solo, a Visor packaged without a
docking cradle and desktop software for an entry price of $149.
Our Visor handheld computer's Springboard platform consists of an expansion
slot that offers an easy and elegant way to add hardware and software
applications. While other handheld computers can support a limited number of
peripheral devices attachable through cables or a docking cradle, the
Springboard expansion slot offers smooth integration and "plug and play"
operation:
- the "open face" design of the slot provides an intuitive and robust
mechanism for effortless insertion and removal of modules;
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- the software required to run a module is contained within the module
itself, and can install and run automatically, relieving the user from
the burden of installing special software in order to use a module; and
- in most module designs, the software is automatically uninstalled when
the module is removed, which reduces the opportunity for conflict with
other software and frees up memory for other purposes.
SPRINGBOARD MODULES. To offer customers a broad range of functionality and
content, we and third-party developers have developed and continue to develop
modules that snap into our Springboard expansion slot. Beginning in October 1999
when we launched our Visor handheld computer, we made tools and documentation
widely available for module developers. Since that time more than 2,000
developers have registered with Handspring.
Third party developers may sell their modules through their own marketing
and sales efforts and through our handspring.com Web site. We test modules
offered on our Web site and certify them as "Springboard compatible."
The following table shows Springboard modules that are currently available.
COMMERCIALLY AVAILABLE SPRINGBOARD MODULES
- -----------------------------------------------------------------------------------------------------------
PRODUCT NAME DESCRIPTION DEVELOPER
- -----------------------------------------------------------------------------------------------------------
Backup Module Backs up data on the Visor handheld computer Handspring
without connecting to a desktop computer
- -----------------------------------------------------------------------------------------------------------
Modem Module Module that enables users to connect to Handspring
their desktops via standard phone lines and
synchronize their data from a remote
location. With third party software, users
can also check their email, surf the web and
send faxes
- -----------------------------------------------------------------------------------------------------------
8MB Flash Module Storage module for user applications and Handspring
data
- -----------------------------------------------------------------------------------------------------------
EASports Tiger Woods Golf game Electronic Arts;
PGA Tour Golf Distributed by Handspring
- -----------------------------------------------------------------------------------------------------------
Physician's Desk Reference Medical reference guide Franklin Electronic
Publishers
- -----------------------------------------------------------------------------------------------------------
IntelliGolf Tracks and analyzes golf performance Karrier Communications
- -----------------------------------------------------------------------------------------------------------
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The following table shows selected Springboard modules that have been
announced by developers as being under development.
ANNOUNCED SPRINGBOARD MODULES IN DEVELOPMENT
- -----------------------------------------------------------------------------------------------------------
PRODUCT NAME DESCRIPTION DEVELOPER
- -----------------------------------------------------------------------------------------------------------
@ctiveLink two-way wireless Wireless access to the Internet and email Glenayre Technologies Inc.
communications module
- -----------------------------------------------------------------------------------------------------------
Blue-connect Bluetooth A wireless communications module designed to Widcomm, Inc.
communication module allow the Visor handheld computer to
communicate with other Bluetooth-enabled
devices, such as laptops or cell phones
- -----------------------------------------------------------------------------------------------------------
eyemodule Digital Camera Enables users to capture color or black and IDEO Product
white digital images and beam them from Development Inc.
Visor's infrared port to another Visor or
synchronize them with a personal computer
- -----------------------------------------------------------------------------------------------------------
FM Radio module Allows users to listen to music over the CUE Corporation
radio and receive traffic alerts and
personal messages
- -----------------------------------------------------------------------------------------------------------
HandyGPS module Global positioning system receiver Navicom Co., Ltd. and
MarcoSoft, Inc.
- -----------------------------------------------------------------------------------------------------------
InfoMitt one way pager Receives alphanumeric pages, email and Innogear
electronic magazines
- -----------------------------------------------------------------------------------------------------------
Lonely Planet City Sync City guides Concept Kitchen
Travel Guides
- -----------------------------------------------------------------------------------------------------------
Merriam-Webster Dictionary Dictionary LandWare, Inc.
- -----------------------------------------------------------------------------------------------------------
MiniJam MP3 Player An MP3 player and a voice recorder, with Innogear
memory and a headphone jack
- -----------------------------------------------------------------------------------------------------------
Sensor Modules for Education Sensors for data collection, including ImagiWorks
and Science temperature and light measurements, and
heart rate monitoring
- -----------------------------------------------------------------------------------------------------------
SixPak Combo Card Combination of LED and vibrating alarm, Innogear
wireline modem, cellular capable modem,
expanded memory and voice recorder
- -----------------------------------------------------------------------------------------------------------
SpringPort Modem 56 56Kbps modem Xircom, Inc.
GlobalACCESS
- -----------------------------------------------------------------------------------------------------------
SpringPort Wired Ethernet Ethernet module for connecting to corporate Xircom, Inc.
networks
- -----------------------------------------------------------------------------------------------------------
SpringPort Wireless Data Wireless data communications using GSM and Xircom, Inc.
PDC network standards
- -----------------------------------------------------------------------------------------------------------
SpringPort Wireless Ethernet Wireless module for connecting to corporate Xircom, Inc.
networks using the 802.11b standard
- -----------------------------------------------------------------------------------------------------------
Sycom Recorder 1850 Voice recorder and playback module Sycom Technologies
- -----------------------------------------------------------------------------------------------------------
Wave Communicator Cordless telephone and remote control Zilog, Inc.
- -----------------------------------------------------------------------------------------------------------
Accessories. We offer a full line of accessories through our handspring.com
Web site. To address a broad range of customer preferences, we offer a variety
of stylus packs, a selection of over 150 cases, including leather, and a line of
clothing and travel bags displaying the Handspring name and logo. In addition,
third parties have also announced the introduction of accessories for the Visor
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handheld computer, including the GoType! expandable keyboard from Landware and
the Stowaway portable keyboard from Targus.
DEVELOPERS
Our Springboard platform was designed to foster a large community of third
party developers. We seek to encourage developers to create new high value
modules with integrated applications for use with the Visor handheld computer,
which we believe will create new markets and expand existing ones for Handspring
devices.
For developers, the Springboard expansion slot provides a well defined and
flexible power management structure for ease of designing and using modules. The
slot is open faced on two sides, which allows developers great freedom in
designing a module's form factor. This feature also provides a secure mechanism
for attaching the module to the Visor handheld computer so that the two devices
look cosmetically and physically integrated. Each Visor handheld computer also
includes a built-in microphone that developers can use for voice input products.
We have a growing team of employees dedicated to serving the developer
community, both in technical support and co-marketing opportunities. Our
developer support program provides developers open access to underlying
technical information regarding our products and the Springboard platform,
including a thoroughly documented Handspring Development Kit available at our
handspring.com Web site. We offer our Handspring Development Kit and a license
to our Springboard-related intellectual property on a royalty-free,
non-exclusive basis. We also offer an optional, paid support program to those
developers that require a more detailed level of support.
To assist developers in the production of modules, we provide them with
access to our manufacturing partners and materials suppliers. We facilitate
distribution of modules over the handspring.com Web site that we created in
partnership with PalmGear. We also provide introductions for our developers to
our retail channel partners. In the future we expect to host developers
conferences to further promote our developer community.
As of March 31, 2000, more than 2,000 developers have registered in our
development program.
SALES AND MARKETING
Our initial distribution strategy was to sell exclusively through our
handspring.com Web site. This strategy enabled us to get to market quickly, and
provided us with detailed information about our initial purchasers. We intend to
continue to promote our handspring.com Web site as the preferred site to buy our
products on the Internet. With this in mind, we have expanded our offerings at
our site to include software links and links to various third party module
vendors. We have provided customers the ability to register for ongoing
communications with us via an e-newsletter, and we enable customers to register
their product purchases on our site. We also offer a broad array of accessories
and cases on our site to continue to drive traffic back to the site for
incremental purchases.
To expand our market presence, we extended our distribution strategy in
March 2000 to include initially three national retailers, Best Buy, CompUSA and
Staples. These retailers serve three major segments of buyers -- consumer
electronics purchasers, computer purchasers and office supply purchasers -- with
retail locations across the United States. We plan to work closely with these
partners to provide an outstanding retail point of purchase presence, and to
enable an efficient channel for broad consumer availability of our products.
We expect to introduce Visor handheld computers addressing English, German
and Japanese speaking international markets in April and May of this year. We
plan to engage local value-added distributors in all the major markets in
Western Europe and Asia where our localized language
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versions meet market needs. We also plan to develop partnerships to establish a
local e-commerce presence for international customers interested in purchasing
Handspring products online.
We believe there is an opportunity to expand our market presence through
strategic promotional efforts and through OEM or private label partnerships. We
have broad interest from major brand marketers, who supply our target customers
with various products or services, to co-promote the Visor handheld computers
along with their products or services. An example is a recent promotion in which
Virgin Atlantic Airlines provided first class and business class passengers with
a free Visor. In addition, there is strong interest from potential partners that
serve other computing markets to partner with us to provide a handheld computing
solution to their customers. For example, with the availability of a Global
Positioning System receiver Springboard module, a partner that serves the
traditional GPS market could bundle together a Visor handheld computer and the
GPS receiver module to deliver a complete solution to customers. We will
actively seek these opportunities to extend our market reach outside our
traditional target categories.
We believe building brand awareness is important to our success. We use a
variety of marketing programs to build awareness of our products through
mass-media advertising, targeted advertising, end user promotions, public
relations campaigns, strategic promotional efforts and in-store retail
merchandising. We will work with our third party developers to promote their
Springboard modules as they are introduced to the market. This strategy should
provide us with several opportunities to build product and brand awareness.
CUSTOMER SERVICE AND SUPPORT
We provide telephone-based customer support and technical support to our
customers through outsource partners. We also provide customer support and
technical support information to our customers through our handspring.com Web
site. Our retail and reseller partners provide first-line customer and technical
support to their customers. We provide escalation service and support and
technical training for our outsource providers and reseller partners. We sell
our products with a one-year limited warranty.
We currently outsource our repair services to Jabil's Louisville, Kentucky
facility. Jabil receives products from customers that need repair, provides
replacement or repaired units to customers and refurbishes devices for ongoing
service repair stock. We depend on Jabil to perform these services in a timely
fashion and at satisfactory quality levels.
PRODUCT DEVELOPMENT AND TECHNOLOGY
Our products are conceived, designed and implemented through the
collaboration of our internal engineering, marketing and manufacturing
organizations. Our product design efforts are focused on improving our existing
products as well as developing new products. We intend to continue to employ a
customer focused design approach by providing innovative products that respond
to and anticipate customer needs for functionality, mobility, simplicity, style
and ease of use.
Technologies required to support product development are either created
internally or licensed from outside providers. Our internal staff includes
engineers of many disciplines including software architects, electrical
engineers, mechanical engineers, quality engineers, manufacturing process
engineers and user interface design specialists. Once a project is initiated and
approved, a multi-disciplinary team is created to complete the design of the
product and transition it into manufacturing. In order to achieve our objective
of being a leader in innovation for handheld computing and communications, we
have parallel development teams working on multiple projects.
We have a formal product release process in which products must pass
established quality benchmarks and manufacturing guidelines in order to be
released into production. We utilize a
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quality assurance process that provides feedback to our manufacturing and
engineering organizations, as well as our outsource manufacturing and materials
partners, allowing them to take corrective actions if defects are reported after
a product has been released into production.
We expect to continue to invest aggressively to develop new products. Our
research and development expenditures totaled approximately $2.7 million in
fiscal 1999 and approximately $4.6 million for the six months ended January 1,
2000. As of February 26, 2000, we had 28 people engaged in research and
development activities.
MANUFACTURERS AND SUPPLIERS
All of our Visor handheld computers are currently manufactured by
Flextronics at its facilities in Malaysia on a purchase order basis. Flextronics
procures components and other supplies, manufactures, assembles and tests our
products. By outsourcing the entire manufacturing process, we are able to focus
on our strengths, including product development and design, minimize capital
expenditures, conserve working capital necessary to fund inventory, rely on a
third party with more manufacturing expertise than ourselves and avoid the need
to find and maintain facilities for manufacturing operations.
We are currently in the process of selecting a second outsource
manufacturing site for Visor handheld computers. We expect to be operational at
a second site by the summer of 2000. We currently outsource the manufacturing of
our Handspring labeled Springboard modules to Smart Modular of Fremont,
California. We outsource the design and production of our accessory products
with several outside partners.
We purchase the components that make up our products from various vendors,
including key suppliers such as Motorola, which supplies microprocessors, Acura
Tech Ltd., which supplies connector systems, and Picvue, which supplies display
assemblies. Some of our components are currently supplied by single source
suppliers for which alternative sources are not readily available in sufficient
quantities or at an attractive cost. Displays, power supply integrated circuits,
microprocessors and some discrete components are examples of key components that
we obtain from a sole source.
Manufactured devices are sent to our fulfillment partner, Logistix. Orders
are placed by end user customers on our handspring.com Web site, or are given
over the telephone to our third party customer support partner. Retail sales
orders are placed in our internal order processing system. All orders are
transmitted to this partner, which completes the pack-out process by assembling
a finished goods box consisting of the Visor handheld computer, a docking
cradle, a CD of desktop software and other assorted materials. They then match
the product to the order and confirm shipment, which initiates a credit card
charge or invoice.
COMPETITION
The market for handheld computer products is highly competitive and we
expect competition to increase in the future. Some of our competitors or
potential competitors have significantly greater financial, technical and
marketing resources than we do. These competitors may be able to respond more
rapidly than us to new or emerging technologies or changes in customer
requirements. They may also devote greater resources to the development,
promotion and sale of their products than we do.
We believe that the principal competitive factors impacting the market for
our handheld computers are design, features, performance, price, brand and
availability. We believe that we compete favorably compared to many of our
current competitors with respect to some or all of these factors.
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Our handheld computers compete with a variety of handheld devices,
including keyboard-based devices, sub-notebook computers, smart phones and
two-way pagers. Our principal competitors include:
- Palm, from whom we license our operating system;
- licensees of the Microsoft Windows CE operating system, including Casio,
Compaq, Hewlett-Packard and Sharp;
- members of the Symbian consortium, including Psion, Ericsson and
Motorola; and
- other Palm OS operating system licensees, including Nokia, Sony and
QUALCOMM.
We expect our competitors to continue to improve the performance of their
current products and to introduce new products, services and technologies.
Successful new product introductions or enhancements by our competitors could
reduce the sales and market acceptance of our products, cause intense price
competition or make our products obsolete. To be competitive, we must continue
to invest significant resources in research and development, sales and marketing
and customer support. We cannot be sure that we will have sufficient resources
to make these investments or that we will be able to make the technological
advances necessary to be competitive. Increased competition could result in
price reductions, fewer customer orders, reduced margins and loss of market
share. Our failure to compete successfully against current or future competitors
could seriously harm our business.
INTELLECTUAL PROPERTY
Our success depends upon our ability to maintain the proprietary aspects of
our technology and operate without infringing the proprietary rights of others.
We rely on a combination of patent, trademark, copyright and trade secret laws
and contractual restrictions on disclosure to protect our intellectual property
rights. We do not have any issued U.S. or foreign patents, but we have applied
for three U.S. patents and have filed foreign patent applications based on our
U.S. patent applications. We own a number of trademarks, including Handspring,
the Handspring logo, Springboard and Visor.
