SCHEDULE 14A INFORMATION
Proxy Statement Pursuant to Section 14(a) of the Securities Exchange Act of 1934
Filed by the Registrant [X]
Filed by a Party other than the Registrant [_]
Check the appropriate box:
[_] Preliminary Proxy Statement
[_] Confidential, for Use of the Commission Only (as Permitted by
Rule 14a-6(e)(2))
[X] Definitive Proxy Statement
[_] Definitive Additional Materials
[_] Soliciting Material Pursuant to (S)240.14a-11(c) or (S)240.14a-12
BE INCROPORATED
--------------------------------------------------------------------------------
(Name Of Registrant As Specified In Its Charter)
--------------------------------------------------------------------------------
(Name of Person(s) Filing Proxy Statement, if other than the Registrant)
Payment of Filing Fee (Check the appropriate box):
[X] No fee required.
[_] $125 per Exchange Act Rules 0-11(c)(1)(ii), 14a-6(i)(1), 14a-6(i)(2) or
Item 22(a)(2) of Schedule 14A.
[_] Fee computed on table below per Exchange Act Rules 14a-6(i)(4) and 0-11.
1. Title of each class of securities to which transaction applies:
________________________________________________________________________________
2. Aggregate number of securities to which transaction applies:
________________________________________________________________________________
3. Per unit price or other underlying value of transaction computed pursuant
to Exchange Act Rule 0-11 (Set forth the amount on which the filing fee is
calculated and state how it was determined):
________________________________________________________________________________
4. Proposed maximum aggregate value of transaction:
________________________________________________________________________________
5. Total fee paid:
[_] Fee paid previously with preliminary materials.
[_] Check box if any part of the fee is offset as provided by Exchange Act Rule
0-11(a)(2) and identify the filing for which the offsetting fee was paid
previously. Identify the previous filing by registration statement number,
or the Form or Schedule and the date of its filing.
6. Amount Previously Paid:
________________________________________________________________________________
7. Form, Schedule or Registration Statement No.:
________________________________________________________________________________
8. Filing Party:
________________________________________________________________________________
9. Date Filed:
________________________________________________________________________________
[LOGO] Be
BE INCORPORATED
800 El Camino Real
Suite 400
Menlo Park, CA 94025
Dear Be Stockholder:
You are cordially invited to attend a special meeting of stockholders of Be
Incorporated to be held November 12, 2001 at 10:00 a.m. local time at Holbrook
Palmer Park -- The Pavilion, 150 Watkins Avenue, Atherton, CA 94027. At the
special meeting, Be is seeking your approval of the sale of substantially all
of its intellectual property and other technology assets to Palm, Inc. (through
a Palm subsidiary corporation), as described in the Asset Purchase Agreement
(Annex A to the proxy statement/prospectus), and the dissolution of Be through
the adoption of the plan of dissolution (Annex B to the proxy
statement/prospectus). Under the asset purchase agreement, Be will receive Palm
common stock valued at $11,000,000, with the exact number of shares to be
determined based on the opening price of Palm common stock on the closing date
of the transaction. Be intends to sell for cash the Palm shares promptly
following the closing, and accordingly, the shares will not be distributed to
the stockholders of Be. Be is an "underwriter" within the meaning of Section
2(11) of the Securities Act in connection with its resale of Palm common stock.
Following the sale of the shares, Be intends to pay all of its outstanding
liabilities and obligations in accordance with applicable law and the plan of
dissolution. Although there is no guarantee that any assets will remain after
the satisfaction of all claims and obligations, any remaining assets would be
available for distribution to Be stockholders. Be believes that the proceeds
stockholders could receive over time is up to $0.10 per share, however, Be is
unable at this time to predict the precise nature, amount and timing of any
distributions.
The board of directors of Be has undertaken extensive activities since early
2000 to evaluate and to pursue financing alternatives for the company to allow
for its continuation and the creation of value for our stockholders, but no
adequate source of capital was available on terms beneficial to Be
stockholders. We hired Lehman Brothers Inc. to assist us in conducting an
extensive search for parties interested in a merger or acquisition transaction.
Except for the asset purchase agreement that has been entered into with Palm,
none of the numerous discussions we held with third parties resulted in any
acceptable offers or the execution of any definitive agreements.
Your board of directors has also considered our anticipated prospects
assuming completion of the asset sale. After due consideration of all other
alternatives available to Be, including the cessation of Be's business and the
initiation of bankruptcy proceedings, the board of directors concluded the
completion of the asset sale and implementation of the plan of dissolution of
Be was the only alternative reasonably likely to enable us to satisfy our
outstanding obligations and to maximize the return of value to our
stockholders.
Whether or not you plan to attend the special meeting, please take the time
to vote by completing the enclosed proxy card and returning it in the
accompanying postage-paid envelope or by voting by phone or over the Internet
as described in the instructions accompanying the enclosed proxy card. Both the
asset sale and the dissolution of Be require the approval of the holders of a
majority of the outstanding common stock of Be. Please note that your failure
to vote on these matters will have the same effect as a vote AGAINST approval
of the asset sale and the dissolution. The other directors and I urge you to
vote FOR each of the proposals, which we have approved after careful
consideration. Your vote is extremely important, and your early response will
be greatly appreciated.