It is possible that patents we have applied for, if issued, or our
potential future patents may be successfully challenged or that no patents will
be issued from our patent applications. It is also possible that we may not
develop proprietary products or technologies that are patentable, that any
patent issued to us may not provide us with any competitive advantages, or that
the patents of others will harm our ability to do business. Legal protections
afford only limited protection for our technology. Despite our efforts to
protect our proprietary rights, unauthorized parties may attempt to copy aspects
of our products or to obtain and use information that we regard as proprietary.
Litigation may be necessary in the future to enforce our intellectual property
rights, to protect our trade secrets, to determine the validity and scope of the
proprietary rights of others or to defend against claims of infringement or
invalidity. Any resulting litigation could result in substantial costs and
diversion of resources. Our means of protecting our proprietary rights may not
be adequate and our competitors may independently develop technology that is
similar to ours.
We license various technologies from third parties that have been
integrated into our products. We believe that licensing complementary
technologies improves our products in an efficient manner, allowing us to focus
on our core competencies. Our most significant license is of the Palm OS
operating system from Palm. We also license conduit software from Chapura, Inc.
that allows for synchronization with Microsoft Outlook and CDMA technology from
QUALCOMM. Our Palm OS operating system license requires the payment of royalties
and maintenance and support fees to Palm. The license is non-exclusive, and Palm
has previously licensed and could continue to license the Palm
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OS operating system to others, including our competitors. The license agreement
extends until September 2003 and may be renewed for successive one-year terms if
both parties agree.
It is possible that Palm will choose not to renew the license at the end of
its term for competitive or other reasons. Upon expiration or termination of the
Palm OS operating system license agreement, other than due to our breach, we may
choose to keep the license granted under this agreement for two years following
the expiration or termination. However, the license during this two-year period
is limited and does not entitle us to upgrades to the Palm OS operating system.
If we were not a licensee of the Palm OS operating system, we would be required
to license a substitute operating system, which could be less desirable and
could be costly in terms of cash and other resources. In the alternative, we
could develop our own operating system, which would take considerable time,
resources and expense, would divert our engineers' attention from product
innovations and would not have the advantage of Palm OS operating system
application compatability. In addition, we may not assign that license agreement
to a third party without the written consent of Palm unless it is to a purchaser
of substantially all of our assets who is not a competitor of Palm. The
existence of these license provisions may have an anti-takeover effect in that
it could discourage competitors of Palm from making a bid to acquire us.
EMPLOYEES
As of February 26, 2000, we had a total of 114 employees, of which 28 were
in research and development, 23 were in manufacturing services, 38 were in
marketing and sales and 25 were in general and administrative. We consider our
relationships with employees to be good. None of our employees is covered by
collective bargaining agreements. Competition for qualified personnel in our
industry and geographical location is intense, and we cannot assure you that we
will be successful in attracting, integrating, retaining and motivating a
sufficient number of qualified personnel to conduct our business in the future.
FACILITIES
Our headquarters are located in approximately 58,400 square feet of leased
office space in Mountain View, California. The lease term extends to August
2004. In addition, we currently lease office space in Singapore, Japan and the
United Kingdom. We believe our current office space is adequate for our current
operations and that additional office space, if required, can be readily
obtained.
LEGAL PROCEEDINGS
From time to time, we may be involved in litigation relating to claims
arising out of our operations. As of the date of this prospectus, we are not
subject to any material legal proceedings.
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MANAGEMENT
The following table shows information concerning our executive officers,
directors and other key employees. Ages are as of March 31, 2000.
NAME AGE POSITION
---- --- --------
Donna L. Dubinsky.............. 44 President and Chief Executive Officer and a Director
Jeffrey C. Hawkins............. 42 Chief Product Officer and a Director
Edward T. Colligan............. 39 Senior Vice President, Marketing and Sales
Bernard J. Whitney............. 43 Chief Financial Officer and Secretary
Michael Gallucci............... 43 Vice President, Worldwide Manufacturing
Celeste Baranski............... 42 Vice President, Engineering
William Holtzman............... 47 Vice President, International
John Hartnett.................. 37 Vice President, Service and Support
Patricia A. Tomlinson.......... 42 Vice President, Human Resources
L. John Doerr(1)(2)............ 48 Director
Bruce W. Dunlevie(1)(2)........ 43 Director
- -------------------------
(1) Member of audit committee
(2) Member of compensation committee
Ms. Dubinsky is a co-founder of Handspring. She has been the President and
Chief Executive Officer and a director since July 1998. She served as President
and Chief Executive Officer of Palm Computing, Inc. from June 1992 to July 1998.
From 1982 to 1991, she was with Claris Corporation, a subsidiary of Apple
Computer, Inc., and with Apple Computer, Inc., where she served in a number of
logistics, sales and marketing positions, most recently as Vice President
International of Claris from 1987 to January 1991. Ms. Dubinsky is also a
director of Intuit Inc. She holds a B.A. degree in history from Yale University
and an M.B.A. from the Harvard Graduate School of Business Administration.
Mr. Hawkins is a co-founder of Handspring. He has been the Chief Product
Officer and a director since July 1998. He was a founder of Palm and served as
its Product Architect and one of its directors from 1992 to June 1998. From 1982
to 1992, Mr. Hawkins was Vice President of Research at GRiD Systems Corporation,
a laptop computer company. He holds a B.S. degree in electrical engineering from
Cornell University.
Mr. Colligan is a co-founder of Handspring. He has served as Senior Vice
President, Marketing and Sales, of Handspring since October 1998. Before he
joined Handspring, he served as Vice President of Marketing of Palm Computing
from January 1993 to September 1998. From 1986 to 1993, Mr. Colligan was at
Radius Corporation, a provider of displays and graphics cards, most recently
serving as Vice President of Strategic and Product Marketing. He holds a B.A.
degree in political science from the University of Oregon.
Mr. Whitney has served as Chief Financial Officer and Secretary of
Handspring since June 1999. From August 1997 to June 1999, he served as
Executive Vice President and Chief Financial Officer of Sanmina, Inc., an
electronics manufacturing company. From June 1995 to August 1997, Mr. Whitney
served as Vice President of Finance for Network General Corporation, a network
fault tolerance and performance management solutions company. From 1987 to June
1995, Mr. Whitney held a variety of corporate finance positions at Conner
Peripherals, a storage device manufacturer. He holds a B.S. degree in finance
from California State University at Chico and an M.B.A. from San Jose State
University.
Mr. Gallucci has served as Vice President, Worldwide Manufacturing, for
Handspring since November 1998. From November 1996 to November 1998, he served
as Director, Worldwide
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Manufacturing and Logistics at Palm. From February 1992 to November 1996, Mr.
Gallucci served as Director of Materials at Bay Networks (now Nortel), a
computer networking company. He holds a B.S. degree in marketing and an M.B.A.
from Arizona State University.
Ms. Baranski has served as Vice President, Engineering, of Handspring since
September 1999. From January 1999 to August 1999, she served as a Product
Development Manager at Set Engineering, Inc., a product development consulting
company. She served as a Research and Development Manager for the Mobile
Computing Division at Hewlett Packard Company from March 1996 to November 1998.
Before that she served as Director of Product Development at Norand Corporation,
a supplier of handheld computers to vertical markets, from June 1994 to February
1996, and as Vice President of Engineering at EO, Inc., a start-up PDA company,
from 1990 to 1994. She holds B.S. and M.S. degrees in electrical engineering
from Stanford University.
Mr. Holtzman has served as Vice President, International, of Handspring
since November 1999. From January 1998 to August 1999, he served as Vice
President of Strategic Channels and International at Beyond.com, an e-commerce
company. From July 1997 to January 1998, he served as an independent consultant
for companies including Netscape, Palm and NetObjects. Mr. Holtzman served as
Vice President of Asia - Latin America at Macromedia, Inc., a multimedia
software company, from March 1995 to July 1997. He holds a B.S. in journalism
from Boston University.
Mr. Hartnett has served as Vice President, Distribution, Service and
Support, of Handspring since February 2000. From July 1999 to February 2000, he
served as Senior Vice President of Marketing, Support and Operations of
MetaCreations, a creative web software company. Mr. Hartnett also served as Vice
President of Worldwide Support and Operations for MetaCreations from December
1997 to July 1999 and Vice President of International Operations for
MetaCreations from July 1996 to December 1997. Prior to joining MetaCreations,
Mr. Hartnett was with Claris Corporation from 1992 to July 1996 where he most
recently held the position of Director of International Operations. He holds a
degree in marketing from the Marketing Institute of Ireland and a Post Graduate
degree in finance through the ACCA and the University of Limerick.
Ms. Tomlinson has served as Vice President, Human Resources, of Handspring
since January 2000. From April 1996 to November 1999, she was Vice President of
Human Resources at Edify Corporation, a self-service software company. From
March 1995 to April 1996, she was Vice President of Human Resources for the
Desktop Document Systems Division of Xerox Corporation. Ms. Tomlinson also
served as Director of Human Resources at Synopsys, Inc., an electronic design
automation software company, from June 1992 to March 1995. From July 1983 to
June 1992, she held human resources management positions with Apple Computer,
Inc. Ms. Tomlinson holds a B.A. degree in sociology from Pomona College.
Mr. Doerr has served as a director of Handspring since October 1998. He has
been a general partner of Kleiner Perkins Caufield & Byers since September 1980.
Before his tenure at Kleiner Perkins, Mr. Doerr was employed by Intel
Corporation for five years. He serves on the board of directors of Amazon.com,
Inc., At Home Corporation, Drugstore.com, Epicore, Healtheon/WebMD,
Homestore.com, Intuit Inc., Martha Stewart Living Omnimedia and Sun
Microsystems, Inc. Mr. Doerr holds B.S.E.E. and M.E.E. degrees from Rice
University and an M.B.A. from the Harvard Graduate School of Business
Administration.
Mr. Dunlevie has served as a director of Handspring since October 1998. Mr.
Dunlevie has been a Managing Member of Benchmark Capital, a venture capital
firm, since its founding in May 1995. From 1989 to 1995, Mr. Dunlevie was a
general partner at Merrill, Pickard, Anderson & Eyre, a venture capital firm.
Mr. Dunlevie has also served as Vice President and General Manager of the
Personal Computer Division of Everex Systems, Inc., a personal computer
manufacturer, and as an
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investment banker with Goldman, Sachs & Co. He is also a director of Wink
Communications and Rambus, Inc. as well as several privately held companies. Mr.
Dunlevie holds a B.A. degree from Rice University and an M.B.A. from the
Stanford School of Business.
COMPOSITION OF BOARD OF DIRECTORS
Our bylaws provide for a board of directors that consists of five members.
Our current directors were elected under a voting agreement between us and our
principal stockholders. The holders of our preferred stock are entitled to elect
two directors to our board. Mr. Doerr and Mr. Dunlevie serve on our board under
this right. The holders of our common stock, voting as a separate class, are
entitled to elect two directors. Ms. Dubinsky and Mr. Hawkins serve on the board
under this right. The fifth board member is to be elected by the holders of our
preferred stock and our common stock, voting together as a group. The fifth
board position is vacant. Upon the closing of this offering, the voting
agreement will terminate and no stockholders will have any special rights for
representation on our board. We anticipate, however, that the current directors
will continue to serve as board members after this offering.
Our certificate of incorporation and bylaws that will take effect upon
completion of this offering provide that our board of directors will consist of
directors divided into three classes that serve staggered three-year terms.
The class I director, initially Bruce W. Dunlevie, will stand for reelection at
the 2001 meeting of stockholders. The class II directors, initially Jeffrey C.
Hawkins and L. John Doerr will stand for reelection at the 2002 meeting of
stockholders. The class III director, initially Donna L. Dubinsky, will stand
for reelection at the 2003 meeting of stockholders. As a result, only one class
of directors will be elected each year, while the directors in the other classes
continue on the board for the remainder of their terms. This classification of
our board could make it more difficult for a third party to acquire, or could
discourage a third party from acquiring, control of Handspring.
COMMITTEES OF BOARD OF DIRECTORS
Our board of directors has a compensation committee and an audit committee.
Our compensation committee consists of Mr. Doerr and Mr. Dunlevie. The
compensation committee reviews and makes recommendations to our board of
directors concerning the salaries and incentive compensation of our officers and
employees. Although the board of directors currently administers the issuance of
stock options and other awards under our 1998 Equity Incentive Plan and 1999
Executive Equity Incentive Plan, the compensation committee will administer our
2000 Equity Incentive Plan and our 2000 Employee Stock Purchase Plan.
The members of the audit committee are Mr. Doerr and Mr. Dunlevie. There is
one vacancy on the audit committee, which we intend to fill before completion of
this offering. The audit committee reviews and monitors our financial statements
and accounting practices, makes recommendations to our board regarding the
selection of independent auditors and reviews the results and scope of the audit
and other services provided by our independent auditors.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
None of our executive officers serves as a member of the board of directors
or compensation committee of any entity that has one or more executive officers
serving as a member of our board of directors or compensation committee.
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DIRECTOR COMPENSATION
None of the board members receives a fee for attending board or committee
meetings. Each member of the board who is not our employee, or an employee of a
parent, subsidiary or affiliate of ours, will be eligible to participate in our
2000 Equity Incentive Plan, which will become effective immediately upon the
completion of this offering. Under this plan, the option grants to directors are
automatic and nondiscretionary. Each non-employee director who became a member
of our board of directors before the date of this offering will receive an
option to purchase 20,000 shares of our common stock. Each non-employee director
who becomes a member of our board of directors on or after the date of this
offering will be granted an option to purchase 20,000 shares of our common
stock. Immediately after each annual meeting of our stockholders, each
non-employee director will automatically be granted an additional option to
purchase 7,500 shares if the director has served continuously as a member of our
board since the date of the director's initial grant and for a period of at
least one year before the annual meeting.
Each option will have an exercise price equal to the fair market value of
our common stock on the date of grant. The options will have ten-year terms and
will terminate three months after the date the director ceases to be a director
or 12 months if the termination is due to death or disability. All options
granted to non-employee directors will vest over a four year period at a rate of
25% of the total shares granted on the first anniversary of the date of grant,
and ratably over the next 36 months, so long as the non-employee continuously
remains our director or consultant. In the event of our dissolution or
liquidation or a "change in control" transaction, options granted to our
non-employee directors under the plan will become 100% vested and exercisable in
full.
EXECUTIVE COMPENSATION
The following table shows the total compensation received for services
rendered to us during the fiscal year ended June 30, 1999 by our Chief Executive
Officer and each of our other most highly compensated executive officers whose
compensation in fiscal 1999 was more than $100,000.
SUMMARY COMPENSATION TABLE
LONG-TERM
COMPENSATION AWARDS
ANNUAL -------------------
COMPENSATION SHARES OF COMMON
----------------- STOCK UNDERLYING
NAME AND PRINCIPAL POSITION SALARY BONUS OPTIONS
--------------------------- -------- ----- -------------------
Donna L. Dubinsky................................ $111,442 $-- --
President and Chief Executive Officer
Jeffrey C. Hawkins............................... 111,442 -- --
Chief Product Officer
Edward T. Colligan............................... 109,712 -- 4,038,462
Senior Vice President, Marketing and Sales
For fiscal 2000, Donna L. Dubinsky, Jeffrey C. Hawkins, Edward Colligan,
Michael Gallucci and Celeste Baranski have an annual base salary of $150,000 and
Bernard J. Whitney has an annual base salary of $180,000.
OPTION GRANTS IN FISCAL 1999
The following table shows information about grants of stock options to
those executive officers listed in the Summary Compensation Table above for the
year ended June 30, 1999.
The potential realizable value is calculated based on the ten-year term of
the option and the market value at the time of grant. Stock price appreciation
of 5% and 10% is assumed under rules of
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the Securities and Exchange Commission and does not represent our prediction of
our stock price performance. The potential realizable values at 5% and 10%
appreciation are calculated by
- Multiplying the number of shares of common stock subject to the option by
the assumed initial public offering price of $ per share;
- Assuming that the total stock value derived from that calculation
compounds at the annual 5% or 10% rate shown in the table until the
expiration of the options; and
- Subtracting from that result the total option exercise price.
The option listed in the following table is immediately exercisable. The
option vested as to 25% of the total shares on October 8, 1999 and vests ratably
over the next 36 months. The option has a ten-year term, subject to earlier
termination if the option holder's service with us ceases.
POTENTIAL REALIZABLE
INDIVIDUAL GRANTS VALUE AT ASSUMED
------------------------------------------------------ ANNUAL RATES
NUMBER OF PERCENT OF OF STOCK PRICE
SHARES OF TOTAL OPTIONS APPRECIATION FOR
UNDERLYING GRANTED TO EXERCISE OPTION TERM
OPTIONS EMPLOYEES IN PRICE EXPIRATION --------------------
NAME GRANTED FISCAL 1999 PER SHARE DATE 5% 10%
---- ---------- ------------- --------- ---------- ------ ------
Donna L. Dubinsky....... -- --% $ -- -- $-- $--
Jeffrey C. Hawkins...... -- -- -- -- -- --
Edward T. Colligan...... 4,038,462 32.7 0.077 10/11/08
AGGREGATED OPTION EXERCISES IN FISCAL 1999 AND FISCAL YEAR-END OPTION VALUES
The table below shows information regarding shares acquired upon exercise
of options in fiscal 1999 and about options held as of June 30, 1999 by the
officers indicated below. There was no public trading market for our common
stock as of June 30, 1999. Accordingly, the values in the table have been
calculated on the basis of an assumed initial public offering price of $ per
share less the applicable exercise price.
NUMBER OF NUMBER OF SHARES VALUE OF UNEXERCISED
SHARES UNDERLYING UNEXERCISED IN-THE-MONEY OPTIONS
ACQUIRED OPTIONS AT JUNE 30, 1999 AT JUNE 30, 1999
ON VALUE ---------------------------- ----------------------------
NAME EXERCISE REALIZED EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- --------- ----------- ----------- ------------- ----------- -------------
Donna L. Dubinsky........ -- $-- -- -- $-- $--
Jeffrey C. Hawkins....... -- -- -- -- -- --
Edward T. Colligan....... 600,000 3,438,462 -- --
CHANGE OF CONTROL ARRANGEMENTS
In August 1998, we entered into founder's restricted stock purchase
agreements with Donna L. Dubinsky and Jeffrey C. Hawkins. Ms. Dubinsky purchased
14,700,000 shares of our common stock subject to our right to repurchase 80% of
the shares upon termination of her employment. Mr. Hawkins purchased 27,300,000
shares of our common stock subject to our right to repurchase 80% of the shares
upon termination of his employment. Under these agreements, our right of
repurchase lapsed as to 20% of the shares in July 1999 and lapses as to the
remainder in equal monthly installments until July 2002. If we are acquired by
or sell all or substantially all of our assets to another entity, the vesting on
the shares held by Ms. Dubinsky and Mr. Hawkins will accelerate so that our
right of repurchase will lapse on an additional 25% of the shares.
In October 1998, we issued an option to Edward T. Colligan, our Vice
President, Marketing and Sales, to purchase 4,038,462 shares of our common
stock. The option was immediately exercisable in
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full. The option vested as to 25% of the shares in October 1999. The remaining
shares vest in equal monthly installments until October 2002. Unvested shares
issued upon exercise of the option are subject to our right of repurchase upon
termination of Mr. Colligan's employment. Under the option agreement, if we are
acquired by or sell all or substantially all of our assets to another entity,
the vesting on the shares held by Mr. Colligan will accelerate so that our right
of repurchase will lapse on an additional 25% of the shares.
In June 1999, we issued an option to Bernard J. Whitney, our Chief
Financial Officer, to purchase 900,000 shares of our common stock. The option
becomes exercisable over three years. In August 1999, we issued an option to Mr.
Whitney to purchase 31,011 shares of our common stock. The option was
immediately exercisable in full. Both of these options vest as to 25% of the
shares on the first anniversary of the grant date. The remaining shares vest in
equal monthly installments over a period of three years. Unvested shares issued
upon exercise of the option are subject to our right of repurchase upon
termination of Mr. Whitney's employment. Under the option agreement, if we are
acquired by or sell all or substantially all of our assets to another entity,
the vesting on the shares held by Mr. Whitney will accelerate in full, so that
both options will be immediately exercisable in full and our right of repurchase
will lapse on all of the shares.
EMPLOYEE BENEFIT PLANS
1998 Equity Incentive Plan. As of January 1, 2000, options to purchase
9,529,038 shares of our common stock were outstanding under our 1998 Equity
Incentive Plan, 5,137,386 shares had been issued upon exercise of options and
2,872,038 shares of our common stock remained available for issuance upon the
exercise of options that may be granted in the future. The options outstanding
as of January 1, 2000 had a weighted average exercise price of $0.29 per share.
Our 2000 Equity Incentive Plan will be effective upon the effectiveness of this
offering. As a result, no options will be granted under our 1998 Equity
Incentive Plan after this offering. However, any outstanding options under our
1998 Equity Incentive Plan will remain outstanding and subject to our 1998
Equity Incentive Plan and stock option agreement until exercise or until they
terminate or expire by their terms. Options granted under our 1998 Equity
Incentive Plan are subject to terms substantially similar to those described
below with respect to options granted under our 2000 Equity Incentive Plan.
1999 Executive Equity Incentive Plan. As of January 1, 2000, options to
purchase 2,206,011 shares of our common stock were outstanding under our 1999
Executive Equity Incentive Plan, 225,000 shares had been issued upon exercise of
options and 568,989 shares of our common stock remained available for issuance
upon the exercise of options that may be granted in the future. The options
outstanding as of January 1, 2000 had a weighted average exercise price of $0.97
per share. Our 2000 Equity Incentive Plan will be effective upon the
effectiveness of this offering. As a result, no options will be granted under
our 1999 Executive Equity Incentive Plan after this offering. However, any
outstanding options under our 1999 Executive Equity Incentive Plan will remain
outstanding and subject to our 1999 Executive Equity Incentive Plan and stock
option agreement until exercise or until they terminate or expire by their
terms. Options granted under our 1999 Executive Equity Incentive Plan are
subject to terms substantially similar to those described below with respect to
options granted under our 2000 Equity Incentive Plan.
2000 EQUITY INCENTIVE PLAN
On March 28, 2000, our board of directors adopted the 2000 Equity Incentive
Plan subject to stockholder approval. The 2000 Equity Incentive Plan will become
effective on the date of this prospectus and will serve as the successor to our
1998 Equity Incentive Plan and 1999 Executive Equity Incentive Plan. The 2000
Equity Incentive Plan authorizes the award of options, restricted stock and
stock bonuses.
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The 2000 Equity Incentive Plan will be administered by the compensation
committee of our board of directors, which consists of Mr. Doerr and Mr.
Dunlevie, each of whom is an outside director as defined under applicable
federal tax laws. The compensation committee will have the authority to
interpret this plan and any agreement entered into under the plan, grant awards
and make all other determinations for the administration of the plan.
Our 2000 Equity Incentive Plan will provide for the grant of both incentive
stock options that qualify under Section 422 of the Internal Revenue Code and
nonqualified stock options. The incentive stock options may be granted only to
our employees or employees of any of our subsidiaries. The nonqualified stock
options, and all awards other than incentive stock options, may be granted to
our employees, officers, directors, consultants, independent contractors and
advisors and those of any of our subsidiaries. However, consultants, independent
contractors and advisors are only eligible to receive awards if they render bona
fide services not in connection with the offer and sale of securities in a
capital-raising transaction. The exercise price of incentive stock options must
be at least equal to the fair market value of our common stock on the date of
grant. The exercise price of incentive stock options granted to 10% stockholders
must be at least equal to 110% of the fair market value of our common stock on
the date of grant. The exercise price of nonqualified stock options must be at
least equal to 85% of the fair market value of our common stock on the date of
grant.
The maximum term of the options granted under our 2000 Equity Incentive
Plan is ten years. The awards granted under this plan may not be transferred in
any manner other than by will or by the laws of descent and distribution and may
be exercised during the lifetime of the option holder only by the option holder.
The compensation committee may allow exceptions to this restriction for awards
that are not incentive stock options. Options granted under our 2000 Equity
Incentive Plan generally expire three months after the termination of the option
holder's service to us or to a parent or subsidiary of ours, or 12 months if the
termination is due to death or disability. If an option holder is terminated for
cause, then options granted to that holder will expire immediately on the date
of termination. In the event of a liquidation, dissolution or "change in
control" transaction, except for options granted to non-employee directors, all
outstanding options may be assumed or substituted by the successor company. If,
within one year after a change in control, an option holder is terminated
without cause, then the vesting of that option holder's option will accelerate
so that an additional 25% of the option holder's shares become vested. The
vesting of options granted to non-employee directors will accelerate in full
upon a change in control transaction.
We have reserved shares of our common stock for issuance under
the 2000 Equity Incentive Plan. The number of shares reserved for issuance under
this plan will be increased to include:
- any shares of our common stock reserved under our 1998 Equity Incentive
Plan and 1999 Executive Equity Incentive Plan that are not issued or
subject to outstanding grants on the date of this prospectus;
- any shares of our common stock issued under our 1998 Equity Incentive
Plan and 1999 Executive Equity Incentive Plan that are repurchased by us
at the original purchase price; and
- any shares of our common stock issuable upon exercise of options granted
under our 1998 Equity Incentive Plan and 1999 Executive Equity Incentive
Plan that expire or become unexercisable without having been exercised in
full at any time after this offering.
In addition, under the terms of the 2000 Equity Incentive Plan, the number
of shares of our common stock reserved for issuance under the plan will increase
automatically on January 1 of each year by an amount equal to 5% of our total
outstanding shares of common stock as of the immediately preceding December 31.
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Shares available for grant and issuance under our 2000 Equity Incentive
Plan include:
- shares of our common stock issuable upon exercise of an option granted
under the plan that is terminated or cancelled before the option is
exercised;
- shares of our common stock issued upon exercise of any option granted
under this plan that we repurchase at the original purchase price;
- shares of our common stock subject to awards granted under this plan that
are forfeited or repurchased by us at the original issue price; and
- shares of our common stock subject to stock bonuses granted under this
plan that otherwise terminate without shares being issued.
During any calendar year, no person will be eligible to receive more than
shares, or shares in the case of a new employee, under the
2000 Equity Incentive Plan. The 2000 Equity Incentive Plan will terminate in
March 2010, unless it is terminated earlier by our board of directors.
2000 EMPLOYEE STOCK PURCHASE PLAN
On March 28, 2000, our board of directors adopted the 2000 Employee Stock
Purchase Plan subject to stockholder approval. The 2000 Employee Stock Purchase
Plan will become effective on the first day on which price quotations are
available for our common stock on The Nasdaq National Market. The employee stock
purchase plan is designed to enable eligible employees to purchase shares of our
common stock at a discount on a periodic basis through payroll deductions.
Our compensation committee will administer the 2000 Employee Stock Purchase
Plan. Our employees generally will be eligible to participate in this plan if
they are employed by us, or a subsidiary of ours that we designate, for more
than 20 hours per week and more than five months in a calendar year. Our
employees are not eligible to participate in our 2000 Employee Stock Purchase
Plan if they are 5% stockholders or would become 5% stockholders as a result of
their participation in the plan. Under the 2000 Employee Stock Purchase Plan,
eligible employees may acquire shares of our common stock through payroll
deductions. Our eligible employees may select a rate of payroll deduction
between 1% and % of their cash compensation. An employee's participation in
this plan will end automatically upon termination of employment for any reason.
No participant will be able to purchase shares having a fair market value
of more than $25,000, determined as of the first day of the applicable offering
period, for each calendar year in which the employee participates in the 2000
Employee Stock Purchase Plan. Except for the first offering period, each
offering period will be for two years and will consist of four six-month
purchase periods. The first offering period is expected to begin on the first
business day on which price quotations for our common stock are available on The
Nasdaq National Market. The first purchase period may be more or less than six
months long. After that, the offering periods will begin on and .
The purchase price for shares of our common stock purchased under the 2000
Employee Stock Purchase Plan will be 85% of the lesser of the fair market value
of our common stock on the first day of the applicable offering period or the
last day of each purchase period. Our compensation committee will have the power
to change the starting date of any later offering period, the purchase date of a
purchase period and the duration of any offering period or purchase period
without stockholder approval if this change is announced before the relevant
offering period or purchase period. Our 2000 Employee Stock Purchase Plan is
intended to qualify as an "employee stock purchase plan" under Section 423 of
the Internal Revenue Code.
We have initially reserved shares of our common stock for
issuance under the 2000 Employee Stock Purchase Plan. The number of shares
reserved for issuance under the plan will
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increase automatically on January 1 of each year by an amount equal to 1% of our
total outstanding shares as of the immediately preceding December 31. Our board
of directors or compensation committee may reduce the amount of the increase in
any particular year. The 2000 Employee Stock Purchase Plan will terminate in
March 2010, unless it is terminated earlier by our board of directors.
401(K) PLAN
We sponsor a defined contribution plan intended to qualify under Section
401 of the Internal Revenue Code, or a 401(k) plan. Employees are generally
eligible to participate and may enter the plan on the first day of the plan year
in which the employee met the eligibility requirements. Participants may make
pre-tax contributions to the plan of up to their maximum percentage allowable of
their eligible compensation, not to exceed the limits allowable under the
Internal Revenue Code. Each participant is fully vested in his or her
contributions and the investment earnings. The plan does not provide for any
matching contributions by us. Contributions by the participants to the plan, and
the income earned on these contributions, are generally not taxable to the
participants until withdrawn. Participant contributions are held in trust as
required by law. Individual participants may direct the trustee to invest their
accounts in authorized investment alternatives.
INDEMNIFICATION OF DIRECTORS AND EXECUTIVE OFFICERS AND LIMITATION ON LIABILITY
Our certificate of incorporation provides that our directors shall not be
liable to us or our stockholders for monetary damages for any breach of
fiduciary duty, except to the extent otherwise required by the Delaware General
Corporation Law. This provision will not prevent our stockholders from obtaining
injunctive or other relief against our directors nor does it shield our
directors from liability under federal or state securities laws.