Sincerely,
/s/ Jean-Louis Gassee
Jean-Louis Gassee
President and Chief Executive Officer
Menlo Park, California
October 5, 2001
For a discussion of significant matters that should be considered before
voting at the special meeting of Be stockholders, see "RISK FACTORS" beginning
on page 19.
Be's common stock is listed on the Nasdaq National Market under the symbol
"BEOS." Palm's common stock is listed on the Nasdaq National Market under the
symbol "PALM."
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of the Palm common stock issuable to Be
as part of the asset sale or determined whether the proxy statement/prospectus
is accurate or adequate. Any representation to the contrary is a criminal
offense.
The proxy statement/prospectus is dated October 5, 2001 and is first being
mailed to stockholders of Be on or about October 10, 2001.
ADDITIONAL INFORMATION
The proxy statement/prospectus incorporates important business and
financial information about Palm that is not included in or delivered with the
proxy statement/prospectus. This information is available without charge to Be
stockholders upon written or oral request. Be stockholders should make such
requests to:
Palm, Inc.
5470 Great America Parkway
Santa Clara, California 95052
Attention: Investor Relations
(408) 878-9000
To obtain timely delivery of requested documents before the special
meeting, you must request them no later than November 5, 2001, which is five
business days before the date of the special meeting. Please also see "Where
You Can Find More Information" in the proxy statement/prospectus to obtain
further information and learn about other ways that you can get this
information.
[LOGO] Be
BE INCORPORATED
800 El Camino Real
Suite 400
Menlo Park, CA 94025
NOTICE OF SPECIAL MEETING OF STOCKHOLDERS
To Be Held On November 12, 2001
TO THE STOCKHOLDERS OF BE INCORPORATED:
NOTICE IS HEREBY GIVEN that a special meeting of the stockholders of Be
Incorporated, a Delaware corporation, will be held on Monday, November 12, 2001
at 10:00 a.m. local time at Holbrook Palmer Park -- The Pavilion, 150 Watkins
Avenue, Atherton, CA 94027 for the following purposes:
1. To consider and vote upon the sale of substantially all of Be's intellectual
property and other technology assets, including those related to the BeOS
and BeIA operating systems, to ECA Subsidiary Acquisition Corporation, a
Delaware corporation and an indirect wholly owned subsidiary of Palm, Inc.,
a Delaware corporation, pursuant to the Asset Purchase Agreement, dated as
of August 16, 2001, as amended and restated as of September 10, 2001, by and
among Be, ECA Subsidiary Acquisition Corporation and Palm, in the form of
Annex A attached to the proxy statement/prospectus.
2. To consider and vote upon the dissolution of Be and adoption of the plan of
dissolution of Be, in the form of Annex B attached to the proxy
statement/prospectus.
3. To transact such other business as may properly come before the special
meeting or any adjournment thereof, including any motion to adjourn to a
later time to permit further solicitation of proxies if necessary to
establish a quorum or to obtain additional votes in favor of the foregoing
items, or before any postponements or adjournments thereof.
The foregoing items of business are more completely described in the proxy
statement/prospectus accompanying this Notice. The board of directors of Be
recommends that you vote in favor of each of Proposals 1 and 2 above. Under the
terms of the asset purchase agreement, Be, ECA Subsidiary Acquisition
Corporation and Palm are obligated to complete the transactions contemplated by
the asset purchase agreement only if the stockholders of Be, by the affirmative
vote of a majority of the outstanding shares of common stock as of the record
date, approve each of Proposals 1 and 2 above. In addition, the plan of
dissolution will only be implemented if the asset purchase agreement is
approved by the stockholders of Be. Accordingly, failure to approve the
dissolution of Be in accordance with the plan of dissolution may have the
effect of preventing the completion of the asset sale, and failure to approve
the asset sale will have the effect of preventing the completion of the
dissolution of Be pursuant to the dissolution. If either the asset sale or the
dissolution is not approved, it is likely that Be will file for, or will be
forced to resort to, bankruptcy protection.
The board of directors of Be has fixed the close of business on October 4,
2001 as the record date for the determination of stockholders entitled to
notice of and to vote at the special meeting and at any adjournment or
postponement thereof.
By Order of the Be Board of Directors
/s/ Dan S. Johnston
Daniel S. Johnston
Secretary
Menlo Park, California
October 5, 2001
ALL STOCKHOLDERS ARE CORDIALLY INVITED TO ATTEND THE SPECIAL MEETING IN PERSON.
WHETHER OR NOT YOU EXPECT TO ATTEND THE SPECIAL MEETING, PLEASE COMPLETE, DATE,
SIGN AND RETURN THE ENCLOSED PROXY AS PROMPTLY AS POSSIBLE IN ORDER TO ENSURE
YOUR REPRESENTATION AT THE SPECIAL MEETING. A RETURN ENVELOPE (WHICH IS POSTAGE
PREPAID IF MAILED IN THE UNITED STATES) IS ENCLOSED FOR THAT PURPOSE. EVEN IF
YOU HAVE GIVEN YOUR PROXY, YOU MAY STILL VOTE IN PERSON IF YOU ATTEND THE
SPECIAL MEETING. PLEASE NOTE, HOWEVER, THAT ATTENDANCE AT THE SPECIAL MEETING
WILL NOT BY ITSELF REVOKE A PROXY. FURTHERMORE, IF YOUR SHARES ARE HELD OF
RECORD BY A BROKER, BANK OR OTHER NOMINEE AND YOU WISH TO VOTE AT THE SPECIAL
MEETING, YOU MUST OBTAIN FROM THE RECORD HOLDER A PROXY ISSUED IN YOUR NAME.