Our bylaws require us to indemnify our directors and officers to the
fullest extent permitted by the Delaware General Corporation Law, subject to
certain very limited exceptions where indemnification is not permitted by
applicable law. Our bylaws also require us to advance expenses, as incurred, to
our directors and executive officers in connection with any legal proceeding to
the fullest extent permitted by the Delaware General Corporation Law. These
rights are not exclusive.
In addition to the indemnification provisions contained in our bylaws,
before the completion of this offering, we intend to enter into indemnity
agreements with each of our current directors and executive officers. These
agreements will provide for the indemnification of our executive officers and
directors for all expenses and liabilities incurred in connection with any
action or proceeding brought against them by reason of the fact that they are or
were agents of Handspring. We also intend to obtain directors' and officers'
insurance to cover our directors, executive officers and some of our employees
for specific liabilities, including public securities matters. We believe that
these indemnification provisions and agreements and this insurance are necessary
to attract and retain qualified directors and officers.
The limitation of liability and indemnification provisions in our
certificate of incorporation and bylaws may discourage stockholders from
bringing a lawsuit against our directors for breach of their fiduciary duty.
They may also reduce the likelihood of derivative litigation against directors
and officers, even though an action, if successful, might benefit us and other
stockholders. Furthermore, your investment may be adversely affected to the
extent we pay the costs of settlement and damage awards against directors and
officers as required by these indemnification provisions. At present, there is
no pending litigation or proceeding involving any of our directors, officers or
employees regarding which indemnification by Handspring is sought, nor are we
aware of any threatened litigation that may result in claims for
indemnification.
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RELATED PARTY TRANSACTIONS
Other than the transactions described in "Management" and the transactions
described below, since our inception there has not been nor is there currently
proposed any transaction or series of similar transactions to which we were or
will be a party in which the amount involved exceeded or will exceed $60,000 and
in which any director, executive officer, holder of more than five percent (5%)
of our common stock or any member of his or her immediate family had or will
have a direct or indirect material interest.
TRANSACTIONS WITH PROMOTERS
In August 1998, we sold 27,300,000 shares of common stock to Jeffrey C.
Hawkins and 14,700,000 shares of common stock to Donna L. Dubinsky at a price
per share of $0.00167 under restricted stock purchase agreements. On the same
day that they purchased their shares, Mr. Hawkins and Ms. Dubinsky transferred
their shares to trusts of which they are trustees. At the time of issuance, 80%
of the shares held by Mr. Hawkins and Ms. Dubinsky were unvested and subject to
our right of repurchase upon termination of their employment. On July 13, 1999,
this right of repurchase expired as to 20% of the shares, and continues to
expire as to an additional 1.667% of the shares each following month so long as
we continue to employ Mr. Hawkins and Ms. Dubinsky, as applicable. If we are
acquired by, or sell all or substantially all of our assets to, another entity,
then our right of repurchase with respect to the shares held by Mr. Hawkins and
Ms. Dubinsky will expire as to an additional 25% of the shares. On or before
July 13, 2002, the right of repurchase will expire in full.
Jeffrey C. Hawkins loaned us $300,000 under a three-month unsecured
promissory note dated October 1, 1998 bearing interest at a rate of 5.6%
annually. We repaid this loan in full, with interest, on October 26, 1998.
ISSUANCE OF SERIES A PREFERRED STOCK
In October 1998, we sold a total of 8,076,924 shares of Series A preferred
stock at a price per share of $2.23 to the following investors:
- entities affiliated with Kleiner Perkins Caufield & Byers VIII, L.P.,
which purchased a total of 4,038,462 shares of Series A preferred stock,
which is convertible into 12,115,386 shares of common stock, for a total
purchase price of $9.0 million. These entities hold more than 5% of our
capital stock and L. John Doerr, one of our directors, is a general
partner of KPCB VIII Associates, L.P., which is a general partner of
Kleiner Perkins Caufield & Byers VIII, L.P.; and
- Benchmark Capital Partners II, L.P., which purchased a total of 4,038,462
shares of Series A preferred stock, which is convertible into 12,115,386
shares of common stock, for a total purchase price of $9.0 million as
nominee for several affiliated entities. These entities hold more than 5%
of our capital stock and Bruce W. Dunlevie, one of our directors, is a
managing member of Benchmark Capital Management Co. II, L.L.C., which is
a general partner of Benchmark Capital Partners II, L.P.
ISSUANCE OF SERIES B PREFERRED STOCK
In July 1999, we sold a total of 928,506 shares of Series B preferred stock
at a price per share of $10.77 to the following investors:
- QUALCOMM Incorporated, which purchased a total of 649,954 shares of
Series B preferred stock, which is convertible into 1,949,862 shares of
common stock, for a total purchase price of $7.0 million. QUALCOMM
licenses CDMA technology to us;
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- entities affiliated with Kleiner Perkins Caufield & Byers VIII, L.P.,
which purchased a total of 139,276 shares of Series B preferred stock,
which is convertible into 417,828 shares of common stock, for a total
purchase price of $1.5 million; and
- Benchmark Capital Partners II, L.P., which purchased a total of 139,276
shares of Series B preferred stock, which is convertible into 417,828
shares of common stock, for a total purchase price of $1.5 million as
nominee for several affiliated entities.
INVESTORS RIGHTS AGREEMENT
In connection with our issuances of Series A preferred stock and Series B
preferred stock, we have entered into an investors rights agreement granting the
holders of the preferred stock registration rights with respect to the common
stock issuable upon conversion of their preferred stock. Their registration
rights are described in more detail under "Description of Capital
Stock -- Registration Rights."
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PRINCIPAL STOCKHOLDERS
The following table sets forth information regarding the beneficial
ownership of our common stock as of January 1, 2000, and as adjusted to reflect
the sale of the shares in this offering for:
- each person known by us to own beneficially more than 5% of our of common
stock;
- each of our directors;
- each executive officer listed in the Summary Compensation Table above;
and
- all directors and executive officers as a group.
The percentage of beneficial ownership for the following table is based on
75,050,571 shares of common stock outstanding on January 1, 2000, assuming the
conversion of all outstanding shares of preferred stock into common stock, and
shares of common stock outstanding after the completion of this
offering, assuming the exercise of an outstanding right to purchase 596,895
shares of common stock immediately prior to the closing of this offering and no
exercise of the underwriters' over-allotment option.
Unless otherwise indicated below, to our knowledge, all persons and
entities listed below have sole voting and investment power over their shares of
common stock, except to the extent that individuals share authority with spouses
under applicable law. Unless otherwise indicated, each entity or person listed
below maintains a mailing address of c/o Handspring, Inc., 189 Bernardo Avenue,
Mountain View, California 94043.
The number of shares beneficially owned by each stockholder is determined
in accordance with the rules of the Securities and Exchange Commission and does
not necessarily indicate beneficial ownership for any other purpose. Under these
rules, beneficial ownership includes those shares of common stock over which the
stockholder exercises sole or shared voting or investment power. It also
includes shares of common stock that the stockholder has a right to acquire
within 60 days after January 1, 2000 through the exercise of any option. The
percentage ownership of the outstanding common stock, however, is based on the
assumption, expressly required by the rules of the Securities and Exchange
Commission, that only the person or entity whose ownership is being reported has
converted options into shares of common stock.
NUMBER OF PERCENT BENEFICIALLY OWNED
SHARES BENEFICIALLY ---------------------------------
NAME OF BENEFICIAL OWNER OWNED BEFORE OFFERING AFTER OFFERING
------------------------ ------------------- --------------- --------------
Jeffrey C. Hawkins(1)..................... 27,288,000 36.4%
Donna L. Dubinsky(2)...................... 14,688,000 19.6%
L. John Doerr(3).......................... 12,533,214 16.7%
Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, California 94205
Bruce W. Dunlevie(4)...................... 12,533,214 16.7%
Benchmark Capital Partners II, L.P.
2480 Sand Hill Road
Menlo Park, California 94205
Edward T. Colligan(5)..................... 4,038,462 5.1%
Executive officers and directors as a
group (8 persons)(6).................... 73,517,670 91.8%
- -------------------------
(1) Represents 27,123,000 shares held of record by Mr. Hawkins and his spouse as
trustees under the Strauss-Hawkins Trust Agreement dated April 17, 1991 of
which 14,104,530 shares are
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subject to a lapsing repurchase right. Also includes 45,000 shares held of
record by The Robert Paul Hawkins 1997 Charitable Remainder Unitrust, 60,000
shares held of record by The Robert Douglas Hawkins 1997 Charitable
Remainder Unitrust and 60,000 shares held of record by The James Alan
Hawkins 1997 Charitable Remainder Unitrust. Mr. Hawkins is the trustee of
each of these charitable trusts.
(2) Represents shares held of record by Ms. Dubinsky as trustee under the
Amended and Restated Dubinsky Trust Agreement dated May 23, 1995.
(3) Represents 11,550,612 shares held by Kleiner Perkins Caufield & Byers VIII,
L.P., 669,273 shares held by KPCB VIII Founders Fund, L.P. and 313,329
shares held by KPCB Information Sciences Zaibatsu Fund II, L.P. Mr. Doerr is
a general partner of KPCB VIII Associates, L.P., which is a general partner
of Kleiner Perkins Caulfield & Byers VIII, L.P.
(4) Represents 12,533,214 shares held by Benchmark Capital Partners II, L.P. as
nominee for Benchmark Capital Partners II, L.P., Benchmark Founders' Fund
II, L.P., Benchmark Founders' Fund II-A, L.P. and Benchmark Members' Fund
II, L.P. Mr. Dunlevie is a Managing Member of Benchmark Capital Management
Co. II, LLC, the general partner of Benchmark Capital Partners II, L.P.,
Benchmark Founders' Fund II, L.P., Benchmark Founders' Fund II-A, L.P. and
Benchmark Members' Fund II, L.P. Mr. Dunlevie disclaims beneficial ownership
of these shares, except to the extent of his pecuniary interest in the
Benchmark funds.
(5) Represents 600,000 shares held by Mr. Colligan and his spouse and 3,438,462
shares subject to fully exercisable options held by Mr. Colligan.
(6) Includes 825,000 shares held by our executive officers who were not
individually listed in this table, of which 660,939 shares are subject to a
lapsing repurchase right, and 5,050,242 shares subject to exercisable
options held by Mr. Colligan and the other executive officers who were not
individually listed in this table.
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DESCRIPTION OF CAPITAL STOCK
Immediately after the closing of this offering, our authorized capital
stock will consist of shares of common stock, par value $0.001
per share, and shares of preferred stock, par value $0.001 per
share. As of January 1, 2000, assuming the conversion of all outstanding shares
of preferred stock into common stock and the exercise of an outstanding right to
purchase 596,895 shares of common stock upon the closing of this offering, there
were outstanding 75,050,571 shares of common stock, held of record by
approximately 66 stockholders. We also had outstanding options to purchase
11,735,049 shares of common stock.
COMMON STOCK
Each holder of common stock is entitled to one vote for each share on all
matters to be voted upon by the stockholders. There are no cumulative voting
rights. Subject to preferences to which holders of preferred stock issued after
the sale of the common stock in this offering may be entitled, holders of common
stock will be entitled to receive ratably any dividends that may be declared
from time to time by the board of directors out of funds legally available for
that purpose. In the event of our liquidation, dissolution or winding up,
holders of common stock will be entitled to share in our assets remaining after
the payment of liabilities and the satisfaction of any liquidation preference
granted to the holders of any shares of preferred stock that may be outstanding.
Holders of common stock have no preemptive or conversion rights or other
subscription rights. There are no redemption or sinking fund provisions that
apply to the common stock. All shares of common stock outstanding are, and the
shares of common stock offered in this offering, when they are issued and paid
for will be, fully paid and nonassessable. The rights, preferences and
privileges of the holders of common stock are subject to, and may be adversely
affected by, the rights of the holders of shares of any series of preferred
stock that we may designate in the future.
PREFERRED STOCK
Upon the closing of this offering, the board of directors will be
authorized, subject to any limitations imposed by law, without stockholder
approval, from time to time to issue up to a total of shares of
preferred stock, par value $0.001 per share, in one or more series, each series
to have rights and preferences, including voting rights, dividend rights,
conversion rights, redemption privileges and liquidation preferences, as the
board of directors may determine. The issuance of preferred stock, while
providing desirable flexibility in connection with possible acquisitions and
other corporate purposes, could have the effect of making it more difficult for
a third party to acquire, or of discouraging a third party from attempting to
acquire, a majority of our voting stock outstanding. We have no present plans to
issue any shares of preferred stock.
REGISTRATION RIGHTS
We entered into an Investors' Rights Agreement with our preferred
stockholders that grants rights for registration under the Securities Act to the
holders of 27,016,290 shares of our common stock upon the completion of this
offering.
At any time after six months after the effective date of this offering, the
holders of a majority of the shares that have registration rights can request
that we register all or a portion of their shares as long as the total offering
price of the shares to the public in that offering is at least $20.0 million. We
are required to file up to two registration statements under this right. The
holders of shares that have registration rights can request that we register
their shares if we are eligible to file a registration statement on Form S-3 and
if the total price of the shares offered to the public is at least $2.0 million.
We could be required to file one Form S-3 registration statement in any period
of 12 months.
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55
In addition, the stockholders with registration rights have the right to
include their shares in any registration statement that we file, except for
registration statements that cover an employee benefit plan or a corporate
reorganization. These stockholders have waived their rights with respect to this
offering. If marketing reasons dictate, the managing underwriter of any
underwritten offering will have the right to limit the number of shares
registered for these holders in the registration to 25% of the total shares
covered by the registration statement.
We will pay all expenses incurred in connection with these registration
statements, except for underwriters' and brokers' discounts and commissions,
which the selling stockholders will pay. The registration rights expire for any
particular stockholder if the stockholder can sell all of its shares in one
period of three months under Rule 144 under the Securities Act. The registration
rights expire for all stockholders five years after completion of this offering.
ANTI-TAKEOVER EFFECTS OF OUR CERTIFICATE OF INCORPORATION AND BYLAWS AND
DELAWARE LAW
Provisions of our restated certificate of incorporation and bylaws that
will be in effect after this offering may have the effect of making it more
difficult for a third party to acquire, or of discouraging a third party from
attempting to acquire, control of us. These provisions could limit the price
that investors might be willing to pay in the future for shares of our common
stock. These provisions:
- divide our board of directors into three classes serving staggered
three-year terms;
- eliminate the right of stockholders to act by written consent without a
meeting;
- eliminate the right of stockholders to call special meetings of
stockholders;
- eliminate cumulative voting in the election of directors;
- allow us to issue preferred stock without any vote or further action by
the stockholders; and
- require approval of at least two-thirds of the outstanding shares of
common stock to remove a director.
The classification system of electing directors may tend to discourage a
third party from making a tender offer or otherwise attempting to obtain control
of us and may maintain the incumbency of our board of directors, as the
classification of the board of directors increases the difficulty of replacing a
majority of the directors. These provisions may have the effect of deferring
hostile takeovers, delaying changes in our control or management, or may make it
more difficult for stockholders to take certain corporate actions. The amendment
of any of these provisions would require approval by holders of at least
two-thirds of the outstanding common stock.
In addition, we are subject to Section 203 of the Delaware General
Corporation Law, which, subject to some exceptions, prohibits a Delaware
corporation from engaging in any business combination with any interested
stockholder unless specified conditions are met.
TRANSFER AGENT AND REGISTRAR
The transfer agent and registrar for our common stock is .
LISTING
We have applied to list our common stock on The Nasdaq Stock Market's
National Market under the trading symbol " ."
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SHARES ELIGIBLE FOR FUTURE SALE
The sale of a substantial amount of our common stock, including shares
issued upon exercise of outstanding options, in the public market after this
offering could cause a decline in the prevailing market price of our common
stock. Furthermore, because no shares will be available for sale shortly after
this offering due to the contractual restrictions on resale described in the
section entitled "Underwriting" and the legal restrictions on resale described
below, the sale of a substantial amount of common stock in the public market
after these restrictions lapse could adversely affect the prevailing market
price of our common stock and our ability to raise equity capital in the future.
Upon completion of this offering, we will have shares of
common stock outstanding, based on shares of common stock outstanding as of
January 1, 2000, assuming the exercise of an outstanding right to purchase
596,895 shares of common stock and no exercise of the underwriters'
over-allotment option. Of these shares, all of the shares of our
common stock sold in this offering will be freely tradable without restriction
or further registration under the Securities Act, unless the shares are
purchased by "affiliates" as that term is defined in Rule 144 under the
Securities Act. Any shares purchased by an affiliate may not be resold except
under an effective registration statement or an exemption from registration,
including an exemption under Rule 144 of the Securities Act. The remaining
75,050,571 shares of common stock held by existing stockholders are "restricted
securities" as that term is defined in Rule 144 under the Securities Act. These
restricted securities may be sold in the public market only if they are
registered or if they qualify for an exemption from registration under Rule 144
or Rule 701 under the Securities Act. These rules are summarized below. All of
the remaining shares of common stock that constitute restricted securities held
by existing stockholders are subject to contractual restrictions on resale as
described more fully in the section entitled "Underwriting."
Upon the expiration of the contractual restrictions on resale described in
the section entitled "Underwriting" and subject to various vesting agreements
and the provisions of Rule 144 and Rule 701, 75,050,571 restricted shares of
common stock will be available for sale in the public market beginning 180 days
after the date of this prospectus. The sale of these restricted securities is
subject, in the case of shares held by affiliates, to the volume restrictions
contained in Rule 144.
RULE 144
In general, under Rule 144 as currently in effect, beginning 90 days after
the date of this prospectus, a person who has beneficially owned shares of our
common stock for at least one year from the later of the date those shares of
common stock were acquired from us or from an affiliate of ours would be
entitled to sell within any three-month period a number of shares that does not
exceed the greater of:
(1) one percent of the number of shares of common stock then
outstanding, which will equal approximately shares
immediately after this offering; or
(2) the average weekly trading volume of the common stock on the
Nasdaq National Market during the four calendar weeks preceding the filing
of a notice on Form 144 with respect to the sale of any shares of common
stock.
Sales of shares under Rule 144 are also subject to manner of sale
provisions and notice requirements and to the availability of current public
information about us. Affiliates may sell shares not constituting restricted
securities in accordance with the volume limitations and other restrictions, but
without regard to the one-year holding period.
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57
RULE 144(K)
In addition, under Rule 144(k), a person who is not one of our affiliates
at any time during the three months before a sale, and who has beneficially
owned the shares proposed to be sold for at least two years from the later of
the date the shares were acquired from us or from an affiliate of ours,
including the holding period of any previous owner other than an affiliate, is
entitled to sell those shares without complying with the manner of sale, public
information, volume limitation or notice provisions of Rule 144.
RULE 701
In general, under Rule 701 under the Securities Act as currently in effect,
each of our employees, consultants or advisors who purchased shares from us in
connection with a compensatory stock plan or other written agreement is eligible
to resell those shares 90 days after the effective date of this offering in
reliance on Rule 144, but without compliance with some of the restrictions,
including the holding period, contained in Rule 144.
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UNDERWRITING
Under the terms and subject to the conditions contained in the underwriting
agreement dated , 2000, we have agreed to sell to the
underwriters named below, for whom Credit Suisse First Boston Corporation,
Merrill Lynch, Pierce, Fenner & Smith Incorporated, Donaldson, Lufkin & Jenrette
Securities Corporation and U.S. Bancorp Piper Jaffray Inc. are acting as
representatives, the following respective numbers of shares of common stock:
Number of
Underwriter Shares
----------- ----------
Credit Suisse First Boston Corporation......................
Merrill Lynch, Pierce, Fenner & Smith Incorporated..........
Donaldson, Lufkin & Jenrette Securities Corporation.........
U.S. Bancorp Piper Jaffray Inc. ............................
-------
Total.............................................
=======
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering, if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares from us at the initial public
offering price less the underwriting discounts and commissions. The option may
be exercised only to cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share
on sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
Per Share Total
------------------------------- -------------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
Underwriting discounts and
commissions paid by
us...................... $ $ $ $
Expenses payable by us.... $ $ $ $
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We, our officers and directors and our stockholders have agreed that we
will not offer, sell, contract to sell, announce our intention to sell, pledge
or otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act relating
to any additional shares of our common stock or securities convertible into or
exchangeable or exercisable for any shares of our common stock without the prior
written consent of Credit Suisse First
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Boston Corporation for a period of 180 days after the date of this prospectus,
except in the case of issuances pursuant to the exercise of employee stock
options outstanding on the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of common stock for employees, directors and
other persons associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the other
shares.
We have applied to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol " ."
Prior to this offering, there has been no public market for the common
stock. The initial public offering price will be determined by negotiation
between us and the underwriters. The principal factors to be considered in
determining the public offing price include:
- the information set forth in this prospectus and otherwise available to
the underwriters;
- the history and the prospects for the industry in which we will compete;
- the ability of our management;
- the prospects for our future earnings;
- the present state of our development and our current financial condition;
- the general condition of the securities markets at the time of this
offering; and
- the recent market prices of, and the demand for, publicly traded common
stock of generally comparable companies.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions and penalty bids in accordance with Regulation M
under the Exchange Act.
- Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
- Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
- Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
- Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
A prospectus in electronic format may be made available on the web sites
maintained by one or more of the underwriters participating in this offering.
The representatives may agree to allocate a number of shares to underwriters for
sale to their online brokerage account holders. Internet distributions will be
allocated by the underwriters that will make Internet distributions on the same
basis as other allocations. Other than the prospectus in electronic format, the
information contained on any underwriter's web site and any information
contained on any other web site maintained by an underwriter is not part of this
prospectus or the registration statement of which this prospectus forms a part,
has not been approved or endorsed by us or any underwriter in its capacity as an
underwriter and should not be relied upon by investors.
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NOTICE TO CANADIAN RESIDENTS
RESALE RESTRICTIONS
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common stock
in Canada must be made in accordance with applicable securities laws which will
vary depending on the relevant jurisdiction, and which may require resales to be
made in accordance with available statutory exemptions or pursuant to a
discretionary exemption granted by the applicable Canadian securities regulatory
authority. Purchasers are advised to seek legal advice prior to any resale of
the common stock.
REPRESENTATIONS OF PURCHASERS
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom the
purchase confirmation is received that (i) the purchaser is entitled under
applicable provincial securities laws to purchase the common stock without the
benefit of a prospectus qualified under the securities laws, (ii) where required
by law, that the purchaser is purchasing as principal and not as agent, and
(iii) the purchaser has reviewed the text above under "Resale Restrictions."
RIGHTS OF ACTION (ONTARIO PURCHASERS)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
ENFORCEMENT OF LEGAL RIGHTS
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada and, as a result, it may not be possible
for Canadian purchasers to effect service of process within Canada upon the
issuer or these persons. All or a substantial portion of the assets of the
issuer and these persons may be located outside of Canada and, as a result, it
may not be possible to satisfy a judgment against the issuer or these persons in
Canada or to enforce a judgment obtained in Canadian courts against the issuer
or these persons outside of Canada.
NOTICE TO BRITISH COLUMBIA RESIDENTS
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that the purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by the purchaser in this offering. This report must be in
the form attached to British Columbia Securities Commission Blanket Order BOR
#95-17, a copy of which may be obtained from us. Only one report must be filed
in respect of common stock acquired on the same date and under the same
prospectus exemption.
TAXATION AND ELIGIBILITY FOR INVESTMENT
Canadian purchasers of common stock should consult their own legal and tax
advisors with respect to the tax consequences of an investment in the common
stock in their particular circumstances and with respect to the eligibility of
the common stock for investment by the purchaser under relevant Canadian
legislation.
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LEGAL MATTERS
Fenwick & West LLP, Palo Alto, California, will pass upon the validity of
the common stock that we are selling in this offering. Davis Polk & Wardwell,
Menlo Park, California, is representing the underwriters.
EXPERTS
The financial statements as of June 30, 1999 and for the period from July
29, 1998 (date of inception) to June 30, 1999 have been so included in reliance
on the report of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
WHERE YOU MAY FIND MORE INFORMATION
We have filed with the Securities and Exchange Commission a Registration
Statement on Form S-1, including exhibits and schedule, under the Securities Act
with respect to the common stock to be sold in this offering. This prospectus,
which constitutes a part of the Registration Statement, does not contain all of
the information that is in the Registration Statement or the exhibits and
schedule. Any statements made in this prospectus as to the contents of any
contract, agreement or other document are not necessarily complete. With respect
to each contract, agreement or other document filed as an exhibit to the
Registration Statement, we refer you to the exhibit for a more complete
description of the matter involved, and each statement in this prospectus is
qualified in its entirety by this reference. You may read and copy all or any
portion of the Registration Statement or any reports, statements or other
information in the files at the following public reference facilities of the
Securities and Exchange Commission:
Washington, D.C. New York, New York Chicago, Illinois
Room 1024, Judiciary Plaza Seven World Trade Center 500 West Madison Street
450 Fifth Street, N.W. Suite 1300 Suite 1400
Washington, D.C., 20549 New York, New York 10048 Chicago, Illinois 60661
You can request copies of these documents upon payment of a duplicating fee
by writing to the Commission. You may call the Commission at 1-800-SEC-0330 for
further information on the operation of its public reference rooms. Our filings,
including the Registration Statement, will also be available to you on the Web
site maintained by the Commission at www.sec.gov.
We intend to furnish our stockholders with annual reports containing
financial statements audited by our independent auditors, and make available to
our stockholders quarterly reports for the first three quarters of each year
containing unaudited interim financial statements.
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HANDSPRING, INC.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
PAGE
----
Report of Independent Accountants........................... F-2
Consolidated Balance Sheets................................. F-3
Consolidated Statements of Operations....................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)
and Comprehensive Loss.................................... F-5
Consolidated Statements of Cash Flows....................... F-6
Notes to Consolidated Financial Statements.................. F-7
F-1
63
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Handspring, Inc.
The reincorporation described in Note 1 to the financial statements has not
been consummated at March 27, 2000. When it has been consummated, we will be in
a position to furnish the following report:
"In our opinion, the accompanying balance sheet and the related statement
of operations, of stockholders' equity (deficit) and comprehensive loss and of
cash flows present fairly, in all material respects, the financial position of
Handspring, Inc. at June 30, 1999 and the results of its operations and its cash
flows for the period from July 29, 1998 (date of inception) to June 30, 1999 in
conformity with accounting principles generally accepted in the United States.
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 audit. We conducted our audit of these statements in accordance with
auditing standards generally accepted in the United States 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 audit provides a reasonable basis
for the opinion expressed above."
/s/ PricewaterhouseCoopers LLP
San Jose, California
March 27, 2000
F-2
64
HANDSPRING, INC.
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
PRO FORMA
JUNE 30, 1999 JANUARY 1, 2000 JANUARY 1, 2000
------------- --------------- ---------------
(UNAUDITED)
ASSETS
Current assets:
Cash and cash equivalents.......................... $ 7,533 $ 18,799 $ 20,299
Short-term investments............................. 6,234 2,983 2,983
Accounts receivable, net........................... -- 2,485 2,485
Prepaid expenses and other current assets.......... 48 479 479
------- -------- --------
Total current assets............................ 13,815 24,746 26,246
Property and equipment, net.......................... 1,034 4,080 4,080
Other assets......................................... 214 744 744
------- -------- --------
Total assets.................................... $15,063 $ 29,570 $ 31,070
======= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY (DEFICIT)
Current liabilities:
Accounts payable................................... $ 1,222 $ 12,209 $ 12,209
Accrued liabilities................................ 67 2,399 2,399
------- -------- --------
Total current liabilities....................... 1,289 14,608 14,608
Long-term liabilities................................ -- 96 96
Redeemable convertible preferred stock, $0.001 par
value, 9,300,000 shares authorized, 8,076,924 and
9,005,430 (unaudited) shares issued and outstanding
at June 30, 1999 and January 1, 2000, respectively;
no shares authorized, issued or outstanding pro
forma; (aggregate liquidation preference of $17,972
and $27,962 (unaudited) at June 30, 1999 and
January 1, 2000, respectively; pro forma, nil)..... 17,972 27,962 --
Commitments and contingencies (Note 7)
Stockholders' equity (deficit):
Common Stock, no par value, 105,000,000 shares
authorized; 46,183,386 and 47,437,386
(unaudited) shares issued and outstanding at
June 30, 1999 and January 1, 2000 respectively;
75,050,571 pro forma shares issued and
outstanding..................................... 519 1,150 30,612
Additional paid in capital......................... 13,391 48,999 48,999
Deferred stock compensation........................ (9,745) (34,401) (34,401)
Accumulated other comprehensive loss............... (6) -- --
Accumulated deficit................................ (8,357) (28,844) (28,844)
------- -------- --------
Total stockholders' equity (deficit)............ (4,198) (13,096) 16,366
------- -------- --------
Total liabilities and stockholders' equity
(deficit)..................................... $15,063 $ 29,570 $ 31,070
======= ======== ========
See accompanying notes to consolidated financial statements.
F-3
65
HANDSPRING, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
PERIOD FROM PERIOD FROM
JULY 29, 1998 JULY 29, 1998 SIX MONTHS
(DATE OF INCEPTION) (DATE OF INCEPTION) TO ENDED
TO JUNE 30, 1999 DECEMBER 31, 1998 JANUARY 1, 2000
------------------- ---------------------- ---------------
(UNAUDITED)
Revenue................................ $ -- $ -- $ 15,790
------- ------- --------
Costs and operating expenses:
Cost of revenue...................... -- -- 10,822
Research and development............. 2,738 367 4,618
Selling, general and
administrative.................... 2,451 452 10,376
Amortization of deferred stock
compensation(*)................... 3,646 1,590 10,952
------- ------- --------
Total costs and operating
expenses........................ 8,835 2,409 36,768
------- ------- --------
Loss from operations................... (8,835) (2,409) (20,978)
Interest and other income, net......... 478 142 491
------- ------- --------
Net loss............................... $(8,357) $(2,267) $(20,487)
======= ======= ========
Basic and diluted net loss per share... $ (1.06) $ (0.32) $ (1.10)
======= ======= ========
Shares used in calculating basic and
diluted net loss per share........... 7,848 7,189 18,609
======= ======= ========
Pro forma basic and diluted net loss
per share (Note 2)................... $ (0.32) $ (0.44)
======= ========
Shares used in calculating pro forma
basic and diluted net loss per share
(Note 2)............................. 25,984 46,132
======= ========
(*)Amortization of deferred stock
compensation:
Cost of revenue...................... $ 526 $ 123 $ 1,238
Research and development............. 1,217 615 3,013
Selling, general and
administrative.................... 1,903 852 6,701
------- ------- --------
$ 3,646 $ 1,590 $ 10,952
======= ======= ========
See accompanying notes to consolidated financial statements.