2
TABLE OF CONTENTS
Page
----
QUESTIONS AND ANSWERS ABOUT THE ASSET SALE AND DISSOLUTION OF BE....... 1
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS.............................. 6
PALM SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA................... 13
BE SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA..................... 14
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA.................... 16
COMPARATIVE PER SHARE MARKET PRICE DATA................................ 17
RISK FACTORS........................................................... 19
FORWARD-LOOKING INFORMATION............................................ 40
LEGAL PROCEEDINGS...................................................... 40
THE SPECIAL MEETING OF BE STOCKHOLDERS................................. 42
THE ASSET SALE AND DISSOLUTION OF BE................................... 45
PRINCIPAL PROVISIONS OF THE ASSET PURCHASE AGREEMENT................... 57
PRINCIPAL PROVISIONS OF THE PLAN OF DISSOLUTION........................ 65
RELATED AGREEMENTS..................................................... 72
SELLING STOCKHOLDER.................................................... 73
PLAN OF DISTRIBUTION OF THE SHARES TO BE RESOLD BY BE.................. 74
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BE... 75
BUSINESS OF BE......................................................... 76
CONDENSED FINANCIAL INFORMATION OF BE.................................. 80
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS OF BE.................................................. 83
LEGAL OPINION.......................................................... 92
EXPERTS................................................................ 92
WHERE YOU CAN FIND MORE INFORMATION.................................... 93
CONSOLIDATED FINANCIAL STATEMENTS OF BE................................ F-1
Annexes:
Annex A--Asset Purchase Agreement
Annex B--Plan of Dissolution
Annex C--Funding Agreement
Annex D--Form of Stockholder Support Agreement
Annex E--Form of Non-Competition Agreement
QUESTIONS AND ANSWERS ABOUT THE ASSET SALE AND DISSOLUTION OF BE
Q: WHAT WILL BE VOTED ON AT THE SPECIAL MEETING? (SEE PAGE 42)
A: You are being asked to approve the sale of substantially all of Be's
intellectual property rights and other technology assets to a subsidiary of
Palm as described in the Asset Purchase Agreement dated as of August 16,
2001, as amended and restated as of September 10, 2001, among Be, Palm and
the Palm subsidiary, in the form attached as Annex A. You are also being
asked to approve the dissolution of Be and adopt the plan of dissolution, in
the form attached as Annex B.
Q: WHY IS BE PROPOSING TO ENTER INTO THE ASSET SALE? (SEE PAGE 50)
A: After due consideration of all other alternatives reasonably available to
Be, the Be board of directors concluded that the completion of the asset
sale and the implementation of the plan of dissolution of Be was the only
alternative reasonably likely to enable Be to satisfy Be's outstanding
obligations and to maximize any distributions to its stockholders.
Q: WHAT WILL BE RECEIVE FOR THE ASSETS BEING SOLD TO PALM'S SUBSIDIARY? (SEE
PAGES 45 AND 57)
A: Pursuant to the asset purchase agreement, a subsidiary of Palm will purchase
substantially all of Be's intellectual property and other technology assets,
including those related to the BeOS and BeIA operating systems. In return
for these assets, Be will receive an aggregate number of shares of Palm
common stock equal in value to $11,000,000, as measured by the opening price
of Palm common stock as quoted on the Nasdaq National Market on the closing
date of the transaction, subject to adjustment under certain circumstances.
Q: WILL I RECEIVE ANY SHARES OF PALM STOCK? (SEE PAGE 56)
A: No. If the asset sale and the dissolution are approved, and the transactions
contemplated by the asset purchase agreement are completed, Be intends to
sell the Palm shares received in the transaction for cash promptly following
the closing, and accordingly, the shares will not be distributed to the
stockholders of Be. Following the sale of the shares, Be intends to pay, or
provide for the payment of, all of its outstanding liabilities and
obligations in accordance with applicable law and the plan of dissolution.
Any remaining cash proceeds would be available for distribution to Be
stockholders.
Q: WHAT HAPPENS IF THE ASSET SALE IS NOT COMPLETED? (SEE PAGE 50)
A: If the asset sale is not completed, it is likely that Be will file for or be
forced to resort to bankruptcy protection. In this event, it is extremely
unlikely that Be will be able to satisfy all of its liabilities and
obligations, and there would therefore be no assets available for
distribution to Be's stockholders.
Q: WHEN WILL THE ASSET SALE BE COMPLETED? (SEE PAGE 58)
A: The parties hope to complete the asset sale promptly after the special
meeting of Be stockholders. The parties are working toward completing the
transaction as quickly as possible. In addition to approval of the asset
sale and the dissolution by Be's stockholders, the Palm common stock
issuable to Be in connection with the closing of the transaction must be
registered, and each of Palm and Be must satisfy or waive, to the extent
possible, all of the closing conditions contained in the asset purchase
agreement.
Q: WHAT DOES THE PLAN OF DISSOLUTION ENTAIL? (SEE PAGE 65)
A: The plan of dissolution provides for the orderly liquidation of Be's
remaining assets following the closing of the asset sale, the winding-up of
Be's business and operations and the dissolution of Be. In connection with
1
the foregoing, Be will pay, or provide for the payment of, all of its
liabilities and obligations. If there are any remaining assets after the
payment, or the provision for the payment, of all of its liabilities and
obligations, Be will distribute any remaining assets to its stockholders in
one or more distributions.