F-4
66
HANDSPRING, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT) AND
COMPREHENSIVE LOSS
PERIOD FROM JULY 29, 1998 (DATE OF INCEPTION) TO JUNE 30, 1999 AND FOR THE SIX
MONTHS ENDED JANUARY 1, 2000
(IN THOUSANDS, EXCEPT PER SHARE DATA)
ACCUMULATED
COMMON STOCK ADDITIONAL DEFERRED OTHER
--------------- PAID-IN STOCK COMPREHENSIVE ACCUMULATED
SHARES AMOUNT CAPITAL COMPENSATION LOSS DEFICIT TOTAL
------ ------ ---------- ------------ ------------- ----------- --------
Issuance of common stock................... 42,000 $ 70 $ -- $ -- $ -- $ -- $ 70
Issuance of common stock on exercise of
stock options............................ 4,183 449 -- -- -- -- 449
Deferred stock compensation................ -- -- 13,391 (13,391) -- -- --
Amortization of deferred stock
compensation............................. -- -- -- 3,646 -- -- 3,646
Unrealized loss on short-term
investments.............................. -- -- -- -- (6) -- (6)
Net loss................................... -- -- -- -- -- (8,357) (8,357)
------ ------ ------- -------- ---- -------- --------
Balances, June 30, 1999.................... 46,183 519 13,391 (9,745) (6) (8,357) (4,198)
Issuance of common stock for services...... 75 30 -- -- -- -- 30
Issuance of common stock on exercise of
stock options............................ 1,179 601 -- -- -- -- 601
Deferred stock compensation................ -- -- 35,608 (35,608) -- -- --
Amortization of deferred stock
compensation............................. -- -- -- 10,952 -- -- 10,952
Change in unrealized loss on short-term
investments.............................. -- -- -- -- 6 -- 6
Net loss................................... -- -- -- -- -- (20,487) (20,487)
------ ------ ------- -------- ---- -------- --------
Balances, January 1, 2000 (unaudited)...... 47,437 $1,150 $48,999 $(34,401) $ -- $(28,844) $(13,096)
====== ====== ======= ======== ==== ======== ========
See accompanying notes to consolidated financial statements.
F-5
67
HANDSPRING, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
PERIOD FROM PERIOD FROM
JULY 29, 1998 JULY 29, 1998 SIX MONTHS
(DATE OF INCEPTION) (DATE OF INCEPTION) TO ENDED
TO JUNE 30, 1999 DECEMBER 31, 1998 JANUARY 1, 2000
------------------- ---------------------- ---------------
(UNAUDITED)
Cash flows from operating activities:
Net loss................................... $ (8,357) $(2,267) $(20,487)
Adjustment to reconcile net loss to net
cash provided by (used in) operating
activities:
Depreciation and amortization............ 70 15 626
Amortization of deferred stock
compensation.......................... 3,646 1,590 10,952
Amortization of premium or discount on
short-term investments................ (108) (15) (83)
Stock compensation to non-employees...... -- -- 30
Changes in assets and liabilities:
Accounts receivable................... -- -- (2,485)
Prepaid expenses and other current
assets.............................. (48) (8) (431)
Other assets.......................... (214) (204) (530)
Accounts payable...................... 898 188 10,987
Accrued liabilities................... 67 22 2,332
-------- ------- --------
Net cash provided by (used in)
operating activities.............. (4,046) (679) 911
-------- ------- --------
Cash flows from investing activities:
Purchases of short-term investments........ (10,965) (3,932) (1,968)
Proceeds from maturities or sales of
short-term investments................... 4,833 -- 5,308
Purchases of property and equipment........ (780) (247) (3,576)
-------- ------- --------
Net cash used in investing
activities........................ (6,912) (4,179) (236)
-------- ------- --------
Cash flows from financing activities:
Issuance of Series A redeemable convertible
preferred stock, net..................... 17,972 17,972 --
Issuance of Series B redeemable convertible
preferred stock, net..................... -- -- 9,990
Proceeds from issuance of common stock..... 519 70 601
-------- ------- --------
Net cash provided by financing
activities........................ 18,491 18,042 10,591
-------- ------- --------
Net increase in cash and cash equivalents.... 7,533 13,184 11,266
Cash and cash equivalents:
Beginning of period........................ -- -- 7,533
-------- ------- --------
End of period.............................. $ 7,533 $13,184 $ 18,799
======== ======= ========
Supplemental cash flow disclosures:
Accounts payable incurred upon acquisition
of property and equipment................ $ 324 $ $
-------- ------- --------
Purchase of property and equipment under
financing agreement...................... $ -- $ -- $ 96
-------- ------- --------
Unrealized loss on short-term
investments.............................. $ (6) $ 1 $ 6
-------- ------- --------
See accompanying notes to consolidated financial statements.
F-6
68
HANDSPRING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. DESCRIPTION OF BUSINESS AND BASIS OF PRESENTATION
Description of business -- Handspring, Inc. (the "Company") was
incorporated in California on July 29, 1998 under the name of JD Technology,
Inc. to develop innovative handheld computer devices and related accessories. In
November 1998, the Company changed its name to Handspring, Inc. During fiscal
year 2000 the Company completed its development of its first handheld computer
device, which was named "the Visor." Shipments of the Visor began in October
1999 via the world wide web.
Principles of consolidation and basis of presentation -- The consolidated
financial statements of Handspring, Inc. include the accounts of its
wholly-owned subsidiary, Handspring Singapore Pte Ltd, which was incorporated in
Singapore on November 30, 1999. All significant intercompany balances and
transactions have been eliminated.
Reincorporation -- In March 2000, the Company's Board of Directors
authorized the reincorporation of the Company in the State of Delaware. As a
result of the reincorporation, the Company is authorized to issue 1,000,000,000
shares of $0.001 par value common stock. The accompanying financial statements
reflect the reincorporation.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Fiscal year -- During fiscal 1999 our fiscal months coincided with calendar
month ends. Effective July 1, 1999, we changed our fiscal year to a 52-53 week
fiscal year ending on the Saturday nearest to June 30. Unless otherwise stated,
all years and dates refer to our fiscal year and fiscal periods.
Interim financial information -- The consolidated financial statements for
the period from inception to December 31, 1998 and for the six months ended
January 1, 2000 are unaudited and should be read in conjunction with the
Company's financial statements for the period from July 29, 1998 (inception) to
June 30, 1999. Such interim financial statements have been prepared in
conformity with the rules and regulations of the Securities and Exchange
Commission. Certain disclosures normally included in the financial statements
prepared in accordance with accounting principles generally accepted in the
United Statement have been condensed or omitted pursuant to such rules and
regulations pertaining to interim financial statements. In the opinion of
management, all adjustments (consisting of normal recurring adjustments)
necessary for the fair presentation have been included. The results of
operations of any interim period are not necessarily indicative of the results
of operations for the full year.
Cash and cash equivalents -- The Company considers all highly liquid debt
or equity instruments purchased with an original maturity at the date of
purchase of 90 days or less to be cash equivalents.
Fair value of financial instruments -- Amounts reported for cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities are
considered to approximate fair value primarily due to their short maturities.
Short-term investments -- Short-term investments consist primarily of
highly liquid debt securities and commercial paper purchased with an original
maturity at the date of purchase of greater than 90 days. Short-term investments
are classified as available-for-sale securities and are stated at market value
with any temporary difference between an investment's amortized cost and its
market value recorded as a separate component of stockholders' equity (deficit)
until such gains or losses are realized. Gains or losses on the sales of
securities are determined on a specific identification basis.
F-7
69
HANDSPRING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Concentration of credit risk -- Financial instruments that potentially
subject the Company to concentrations of credit risk consist of cash and cash
equivalents and short-term investments. Risks associated with cash are mitigated
by banking and creditworthy institutions.
The objective of the Company's investment policy is the preservation of
capital, the maximization of pre-tax return, and the maintenance of liquidity
until funds are needed for use in business operations. Funds are diversified to
minimize risk and the inappropriate concentrations of investments. Under policy
guidelines, the following are considered eligible investments: obligations of
the U.S. government agencies, certain financial institutions and corporations,
as well as investment in money market funds. All investments are limited to
those highly rated by outside organizations.
Property and equipment -- Property and equipment are stated at historical
cost less accumulated depreciation and amortization. Depreciation and
amortization is computed using the straight-line method over the estimated
useful lives of the assets, which is generally five years for leasehold
improvements, three years for computers and office equipment, furniture and
fixtures and software, and one year for tooling.
Foreign currency translation -- The majority of the Company's operations is
denominated in U.S. dollars. For foreign operations with the local currency as
the functional currency, assets and liabilities are translated at year-end
exchange rates, and statements of operations are translated at the average
exchange rates during the year. Gains or losses resulting from foreign currency
translation are included as a component of other comprehensive loss.
Income taxes -- The Company accounts for income taxes in accordance with
Financial Accounting Standards Board ("FASB") Statement of Financial Accounting
Standards ("SFAS") No. 109, Accounting for Income Taxes. This statement
prescribes the use of the liability method whereby deferred tax assets and
liabilities are determined based on the differences between financial reporting
and tax bases of assets and liabilities and measured at tax rates that will be
in effect when the differences are expected to reverse. Valuation allowances are
established when necessary to reduce deferred tax assets where it is more likely
than not that the deferred tax asset will not be realized.
Stock-based compensation -- The Company accounts for stock compensation
arrangements in accordance with provisions of Accounting Principles Board
Opinion ("APB") No. 25, Accounting for Stock Issued to Employees, and complies
with the disclosure provisions of SFAS No. 123, Accounting for Stock-Based
Compensation. Under APB No. 25, unearned stock compensation is based on the
difference, if any, on the date of the grant, between the fair value of the
Company's common stock and the exercise price. Unearned stock compensation is
amortized and expensed in accordance with FASB Interpretation No. 28.
Segment reporting -- The Financial Accounting Standards Board issued SFAS
No. 131, Disclosures About Segments of an Enterprise and Related Information,
which establishes annual and interim reporting standards for an enterprise's
business segments and related disclosures about its products, services,
geographic areas and major customers. The Company has determined that it
operates in a single reportable segment.
Comprehensive loss -- The Financial Accounting Standards Board issued SFAS
No. 130, Reporting Comprehensive Income, which requires an enterprise to report
by major components and as a single total, the change in its net assets during
the period from non-shareholder sources. Statements of comprehensive loss for
the period from July 29, 1998 (inception) to June 30, 1999 and for the six
months ended January 1, 2000 have been included within the statements of
stockholders' equity (deficit).
F-8
70
HANDSPRING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net loss per share -- Basic net loss per share is computed by dividing net
loss applicable to common stockholders by the weighted average number of common
shares outstanding for the period (excluding shares subject to repurchase).
Diluted net loss per common share was the same as basic net loss per common
share for all periods presented since the effect of any potentially dilutive
securities is excluded as they are anti-dilutive because of the Company's net
losses.
Unaudited pro forma information -- As discussed in Note 6 to the
consolidated financial statements, there is an outstanding right to purchase
198,965 shares of Series A redeemable convertible preferred stock at $7.539 per
share. In addition, upon the closing of the initial public offering, each of the
outstanding shares of redeemable convertible preferred stock will convert into
three shares of common stock. The pro forma balance sheet presents the Company's
balance sheet as if both of these events had occurred at January 1, 2000.
Pro forma net loss per share -- Pro forma basic and diluted net loss per
share is computed by dividing net loss applicable to common stockholders by the
weighted average number of common shares outstanding for the period (excluding
shares subject to repurchase) and the weighted average number of common shares
resulting from the assumed conversion of outstanding shares of redeemable
convertible preferred stock, including those redeemable convertible preferred
shares assumed to have been purchased under the outstanding right as discussed
in the previous paragraph.
Revenue recognition -- The Company recognizes revenue from product sales,
net of any discounts, when the products are shipped to customers.
Advertising costs -- The cost of advertising is expensed as incurred. For
the period from July 29, 1998 (inception) to June 30, 1999 and for the six
months ended January 1, 2000 advertising costs totaled $114,000 and $742,000
(unaudited), respectively.
Software development costs -- Costs for the development of new software and
substantial enhancements to existing software are expensed as incurred until
technological feasibility has been established, at which time any additional
development costs would be capitalized in accordance with SFAS No. 86, Computer
Software to be Sold, Leased, or Otherwise Marketed. The Company believes its
current process for developing software is essentially completed concurrently
with the establishment of technological feasibility; accordingly, no costs have
been capitalized to date.
Recently issued accounting pronouncements -- In June 1998, the FASB issued
SFAS No. 133, Accounting for Derivatives and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards for derivative investments,
including certain derivative instruments embedded in other contracts, and for
hedging activities. In July 1999, the FASB issued SFAS No. 137, Accounting for
Derivative and Hedging Activities -- Deferral of the Effective Date of FASB
Statement No. 133. SFAS No. 137 deferred the effective date of SFAS No. 133
until fiscal years beginning after June 15, 2000. The Company will adopt SFAS
No. 133 during fiscal 2001. To date, the Company has not engaged in derivative
or hedging activities.
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 the reported amounts of revenues and expenses
during the reporting periods. Actual results could differ from those estimates.
F-9
71
HANDSPRING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
3. SHORT-TERM INVESTMENTS
The fair value and the amortized cost of investments at June 30, 1999 and
January 1, 2000 are presented below. Fair values are based on quoted market
prices obtained from the Company's brokers. All of the Company's investments are
classified as available-for-sale, since the Company intends to sell them as
needed for operations. The following table presents the unrealized holding gains
and losses related to each category of investment securities:
UNREALIZED
AMORTIZED MARKET UNREALIZED HOLDING
COST VALUE HOLDING GAINS LOSSES
--------- ------ ------------- ----------
(IN THOUSANDS)
JUNE 30, 1999
Corporate obligations..................... $5,248 $5,245 $-- $(3)
Government obligations.................... 992 989 -- (3)
------ ------ -- ---
$6,240 $6,234 $-- $(6)
====== ====== == ===
JANUARY 1, 2000 (UNAUDITED)
Corporate obligations..................... $2,483 $2,484 $1 $--
Government obligations.................... 500 499 -- (1)
------ ------ -- ---
$2,983 $2,983 $1 $(1)
====== ====== == ===
The Company realized no gains or losses on the sale of securities during
the period from July 29, 1998 (inception) to June 30, 1999. There were no sales
of available-for-sale investments during the six months ended January 1, 2000
(unaudited).