Pursuant to the terms of the asset purchase agreement, Be will be retaining
certain rights, assets and liabilities in connection with the transaction,
including its cash and cash equivalents, receivables, certain contractual
liabilities under in-licensing agreements, and rights to assert and bring
certain claims and causes of action, including under antitrust laws. Be is
in the process of investigating the merits and potential value of pursuing
the retained claims and causes of action. Be has not yet brought any such
claim or cause of action. Under the terms of the plan of dissolution, if,
notwithstanding the approval of the dissolution and the adoption of the plan
of dissolution by the stockholders of Be, the board of directors of Be
determines that it would be in the best interests of Be's stockholders or
creditors for Be not to dissolve, including in order to permit Be to pursue
(or more easily pursue) any retained claims or causes of action, the
dissolution of Be may be abandoned or delayed until a future date to be
determined by Be's board of directors. Regardless of whether Be dissolves,
Be will not continue to exist as an operating entity.
Q: WILL ANY DISTRIBUTIONS BE MADE TO BE'S STOCKHOLDERS? (SEE PAGES 56 AND 65)
A: Although the Be board of directors believes that the completion of the asset
sale and the subsequent dissolution of Be was the alternative available to
Be that was most reasonably likely to enable Be to satisfy Be's outstanding
obligations and to maximize any distributions to its stockholders, at this
time Be cannot determine the precise amount of any such distributions. Be
expects that, upon receiving the consideration for the sale of the Palm
shares following the closing of the asset sale, it will have sufficient cash
to pay all of its known current and determinable liabilities and
obligations, which would allow for a distribution to Be's stockholders.
However, the amount of unknown or contingent liabilities cannot be
quantified and could decrease or eliminate any remaining assets available
for distribution to stockholders. Be believes that the proceeds stockholders
could receive over time is up to $3.8 million in the aggregate (or $0.10 per
share); however, Be is unable at this time to predict the precise nature,
amount and timing of any distributions. If there are assets remaining
following the completion of the winding-up of Be, stockholders of Be will
receive a portion of those assets in one or more distributions, which will
be equal to each stockholder's pro rata share, based on the number of Be
shares owned at such time, of such assets.
Q: WHEN WILL ANY DISTRIBUTIONS BE MADE TO BE'S STOCKHOLDERS? (SEE PAGE 74)
A: At this time, Be cannot set a timetable for any distributions, and it is not
certain whether any distributions will be made to its stockholders. The
timetable will depend on the timing of the completion of the asset sale, the
sale of Be's remaining assets, whether the plan of dissolution is
implemented by Be's board of directors, and Be's ability to pay, or provide
for the payment of, its liabilities and obligations. If Be is subject to any
contingent liabilities, including any claims by Palm under the asset
purchase agreement, this could require it to establish a reserve that could
delay any distribution to Be's stockholders until the claims are resolved.
Q: WHEN WILL THE WINDING-UP OF BE'S BUSINESS BE COMPLETED? (SEE PAGE 65)
A: The winding-up of Be's business will be completed after Be has paid for, or
provided for the payment of, all of its liabilities and obligations, and
distributed any remaining assets to its stockholders. However, pursuant to
the terms of the asset purchase agreement, Be will be retaining certain
rights, assets and liabilities in connection with the transaction, including
rights to assert and bring certain claims and causes of action, including
under antitrust laws. Under the plan of dissolution, if, notwithstanding the
approval of the dissolution and the adoption of the plan of dissolution by
the stockholders of Be, the board of directors of Be determines that it
would be in the best interests of the stockholders or creditors of Be for Be
not to dissolve, in order to permit Be to pursue (or more easily pursue) any
retained claims or causes of action, the dissolution of Be, and the filing
by Be of its certificate of dissolution with the Delaware Secretary of
State, may be abandoned or delayed until a future date to be determined by
the board of directors.
2
Q: WHAT HAPPENS IF BE'S STOCKHOLDERS APPROVE THE ASSET SALE OR THE DISSOLUTION
OF BE, BUT NOT BOTH? (SEE PAGE 45)
A: If Be's stockholders approve the asset sale but not the dissolution, Palm
will not be obligated to complete the transactions contemplated by the asset
purchase agreement. In such event, absent a waiver of such condition by
Palm, the asset sale will not be completed, and it is likely that Be will
file for or be forced to resort to bankruptcy protection. If Be's
stockholders approve the dissolution but not the asset sale, the
transactions contemplated by the asset purchase agreement will not be
completed under any circumstances and Be will not implement the plan of
dissolution. In that event, it is likely that Be will file for or be forced
to resort to bankruptcy protection. If the transactions contemplated by the
asset purchase agreement do not close for any reason, it is extremely
unlikely that Be will be able to pay, or provide for the payment of, all of
its liabilities and obligations, and there would therefore be no assets
available for distribution to Be's stockholders.
Q: WHAT DO I NEED TO DO NOW? (SEE PAGE 42)
A: You should read this proxy statement/prospectus carefully in its entirety,
including its annexes, to consider how the matters discussed will affect
you. You should mail your signed proxy card in the enclosed return envelope
or otherwise vote in a manner described in this proxy statement/prospectus
as soon as possible so that your shares will be represented at the special
meeting of Be stockholders.
Q: CAN I SUBMIT MY PROXY BY TELEPHONE, BY FAX OR OVER THE INTERNET? (SEE PAGE
43)
A: If you are a stockholder of record, you may grant a proxy to vote your
shares by means of the Internet via the following Web site:
http://www.votefast.com. Any stockholder using a touch-tone telephone may
also grant a proxy to vote shares by calling 1-800-250-9081 and following
the recorded instructions. Any stockholder may also vote by fax by marking,
signing and dating their proxy card and faxing it to 1-412-299-9191.
Beneficial holders who hold shares in street name may also submit their
proxies by telephone, by fax or over the Internet. If you are a beneficial
holder, you should refer to the proxy card included with your proxy
materials for instructions about how to vote. If you vote by telephone, by
fax or over the Internet, you do not need to complete and mail your proxy
card.
Q: WHAT HAPPENS IF I DO NOT RETURN A PROXY CARD OR VOTE BY PHONE OR OVER THE
INTERNET?
A: The failure to return your proxy card or vote by phone or over the Internet
will have the same effect as voting AGAINST approval of the asset sale and
the dissolution.
Q: WHAT HAPPENS IF I RETURN A SIGNED PROXY CARD BUT DO NOT INDICATE HOW TO VOTE
MY PROXY? (SEE PAGE 42)
A: If you do not include instructions on how to vote your properly signed and
dated proxy, your shares will be voted FOR approval of the asset sale and
the dissolution.
Q: MAY I VOTE IN PERSON? (SEE PAGE 42)
A: Yes. Rather than signing and returning your proxy card or voting by phone or
over the Internet, you may attend the special meeting and vote your shares
in person.
3
Q: MAY I CHANGE MY VOTE AFTER I HAVE MAILED MY SIGNED PROXY CARD OR VOTED BY
FAX, PHONE OR OVER THE INTERNET? (SEE PAGE 44)
A: Yes. You may change your vote at any time before your proxy card or fax,
phone or Internet vote is voted at the special meeting. You can do this in
one of three ways. First, you can send a written, dated notice stating that
you would like to revoke your proxy or similarly do so by fax, phone or over
the Internet. Second, you can complete, date and submit a new proxy card.
Third, you can attend the special meeting and vote in person. Your
attendance alone will not revoke your proxy. If you have instructed a broker
to vote your shares, you must follow directions received from your broker to
change those instructions.
Q: IF MY SHARES ARE HELD IN "STREET NAME" BY MY BROKER, WILL MY BROKER VOTE MY
SHARES FOR ME?
A: Your broker will not be able to vote your shares without instructions from
you. You should instruct your broker to vote your shares by following the
procedure provided by your broker. The failure to provide such voting
instructions to your broker will have the same effect as voting AGAINST
approval of the asset sale and the dissolution.
Q: SHOULD I SEND IN MY BE STOCK CERTIFICATES?
A: No. Please do not mail in your Be stock certificates. If the asset sale and
the dissolution are approved, Be will provide instructions regarding
surrendering your stock certificates if and when the dissolution of Be has
been completed.
Q: WHAT ARE THE MATERIAL U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE ASSET SALE
AND THE DISSOLUTION TO BE'S STOCKHOLDERS? (SEE PAGE 53)
A: The asset sale will have no direct U.S. federal income tax consequences to
Be's stockholders, since the assets are being sold by Be and not by Be's
stockholders. However, the asset sale and any value realizable by Be in
pursuit of any retained claims and causes of action will have tax
consequences to Be and the possible dissolution of Be and distribution of
assets to Be's stockholders will have tax consequences to Be and Be's
stockholders. The fair market value of any assets distributed to a
stockholder in the dissolution (including any assets transferred to a
liquidating trust), less such stockholder's cost basis in its shares, will
be taxable as capital gains (or loss), assuming that such stockholder held
the shares as a capital asset. The gain (or loss) will be taxable as
long-term capital gain (or loss) if the shares were held for more than one
year. Tax consequences to stockholders may differ depending on their
circumstances. You are urged to consult your own tax advisor to determine
your particular tax consequences resulting from the asset sale and the
dissolution.
Q: CAN I STILL SELL MY SHARES OF BE COMMON STOCK?
A: Yes. Be's common stock is currently traded on the Nasdaq National Market.
However, Be expects it will be unable to satisfy the requirements for
continued listing of its common stock on the Nasdaq National Market and that
after the closing of the asset sale Nasdaq will likely take action to delist
Be's common stock from the Nasdaq National Market at that time. If and when
that happens, trading would thereafter be conducted on the over-the-counter
market in the so-called "pink sheets" or on the "electronic bulletin board"
of the National Association of Securities Dealers, Inc. In this event, the
ability to buy and sell shares of Be common stock may be materially
impaired, which may have an adverse effect on the price and liquidity of
Be's common stock. After the dissolution is completed, there will be no
further trading in Be's common stock.
4
Q: HOW WILL THE DISSOLUTION OF BE AFFECT MY STATUS AS A STOCKHOLDER?