4. PROPERTY AND EQUIPMENT
Property and equipment consists of the following:
(UNAUDITED)
JUNE 30, 1999 JANUARY 1, 2000
------------- ---------------
(IN THOUSANDS)
Tooling..................................... $ 633 $1,726
Computer and office equipment............... 304 1,291
Furniture and fixtures...................... 89 1,014
Software.................................... 78 284
Leasehold improvements...................... -- 432
------ ------
Total property and equipment.............. 1,104 4,747
Less: Accumulated depreciation and
amortization.............................. (70) (667)
------ ------
Property and equipment, net............... $1,034 $4,080
====== ======
F-10
72
HANDSPRING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
5. ACCRUED LIABILITIES
Accrued liabilities consist of the following:
(UNAUDITED)
JUNE 30, 1999 JANUARY 1, 2000
------------- ---------------
(IN THOUSANDS)
Accrued royalty expense..................... $-- $ 854
Accrued product warranty.................... -- 812
Accrued sales and use tax................... -- 324
Deferred rent............................... 21 281
Accrued compensation and related benefits... 31 110
Other....................................... 15 18
--- ------
$67 $2,399
=== ======
6. SUBORDINATED DEBT AND EQUIPMENT LEASE FACILITY
In June 1999, the Company obtained a subordinated debt facility of
$6,000,000, which is available until June 2000. Borrowings bear interest at
10.0% per annum, and are collateralized by the Company's assets and subordinated
to senior indebtedness. Without lender's consent the Company may not incur any
other indebtedness in excess of $1,000,000. The lender, at its sole discretion,
has the right to purchase 198,965 shares of Series A redeemable convertible
preferred stock at $7.539 per share. The Company has reserved 198,965 shares of
Series A redeemable convertible preferred stock in the event this purchase
option is exercised. Only monthly interest is payable until the earlier of the
completion of an initial public offering of the Company's stock or 18 months
from the date of any advance under the loan followed by 18 monthly payments of
principal and interest. There were no outstanding borrowings at June 30, 1999 or
January 1, 2000 (unaudited). The subordinated debt facility prohibits
declaration or payment of any cash dividend without the prior consent of the
lender.
In connection with the above agreement, the Company also obtained an
equipment and software lease facility of $1,000,000, which is available until
September 2000. Equipment leases up to $600,000 under this facility have a 42
month term. Leases for software, tooling, tenant improvements and other costs up
to $400,000 under this facility have a 36 month term. All borrowings under this
agreement bear interest at 7.5% per annum. There were no outstanding borrowings
at June 30, 1999 and $96,000 (unaudited) outstanding as of January 1, 2000.
7. COMMITMENTS AND CONTINGENCIES
The Company leases its facilities under operating leases which expire
through August 2004. Under the terms of the leases, the Company is responsible
for its share of common area and operating expenses. Collateral for lease
payments consists of a payment bond certificate of $150,000, expiring July 7,
2002 and a $400,000 standby letter of credit established on August 3, 1999 and
required until the expiration of the lease in August 2004. Both of these amounts
are included in other assets at June 30, 1999 and January 1, 2000 (unaudited).
F-11
73
HANDSPRING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
As of January 1, 2000, the future minimum lease commitments under all
leases were as follows (unaudited):
CAPITAL OPERATING
PERIODS ENDING JUNE 30, LEASES LEASES
----------------------- ------- ---------
(IN THOUSANDS)
2000 (six months)...................................... $ 16 $ 739
2001................................................... 31 1,535
2002................................................... 31 1,601
2003................................................... 31 1,661
2004................................................... -- 1,719
2005................................................... -- 288
---- ------
Total minimum lease payments........................... 109 $7,543
======
Less: Amounts representing interest.................... (13)
----
Present value of minimum lease payments................ $ 96
====
Rent expense under operating leases, net of sublease income, for the period
from July 29, 1998 (inception) to June 30, 1999 and for the six months ended
January 1, 2000 was approximately $283,000 and $640,000 (unaudited)
respectively.
The Company has entered into a purchase agreement with a manufacturer in
Malaysia. The contract provides for the manufacturer to supply certain levels of
handheld computer products according to rolling forecasts and purchase orders
provided by Handspring, Inc. The Company guarantees a minimum production
commitment based on this rolling forecast. The handheld computer products are to
be purchased by a third-party subcontractor. Handspring, Inc. has guaranteed
prompt payment of all invoices and charges in the event of default related to
said charges by the third-party subcontractor.
8. REDEEMABLE CONVERTIBLE PREFERRED STOCK
At January 1, 2000, the amounts, terms and liquidation values of Series A
and Series B redeemable convertible preferred stock are as follows (unaudited):
SHARES OF COMMON AGGREGATE
SHARES ISSUED AND AMOUNT, NET OF STOCK RESERVED LIQUIDATION
SERIES DESIGNATED OUTSTANDING ISSUANCE COSTS FOR CONVERSION PREFERENCE
------ ---------- ----------------- -------------- ---------------- -----------
(IN THOUSANDS)
A..................... 8,300 8,077 $17,972 24,231 $17,972
B..................... 1,000 928 9,990 2,785 9,990
----- ----- ------- ------ -------
9,300 9,005 $27,962 27,016 $27,962
===== ===== ======= ====== =======
At June 30, 1999 only shares of Series A redeemable convertible preferred
stock were outstanding.
Significant terms of the outstanding redeemable convertible preferred stock
are as follows:
- Each share of redeemable convertible preferred stock is convertible into
shares of common stock on a three-to-one basis, subject to certain
adjustments. Such shares will be converted automatically immediately
prior to the closing of a firm commitment underwritten public
F-12
74
HANDSPRING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
offering of at least $20 million and at least $3.59 per share, or upon
the written consent of a majority of the shares of preferred stock
outstanding at the time of such vote. The shareholders have certain
registration rights, and the right to participate in future issuances of
the Company's securities.
- Each share of redeemable convertible preferred stock has voting rights
equivalent to the number of shares of common stock into which it is
convertible. So long as at least 2,000,000 shares of Series A redeemable
convertible preferred stock are outstanding, the holders of the preferred
stock, voting together as a separate class, are entitled to elect two
directors of the Company. The holders of common stock, voting together as
a separate class, are also entitled to elect two directors of the
Company. Remaining directors are elected jointly by all shareholders. So
long as any shares of redeemable convertible preferred stock are
outstanding, the Company shall not, without the approval of a majority of
the then outstanding redeemable convertible preferred stock, (i) amend
its articles of incorporation or bylaws in any manner that would change
or affect the rights, preferences, privileges or restrictions of the
redeemable convertible preferred stock, (ii) authorize any other equity
security having rights or preferences senior to or on a parity with the
redeemable convertible preferred stock as to dividend rights, liquidation
preferences, redemption or voting, (iii) effect any merger or other
transaction that would result in a change in the majority voting control
of the Company, (iv) sell all or substantially all of the assets in a
single transaction or series of transactions, liquidate or dissolve or
(v) declare or pay any dividends, other than dividends payable solely in
shares of the Company's own common stock. So long as any shares of a
particular series of redeemable convertible preferred stock remain
outstanding, the Company shall not, without the approval of a majority of
the then outstanding shares of the particular series of redeemable
convertible preferred stock, authorize additional shares of such series
of redeemable convertible preferred stock.
- Stockholders are entitled to receive noncumulative dividends at the per
annum rate of $0.0892 per share for Series A redeemable convertible
preferred stock and $0.4308 per share for Series B redeemable convertible
preferred stock, when and if declared by the Board of Directors. If after
dividends have been fully paid or declared and set apart for the
redeemable convertible preferred stock, the Company declares additional
dividends in the same year, then the holders of redeemable convertible
preferred stock will also be entitled to participate in the additional
dividends on common stock based on the number of shares of common stock
held on an as-if converted basis. No dividends have been declared as of
June 30, 1999 or January 1, 2000 (unaudited).
- In the event of liquidation, dissolution or winding up of the Company,
stockholders of Series A and Series B redeemable convertible preferred
stock are entitled to receive the original issue price ($2.23 per share
and $10.77 per share, respectively), plus any declared and unpaid
dividends with respect to such shares. If the assets and funds to be
distributed are insufficient to permit full payment preferential amount,
then the funds shall be distributed on an equal priority, pro rata basis
to the redeemable convertible preferred stockholders. Upon completion of
the distribution to the redeemable convertible preferred stockholders,
the holders of the common stock will receive all remaining assets of the
corporation. A reorganization, consolidation or merger of the Company
with another company or a sale of all or substantially all of the assets
of the Company is deemed to be a liquidation, dissolution or winding up
of the Company.
F-13
75
HANDSPRING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
9. COMMON STOCK
Common stock issued to the founders is subject to repurchase agreements
whereby the Company has the option to repurchase unvested shares upon
termination of employment at the original issue price. These shares vest 20% at
the date of the agreements, an additional 20% on July 13, 1999, 1.667% per month
thereafter and an additional 25% in the event of an acquisition or merger of the
Company. There were 33.6 million and 21.7 million (unaudited) shares of the
founders' common stock subject to repurchase by the Company at June 30, 1999 and
January 1, 2000, respectively. The Company has the right of first refusal should
any common shareholder decide to sell shares. In addition, if the Company does
not exercise its first refusal right with respect to common stock proposed to be
sold by the founders, the preferred shareholders have the right to participate
in the sale of stock by the founders, the preferred shareholders have the right
to participate in the sale of stock by the founders.
During fiscal 2000, the Company issued 75,000 (unaudited) shares of common
stock for services. The per share price of these shares was equal to the fair
value of the common stock, as determined by the Board of Directors, on the date
the board of Directors approved the stock issuances.
Common Stock Reserved for Issuance
The Company has 105,000,000 shares of Common Stock authorized, of which
46,183,386 and 47,437,386 (unaudited) were issued and outstanding as of June 30,
1999 and January 1, 2000, respectively. Common stock reserved for future
issuances is as follows:
(UNAUDITED)
JUNE 30, 1999 JANUARY 1, 2000
------------- ---------------
(IN THOUSANDS)
Issuance under stock options................ 10,355 15,176
Conversion of convertible preferred stock... 24,231 27,016
Exercise of right to purchase mandatory
redeemable convertible preferred stock.... 597 597
------ ------
Total shares reserved..................... 35,183 42,789
====== ======
Stock Option Plan
Under the 1998 Equity Incentive Plan (the "Plan"), the Company may grant
options to purchase up to 17,538,462 shares of common stock to employees,
officers, directors and consultants. Options granted under the Plan may be
either incentive stock options or nonqualified stock options. Incentive stock
options ("ISO") may be granted only to Company employees (including officers and
directors who are also employees). Nonqualified stock options ("NSO") may be
granted to Company employees, officers, directors, and consultants. Options
under the Plan may be granted at prices no less than 85% of the estimated fair
value of the shares at the date of grant, provided, however, that (i) the
exercise price of an ISO shall not be less than 100% of the fair value of the
shares on the date of grant, and (ii) the exercise price of any option granted
to a 10% shareholder shall not be less than 110% of the fair value of the shares
on the date of grant, respectively. Options generally vest 25% one year from the
vest start date and ratably over the next 36 months and expire 10 years (five
years in certain instances) from the date of grant. Shares issued upon exercise
of options that are unvested are subject to repurchase by the Company. There
were 4,183,386 and 3,286,611
F-14
76
HANDSPRING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(unaudited) shares issued under the 1998 Equity Incentive Plan outstanding at
June 30, 1999 and January 1, 2000 that were subject to repurchase, respectively.
The 1999 Executive Equity Incentive Plan was adopted by the Company during
August 1999. A total of 3,000,000 shares of common stock has been reserved for
issuance under the 1999 Executive Equity Incentive Plan. The terms of options
issued under the 1999 Executive Equity Incentive Plan are generally the same as
those that may be issued under the 1998 Equity Incentive Plan. There were
225,000 shares issued under the 1999 Executive Equity Incentive Plan that were
subject to repurchase at January 1, 2000.
Option activity under the 1998 Equity Incentive Plan and 1999 Executive
Equity Incentive Plan is as follows:
OPTIONS OUTSTANDING
----------------------------
OPTIONS WEIGHTED
AVAILABLE AVERAGE
FOR GRANT SHARES EXERCISE PRICE
----------- ---------- --------------
Authorized............................ 14,538,462 --
Options granted....................... (12,363,924) 12,363,924 $0.12
Options exercised..................... -- (4,183,386) 0.11
----------- ----------
Balance at June 30, 1999................ 2,174,538 8,180,538 0.13
Authorized............................ 6,000,000 --
Options granted....................... (4,733,511) 4,733,511 0.94
Options exercised..................... -- (1,179,000) 0.51
----------- ----------
Balance at January 1, 2000
(unaudited)........................... 3,441,027 11,735,049 $0.42
=========== ==========
The following table summarizes information concerning options outstanding
and exercisable at January 1, 2000 (unaudited):
OPTIONS OUTSTANDING
--------------------------------------------
WEIGHTED OPTIONS EXERCISABLE
AVERAGE ----------------------------
RANGE OF REMAINING WEIGHTED WEIGHTED
EXERCISE NUMBER CONTRACTUAL AVERAGE NUMBER AVERAGE
PRICES OUTSTANDING LIFE (YEARS) EXERCISE PRICE EXERCISABLE EXERCISE PRICE
-------- ----------- ------------- -------------- ----------- --------------
$0.08............... 5,603,538 8.79 $0.08 5,603,538 $0.08
$0.17 - $0.25............... 1,639,500 9.37 0.22 1,639,500 0.22
$0.33 - $0.67............... 1,859,511 9.66 0.61 1,859,511 0.61
$1.00 - $1.33............... 2,632,500 9.91 1.14 2,188,500 1.10
---------- ----------
$0.08 - $1.33............... 11,735,049 9.26 $0.42 11,291,049 $0.38
========== ==========
DEFERRED STOCK COMPENSATION
During the period ended June 30, 1999 and six months ended January 1, 2000
the Company issued stock options under the 1998 Equity Incentive Equity Plan and
the 1999 Executive Equity Incentive Plan at exercise prices deemed by the Board
of Directors at the date of grant to be the fair value. In anticipation of the
Company's initial public offering, the Company has subsequently determined that,
for financial statement purposes, the estimated value of its common stock was in
excess of the exercise prices. Accordingly, the Company has recorded deferred
compensation for the difference between the purchase price of the stock issued
to employees under stock options and the
F-15
77
HANDSPRING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
fair 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 options become exercisable, generally
four years. At June 30, 1999 and January 1, 2000, the Company had recorded
deferred stock compensation related to these options of $13,391,00 and
$35,608,000 (unaudited), respectively, of which $3,646,000 and $10,952,000
(unaudited) has been amortized to expense during the period ended June 30, 1999
and six months ended January 1, 2000, respectively. Future compensation expense
from options granted through January 1, 2000 (unaudited) is estimated to be
$10,794,000, $13,614,000, $7,120,000 and $4,138,000 for the fiscal years ended
2000, 2001, 2002 and 2003, respectively.