A: Your rights as a stockholder of Be will terminate upon the dissolution of
Be. Be will not dissolve until its assets, if any, that remain after payment
or provision for payment of Be's liabilities and obligations are either
distributed to its stockholders or transferred to a liquidating trust, and
Be files a certificate of dissolution that is accepted by the Secretary of
State of the State of Delaware or files with the Secretary of State of the
State of Delaware a court order declaring Be dissolved. Be may establish a
liquidating trust for the purpose of liquidating any remaining assets of Be,
paying or providing for the payment of Be's remaining liabilities and
obligations, and making distributions to Be's stockholders. If a liquidating
trust is established, you will receive beneficial interests in the assets
transferred to the liquidating trust in proportion to the number of Be's
shares owned by you at such time.
Q: AM I ENTITLED TO APPRAISAL RIGHTS? (SEE PAGE 55)
A: No. Be's stockholders are not entitled to appraisal rights, either in
connection with the asset sale or the dissolution of Be.
Q: IS PALM STOCKHOLDER APPROVAL REQUIRED?
A: No. Palm stockholder approval is not required in connection with the asset
sale or the dissolution.
Q: WHO CAN HELP ANSWER MY ADDITIONAL QUESTIONS? (SEE PAGE 94)
A: Be stockholders who would like additional copies, without charge, of this
proxy statement/prospectus or have additional questions about the
transaction, including the procedures for voting Be's shares, should
contact:
Corporate Secretary
Be Incorporated
800 El Camino Real, Suite 400
Menlo Park, CA 94025
Telephone: (650) 462-4100
Be stockholders should also contact the following proxy solicitor with any
additional questions relating to the solicitation of stockholder proxies:
N.S. Taylor & Associates, Inc.
P.O. Box 358
Dover-Foxcroft, ME 04426
Toll free number: (866) 470-4300
5
SUMMARY OF THE PROXY STATEMENT/PROSPECTUS
This summary highlights selected information from this proxy
statement/prospectus and may not contain all of the information that is
important to you. You should read carefully this entire proxy
statement/prospectus and the documents referred to in this proxy
statement/prospectus for a more complete description of the matters on which
you are being asked to vote. The form of the asset purchase agreement is
attached as Annex A to this proxy statement/prospectus. You are encouraged to
read the asset purchase agreement as it is the legal document that governs the
asset sale on which you are being asked to vote. Also attached as Annexes B
through E are the plan of dissolution and additional agreements relating to the
transactions contemplated by the asset purchase agreement. You are encouraged
to read those agreements as well. This summary is qualified in its entirety by
the asset purchase agreement and the more detailed information appearing
elsewhere in this document or that is incorporated by reference. This summary
includes page references in parentheses to direct you to a more complete
description of the topics presented in this summary. Unless otherwise
indicated, references to Palm include Palm and its subsidiaries, including ECA
Subsidiary Acquisition Corporation.
The Companies
Be Incorporated
800 El Camino Real, Suite 400
Menlo Park, California 94025
(650) 462-4100
Founded in 1990, Be Incorporated is a software company creating software
solutions that enable rich media and Web experiences on personal computers and
Internet appliances. Be's products included BeOS, its desktop operating system,
and BeIA, its software solution intended for Internet appliances, such as
personal digital assistants, Web pads, Web terminals, set-top boxes, Web
cellular phones and electronic books. Be went public on July 20, 1999. Its
stock is traded on the Nasdaq National Market under the symbol "BEOS."
Palm, Inc.
5470 Great America Parkway
Santa Clara, California 95052
(408) 878-9000
Palm, Inc. is a pioneer in the field of mobile and wireless Internet
solutions and a leading provider of handheld computers, according to
International Data Corporation. Based on the Palm OS platform, Palm's handheld
solutions allow people to carry and access their most critical information with
them wherever they go. Palm handhelds address the needs of individuals,
enterprises and educational institutions through thousands of application
solutions. The Palm Economy is a growing global community of industry-leading
licensees, world-class OEM customers, and more than 170,000 developers and
solution providers that have registered to develop solutions based on the Palm
OS platform. Palm held its initial public offering of common stock on March 2,
2000. Its common stock is traded on the Nasdaq National Market under the symbol
"PALM."
6
ECA Subsidiary Acquisition Corporation
5470 Great America Parkway
Santa Clara, California 95052
(408) 878-9000
ECA Subsidiary Acquisition Corporation is an indirect wholly owned
subsidiary of Palm that was formed by Palm for the sole purpose of
participating in the asset sale transaction with Be. As a direct party to the
asset purchase agreement, Palm is effectively responsible for all of the
obligations of ECA Subsidiary Acquisition Corporation thereunder.
Asset Sale and Related Transactions (Pages 45 and 56)
Under the terms of the asset purchase agreement, Be will sell substantially
all of its intellectual property and other technology assets, including those
related to its BeOS and BeIA operating systems, to Palm and will receive an
aggregate number of shares of Palm common stock equal in value to $11,000,000,
as measured by the opening price of Palm common stock as quoted on the Nasdaq
National Market on the closing date of the transaction, subject to adjustment
under certain circumstances. In addition, Palm will make employment offers to
50 Be engineers. Be intends to sell for cash the Palm shares received in the
transaction promptly following the closing, and accordingly, such shares will
not be distributed to the stockholders of Be.
Dissolution of Be (Page 65)
The Be board of directors has approved the dissolution of Be pursuant to the
plan of dissolution attached to this proxy statement/prospectus as Annex B. If
the dissolution of Be and the adoption of the plan of dissolution are approved
by the stockholders, the Be board of directors, without further action by the
stockholders (except those actions as may be required by law or as the Be board
of directors may deem appropriate), may elect at any time to dissolve Be after
payment of, or provision for the payment of, all liabilities and obligations of
Be. Any remaining assets would be available for distribution to Be
stockholders. In the event that the stockholders of Be fail to approve both the
asset sale and the dissolution pursuant to the plan of dissolution, Palm and Be
would each have the option to terminate the asset purchase agreement.
Palm's Reasons for the Purchase of Assets from Be (Page 52)
Palm's board of directors determined that the purchase of the assets from Be
is consistent with and in furtherance of the long-term business strategy of
Palm and fair to, and in the best interests of, Palm and its stockholders, and
has unanimously approved the asset purchase agreement.
In reaching its determination, the Palm board of directors considered the
following positive factors:
. the opportunity to add a substantial majority of Be's engineers, who have
worked together as a team for a significant period of time and have proven
skills and abilities in developing operating system technology, to Palm's
Platform Solutions Group's engineering team, which Palm believes to be
critical to Palm's ability to fully exploit the intellectual property and
other assets to be acquired in the asset sale;
. the potential benefits of the operating system technology components
included in the asset purchase that could be integrated into the current
and future versions of the Palm OS and other Palm platform products to
enhance Palm's Internet, communications and multimedia offerings relative
to that of competitive offerings;
. the potential to provide Palm's Platform Solutions Group the ability to
enhance future versions of the Palm OS by converting the current operating
system into a more modular and flexible operating system, which Palm
believes will become increasingly important to serve market needs in the
future; and
7
. the terms and conditions of the asset purchase agreement.
See "Asset Sale and Dissolution of Be--Palm's Reasons for the Purchase of
Assets from Be" for a list of the material negative factors the Palm board
considered. The foregoing positive and negative factors together comprise the
Palm board's material considerations in entering into the asset sale.
Be's Reasons for the Asset Sale and Plan of Dissolution (Page 50)
The Be board of directors has unanimously determined that the terms of the
asset purchase agreement are fair to and in the best interests of Be and its
stockholders and creditors, and has unanimously approved the asset purchase
agreement and plan of dissolution. In reaching its determination, the Be board
of directors considered the following positive factors:
. the present and anticipated business environment of the Internet appliance
and digital media application market, which has failed to develop as
rapidly as had been anticipated and which is expected to continue to
develop at an anemic rate, given the unenthusiastic response by consumers
to early Internet appliances;
. the conclusion of the Be board of directors that Be would not be able to
continue to operate effectively in light of the significant losses that it
was incurring and expected to continue to incur under its present business
model, nor would it be able to raise the capital necessary in a timely
manner to permit it to succeed in the Internet appliance and digital media
application market in light of Be's increasingly precarious cash flow
position;
. the terms and conditions of the asset purchase agreement, the value and
liquidity of the shares of Palm common stock to be received at closing,
and the financial ability of Palm to fund a portion of Be's operations
pursuant to the funding agreement described below and to issue the stock
consideration payable to Be at the closing of the asset sale, all of which
led Be's directors to conclude that it was reasonably likely that the
asset sale would be completed, that Be would be able to liquidate the
stock consideration promptly following the closing, and that as a result
Be would most likely be able to pay, or provide for the payment of, the
liabilities owed to its creditors and be in a position to maximize the
return of value to its stockholders;
. the results of efforts made by Be management and Lehman Brothers, both
together and separately, to solicit indications of interest from third
parties regarding a potential purchase of or investment in Be, which
resulted in no serious indications of interest except from Palm;
. an assessment that the likely net proceeds from the asset sale remaining
after the payment, or provision for payment, of all of the liabilities and
obligations owing to Be's creditors would be insufficient to permit Be to
continue in any viable operating business;
. the attractiveness of potentially being able to be in a position to make a
cash distribution to Be's stockholders from the net proceeds of the sale
of the Palm shares received in the asset sale, compared to the board of
directors' assessment of Be's expected future financial condition,
earnings, business opportunities and competitive position, which the board
felt would be unlikely to permit such distributions; and
. the fact that the plan of dissolution permits the board of directors of
Be, if it determines that it would be in the best interests of Be's
stockholders or creditors for Be not to dissolve, including in order to
permit Be to pursue (or more easily pursue) any retained claims or causes
of action, to abandon or delay the dissolution of Be until a future date
to be determined by the board of directors.
Although the Be board of directors did retain Lehman Brothers to assist in
the exploration of various strategic alternatives, including the sale of Be, it
did not ask Lehman Brothers to deliver a "fairness opinion"
8
confirming that the consideration to be issued by Palm is fair from a financial
point of view to the Be stockholders. Be management and Lehman Brothers, both
together and separately, contacted thirty-five companies, of which only Palm
decided to pursue a strategic or financial transaction with Be. The Be board of
directors concluded that with the assistance of Lehman Brothers, they had
thoroughly examined Be's alternatives, and had determined that the only
alternative reasonably likely to enable Be to satisfy its obligations and to
maximize any potential distributions to Be stockholders was the asset sale
transaction with Palm. The Be board of directors reached such a conclusion
independently and determined that, under the circumstances, the asset sale and
subsequent dissolution was in the best interests of the Be stockholders. The Be
board of directors also determined that the costs of obtaining a "fairness
opinion" from Lehman Brothers or any other third party would be
disproportionately higher than any corresponding benefits that would be
realized by obtaining such an opinion.