As discussed in Note 2, the Company accounts for its stock-based
compensation using the method prescribed by APB No. 25, Accounting for Stock
Issued to Employees. Had the Company determined its stock-based compensation
cost based on the fair value at the grant dates for the awards under a method
prescribed by SFAS No. 123, the Company's net loss would have been increased to
the pro forma amounts indicated below (in thousands, except per share data):
PERIOD FROM
JULY 29, 1998 SIX MONTHS
(DATE OF INCEPTION) ENDED
TO JUNE 30, 1999 JANUARY 1, 2000
------------------- ---------------
(UNAUDITED)
Net loss:
As reported................................... $(8,357) $(20,487)
Pro forma..................................... (8,394) (24,427)
Basic and diluted net loss per share:
As reported................................... $ (1.06) $ (1.10)
Pro forma..................................... (1.07) (1.31)
The Company calculated the fair value of each option grant on the date of
grant using the Black-Scholes option pricing model using the following
assumptions: weighted average expected option term of four years; risk free
interest rates of 4.18% to 6.19%; expected dividend yield of zero percent, and a
volatility of 70% for the periods above. The weighted average fair value of
options granted during the period from July 29, 1998 (inception) to June 30,
1999 and the six months ended January 1, 2000 was $3.66 and $23.38,
respectively.
10. INCOME TAXES
At January 1, 2000, the Company had net operating loss carryforwards of
approximately $11,200,000 available to reduce future federal and state taxable
income. The carryforwards expire beginning in 2019 for federal and 2007 for
state tax purposes unless utilized.
For federal and state tax purposes, the Company's net operating loss
carryforwards may be subject to an annual utilization limitation in case of a
change in stock ownership, as defined by federal and state tax law.
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HANDSPRING, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Temporary differences which gave rise to significant portions of deferred
tax assets are as follows:
(UNAUDITED)
JUNE 30, 1999 JANUARY 1, 2000
------------- ---------------
(IN THOUSANDS)
Net operating losses........................ $ 1,036 $ 4,445
Capitalized costs........................... 890 326
Tax credit carryforwards.................... 151 506
Other....................................... (50) 831
------- -------
2,027 6,108
Valuation allowance......................... (2,027) (6,108)
------- -------
Net deferred tax asset...................... $ -- $ --
======= =======
A valuation allowance is provided when it is more likely than not that some
portion of the deferred tax asset will not be realized. The Company has
established a 100% valuation allowance to the extent of its deferred tax assets
as no immediate benefit is expected to be received due to the uncertainty of
realizing future tax benefits from its net operating loss carryforwards and
other deferred tax assets.
The extent to which the loss carryforwards can be used to offset future
taxable income may be limited depending on the extent of ownership changes
within any three-year period as provided in the Tax Reform Act of 1986 and the
California Conformity Act of 1987.
11. EMPLOYEE BENEFIT PLAN
Effective January 1, 1999, the Company adopted a 401(k) tax-deferred
savings plan (the "Plan") for essentially all of its employees. Eligible
employees may make voluntary contributions to the Plan up to 15% of their annual
eligible compensation. The Company does not make any matching contributions to
the Plan.
12. SUBSEQUENT EVENTS
Stock Split -- In March 2000, the Board of Directors authorized a
three-for-one stock split of the outstanding shares of Common Stock. All common
share and per share information included in these financial statements have been
retroactively adjusted to reflect this stock split.
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[LOGO]
80
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.
The following table sets forth the various expenses in connection with the
sale and distribution of the securities being registered, other than the
underwriting discounts and commissions. All amounts shown are estimates, except
the Securities and Exchange Commission Registration Fee and the National
Association of Securities Dealers, Inc. Filing Fee.
Securities and Exchange Commission Registration Fee......... $79,200
National Association of Securities Dealers Filing Fee....... 30,500
Nasdaq National Market Listing Fee..........................
Blue Sky Fees and Expenses.................................. 5,000
Transfer Agent and Registrar Fees...........................
Accounting Fees and Expenses................................
Legal Fees and Expenses.....................................
Printing Expenses.........................................
Miscellaneous.............................................
-------
Total............................................. $
=======
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the Delaware General Corporation authorizes a court to
award, or the board of directors of a corporation to grant, indemnity to
directors and officers in terms sufficiently broad to permit indemnification
under certain circumstances for liabilities, including reimbursement for
expenses incurred, arising under the Securities Act of 1933.
As permitted by the Delaware General Corporation Law, the Registrant's
Certificate of Incorporation provides that its directors shall not be liable to
the Registrant or its stockholders for monetary damages for breach of fiduciary
duty as a director, except to the extent that the exculpation from liabilities
is not permitted under the Delaware General Corporation Law as in effect at the
time such liability is determined. As permitted by the Delaware General
Corporation Law, the Bylaws of the Registrant provide that the Registrant shall
indemnify its directors to the full extent permitted by the laws of the State of
Delaware.
The Registrant has also entered into indemnification agreements with its
directors and officers obligating the Registrant to indemnify such directors and
officers against losses incurred in connection with certain claims in their
capacities as agents of the Registrant. The Underwriting Agreement provides for
the indemnification of officers and directors of the Registrant by the
Underwriters against certain liabilities.
The Registrant is in the process of obtaining directors and officers
liability insurance.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES.
Since our inception in July 1998 to the effective date of this Registration
Statement, we have issued and sold the following unregistered securities, all of
which reflect the two-for-one stock split effected in October 1998 and the
three-for-one stock split effected in March 2000:
1. On August 20, 1998, we issued and sold 27,300,000 shares of common
stock to Jeffrey C. Hawkins for a purchase price of $45,500 in cash.
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81
2. On August 21, 1998, we issued and sold 14,700,000 shares of common
stock to Donna L. Dubinsky for a purchase price of $24,500 in cash.
3. On October 22, 1998, we issued and sold 8,076,924 shares of Series
A preferred stock, which are convertible into 24,230,772 shares of common
stock, to four venture capital funds for a total purchase price of
$18,011,541 in cash.
4. On May 25, 1999, we issued and sold 60,000 shares of common stock
to Pimlico Software, Inc. in consideration of consulting services rendered.
5. On June 10, 1999, we granted Comdisco, Inc. a right to purchase
198,965 shares of Series A preferred stock at a price of $7.539 per share,
under a Subordinated Loan and Security Agreement dated June 10, 1999. These
shares of Series A preferred stock are convertible into 596,895 shares of
common stock.
6. On July 7, 1999, we issued and sold 928,506 shares of Series B
preferred stock, which are convertible into 2,785,518 shares of common
stock, to four venture capital funds and one corporate investor for a total
purchase price of $10,000,010 in cash.
7. On November 23, 1999, we issued and sold 7,500 shares of common
stock to a consultant in consideration for consulting services rendered in
connection with establishing our customer support call center.
8. On November 24, 1999, we issued and sold 7,500 shares of common
stock to a consultant in consideration for consulting services rendered in
connection with establishing our customer support call center.
9. As of March 30, 2000, we had issued 6,001,386 shares of common
stock to employees upon exercise of options under our 1998 Equity Incentive
Plan, with exercise prices ranging from $0.077 to $1.333 per share. As of
March 30, 2000, there were 10,534,238 shares of common stock issuable upon
exercise of outstanding options under our 1998 Equity Incentive Plan, with
exercise prices ranging from $0.077 to $20.00 per share.
10. As of March 30, 2000, we had issued 1,146,249 shares of common
stock to employees upon exercise of options under our 1999 Executive Equity
Incentive Plan, with exercise prices ranging from $0.667 to $1.333 per
share. As of March 30, 2000, there were 3,255,762 shares of common stock
issuable upon exercise of outstanding options under our 1999 Executive
Equity Incentive Plan, with exercise prices ranging from $0.333 to $20.00
per share.
All of the 8,076,924 outstanding shares of Series A preferred stock and all
of the 928,506 outstanding shares of Series B preferred stock will automatically
convert on a three-for-one basis into shares of common stock upon the
consummation of this offering.
The sales and issuances of securities listed above, other than the sales
and issuances in Item 9, were deemed to be exempt from registration under
Section 4(2) of the Securities Act or Regulation D thereunder as transactions
not involving a public offering. The sales and issuances of securities listed
above in Item 9 were deemed to be exempt from registration under the Securities
Act by virtue of Rule 701 promulgated under Section 3(b) of the Securities Act
of 1933 as transactions pursuant to compensation benefit plans and contracts
relating to compensation. All of the foregoing securities are deemed restricted
securities for purposes of the Securities Act.
II-2
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ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
(a) The following exhibits are filed herewith:
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation as filed March 27, 2000
3.2 Form of First Amended and Restated Certificate of
Incorporation to be effective before closing of the offering
3.3 Form of Second Amended and Restated Certificate of
Incorporation to be effective upon the closing of the
offering
3.4 Bylaws
3.5 Form of Restated Bylaws to be effective upon the closing of
the offering
4.1 Specimen Common Stock Certificate*
4.2 Amended and Restated Investors' Rights Agreement dated July
7, 1999
5.1 Opinion of Fenwick & West LLP*
10.1 Form of Indemnity Agreement entered into between the
Registrant and all executive officers and directors
10.2 1998 Equity Incentive Plan
10.3 1999 Executive Equity Incentive Plan
10.4 Form of 2000 Equity Incentive Plan
10.5 Form of 2000 Employee Stock Purchase Plan
10.6 Single Tenant Absolute Net Lease between Registrant and
Chan-Paul Partnership dated June 22, 1999
10.7 Software License Agreement between Palm Computing, Inc. and
Registrant dated September 24, 1998, as amended+
10.8 Subordinated Loan and Security Agreement between Registrant
and Comdisco, Inc. dated June 10, 1999
10.9 International Manufacturing Contract between Registrant and
Flextronics (Malaysia) SDN.BHD dated June 29, 1999+
10.10 Founder's Restricted Stock Purchase Agreement between
Registrant and Donna Dubinsky dated August 21, 1998
10.11 Founder's Restricted Stock Purchase Agreement between
Registrant and Jeff Hawkins dated August 20, 1998
10.12 Offer Letter of Employment between Registrant and Bernard
Whitney dated May 31, 1999
10.13 Stock Option Agreement between Registrant and Edward
Colligan dated October 12, 1998
21.1 List of Subsidiaries of Registrant
23.1 Consent of Fenwick & West LLP (See Exhibit 5.1)*
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (see page II-5 of this Registration
Statement)
27.1 Financial Data Schedule
- -------------------------
* To be filed by amendment
+ Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.
II-3
83
(b) The following financial statement schedule is filed herewith:
Schedule II -- Valuation and Qualifying Accounts
Report of Independent Accountants on Schedule
Other financial statement schedules are omitted because the information
called for is not required or is shown either in the financial statements or the
notes thereto.
ITEM 17. UNDERTAKINGS.
(a) 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 under "Item 14 --
Indemnification of Directors and Officers" 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 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.
(b) The undersigned 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)(1) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
Registration Statement as of the time it was declared effective.
(2) For the 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.
(c) The undersigned 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.
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84
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 Mountain View, State of
California, on the 30th day of March, 2000.
HANDSPRING, INC.
By: /s/ BERNARD J. WHITNEY
------------------------------------
Bernard J. Whitney
Chief Financial Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS that each individual whose signature
appears below constitutes and appoints Donna L. Dubinsky, Jeffrey C. Hawkins and
Bernard J. Whitney and each of them, his or her true and lawful
attorneys-in-fact and agents with full power of substitution, for him or her and
in his or her name, place and stead, in any and all capacities, to sign any and
all amendments, including post-effective amendments, to this Registration
Statement, and to sign any registration statement for the same offering covered
by the Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, and all post-effective
amendments thereto, and to file the same, with all exhibits thereto and all
documents in connection therewith, making such changes in this Registration
Statement as such person or persons so acting deems appropriate, with the
Securities and Exchange Commission, granting unto said attorneys-in-fact and
agents, and each of them, full power and authority to do and perform each and
every act and thing requisite and necessary to be done in and about the
premises, as fully to all intents and purposes as he or she might or could do in
person, hereby ratifying and confirming all that said attorneys-in-fact and
agents or any of them, or his, her or their substitute or substitutes, may
lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement has been signed by the following persons in the
capacities and on the date indicated.
SIGNATURE TITLE DATE
--------- ----- ----
PRINCIPAL EXECUTIVE OFFICER:
/s/ DONNA L. DUBINSKY President, Chief March 30, 2000
- ----------------------------------------------------- Executive Officer and a
Donna L. Dubinsky Director
PRINCIPAL FINANCIAL OFFICER AND PRINCIPAL ACCOUNTING
OFFICER:
/s/ BERNARD J. WHITNEY Chief Financial Officer March 30, 2000
- -----------------------------------------------------
Bernard J. Whitney
ADDITIONAL DIRECTORS:
/s/ JEFFREY C. HAWKINS Director March 30, 2000
- -----------------------------------------------------
Jeffrey C. Hawkins
II-5
85
SIGNATURE TITLE DATE
--------- ----- ----
/s/ L. JOHN DOERR Director March 30, 2000
- -----------------------------------------------------
L. John Doerr
/s/ BRUCE W. DUNLEVIE Director March 30, 2000
- -----------------------------------------------------
Bruce W. Dunlevie
II-6
86
EXHIBIT INDEX
EXHIBIT
NUMBER EXHIBIT TITLE
- ------- -------------
1.1 Form of Underwriting Agreement*
3.1 Certificate of Incorporation as filed March 27, 2000
3.2 Form of First Amended and Restated Certificate of
Incorporation to be effective before closing of the offering
3.3 Form of Second Amended and Restated Certificate of
Incorporation to be effective upon the closing of the
offering
3.4 Bylaws
3.5 Form of Restated Bylaws to be effective upon the closing of
the offering
4.1 Specimen Common Stock Certificate*
4.2 Amended and Restated Investors' Rights Agreement dated July
7, 1999
5.1 Opinion of Fenwick & West LLP*
10.1 Form of Indemnity Agreement entered into between the
Registrant and all executive officers and directors
10.2 1998 Equity Incentive Plan
10.3 1999 Executive Equity Incentive Plan
10.4 Form of 2000 Equity Incentive Plan
10.5 Form of 2000 Employee Stock Purchase Plan
10.6 Single Tenant Absolute Net Lease between Registrant and
Chan-Paul Partnership dated June 22, 1999
10.7 Software License Agreement between Palm Computing, Inc. and
Registrant dated September 24, 1998, as amended+
10.8 Subordinated Loan and Security Agreement between Registrant
and Comdisco, Inc. dated June 10, 1999
10.9 International Manufacturing Contract between Registrant and
Flextronics (Malaysia) SDN.BHD dated June 29, 1999+
10.10 Founder's Restricted Stock Purchase Agreement between
Registrant and Donna Dubinsky dated August 21, 1998
10.11 Founder's Restricted Stock Purchase Agreement between
Registrant and Jeff Hawkins dated August 20, 1998
10.12 Offer Letter of Employment between Registrant and Bernard
Whitney dated May 31, 1999
10.13 Stock Option Agreement between Registrant and Edward
Colligan dated October 12, 1998
21.1 List of Subsidiaries of Registrant
23.1 Consent of Fenwick & West LLP (See Exhibit 5.1)*
23.2 Consent of PricewaterhouseCoopers LLP
24.1 Power of Attorney (see page II-5 of this Registration
Statement)
27.1 Financial Data Schedule
- -------------------------
* To be filed by amendment
+ Confidential treatment has been requested for certain portions of this
document pursuant to an application for confidential treatment sent to the
Securities and Exchange Commission. Such portions are omitted from this filing
and filed separately with the Securities and Exchange Commission.