See "The Asset Sale and Dissolution of Be--Be's Reasons for the Asset Sale
and Dissolution of Be and Recommendation of the Be Board of Directors" for a
list of the material negative factors the Be board of directors considered. The
foregoing positive and negative factors together comprise the board's material
considerations in entering into the asset sale.
Recommendations to Be Stockholders (Page 51)
The Be board of directors has determined that the sale of certain of Be's
assets pursuant to the asset purchase agreement and the plan of dissolution are
in the best interests of the stockholders and creditors of Be. The Be board of
directors has approved the asset sale and the dissolution of Be, and recommends
that the stockholders of Be vote in favor of the asset sale and the dissolution
of Be.
The Special Meeting of Be Stockholders (Page 42)
Time, Date and Place. A special meeting of Be stockholders will be held on
Monday, November 12, 2001 at 10:00 a.m. local time at Holbrook Palmer Park --
The Pavilion, 150 Watkins Avenue, Atherton, California 94027.
Record Date and Voting Power. You are entitled to vote at the special
meeting if you owned shares of Be common stock at the close of business on
October 4, 2001, the record date for the special meeting. You will have one
vote at the special meeting for each share of Be common stock you owned at the
close of business on the record date. As of the record date, there are
36,792,563 outstanding shares of Be common stock entitled to be voted at the
special meeting.
Be Required Vote. The approval of both the asset sale and the dissolution of
Be pursuant to the plan of dissolution requires the affirmative vote of a
majority of the shares of Be common stock outstanding at the close of business
on the record date.
Share Ownership of Management. As of the record date, the directors and
executive officers of Be and their affiliates owned approximately 14% of the
shares entitled to vote at the special meeting. All of the directors and
executive officers of Be that own Be stock have agreed to vote their shares in
favor of approval of the asset sale and the dissolution of Be.
Interests of Some Officers and Key Employees of Be in the Asset Sale and
Dissolution (Page 52)
Several officers and key employees of Be have personal interests in the
asset sale and the dissolution of Be that are different from, or in addition
to, the interests of most Be stockholders. As part of its employee recruiting
and retention plan, Be has a policy of entering into change of control
agreements with employees considered to be critical to effectuating a
transaction such as the asset sale. Be is a party to change of control
agreements with each of the following senior executive officers and key
employees: P.C. Berndt, John Fursdon, Jean-Louis Gassee, Dan Johnston, Albert
Lombardo, Guillaume Perrotin, Lamar Potts, Pierre Raynaud-Richard, Steve
Sakoman and Lee Williams. Following a change of control, which includes the
closing of certain types of
9
transactions such as the asset sale, each of such agreements provides for a
lump sum severance payment equal to twelve-months' base salary and continued
group health insurance benefits for the executive and any eligible dependents
under COBRA for a period of up to twelve months.
In order to ensure the dedication and continued efforts of Be's employees
through the critical transition period up to the closing of the asset sale, the
Be board of directors approved grants of shares of common stock of Be in the
form of stock bonuses to employees, including some executive officers, still
employed with Be at the closing of the asset sale or who may be terminated by
Be without cause after July 30, 2001. In addition to these stock bonuses, the
board of directors of Be approved an aggregate of $867,000 in incentive cash
bonuses to certain designated employees, including certain executive officers,
for continuing to provide services to Be through the transition period and
thereafter, and to assist Be in fulfilling a condition to the closing of the
asset sale requiring that specified employees of Be, and a specified percentage
of Be's remaining employee workforce, remain employees of Be and have accepted
employment with Palm as of the closing.
Pursuant to the asset purchase agreement, it is contemplated that certain
officers of Be, including Steve Sakoman, Pierre Raynaud-Richard and Lee
Williams, will become employees of Palm following the closing of the asset
sale. In addition, Jean-Louis Gassee, the Chairman of Be, has accepted an offer
to serve as an advisor to the Platform Solutions Group committee of Palm's
board of directors effective upon the closing of the asset sale. Pursuant to
this arrangement, it is contemplated that Palm will grant Jean-Louis Gassee an
option to purchase 20,000 shares of Palm's common stock which will have an
exercise price equal to the fair market value on the closing date of the asset
sale and will vest monthly over the six months following the closing of the
asset sale (subject to his continued service).
Conditions to the Asset Sale (Page 58)
The obligations of each of Palm and Be to complete the asset sale are
subject to the satisfaction of specified conditions set forth in the asset
purchase agreement, including the approval of the asset sale and the
dissolution of Be by Be stockholders holding a majority of the outstanding
shares of Be common stock. In addition, Palm is not obligated to close the
asset sale unless at least seven out of eight "key employees" of Be as set
forth in the asset purchase agreement, including two specified key employees,
and at least 33 out of 42 other "designated employees" of Be as set forth in
the asset purchase agreement, shall have entered into "at-will" employment
arrangements with Palm.
Termination of the Asset Purchase Agreement (Page 62)
Each of Palm and Be is entitled to terminate the asset purchase agreement
under specified conditions, including, among others: mutual written consent of
the parties; if the asset sale has not been completed by December 31, 2001; if
a court issues a final and nonappealable order that prohibits the asset sale;
if the Be stockholders do not approve the asset sale; or if a triggering event
occurs, such as the failure of the board of directors of Be to recommend
approval of the asset sale to Be stockholders or the approval or endorsement by
the board of directors of Be of an alternative acquisition proposal.
Limitation on Considering Other Acquisition Proposals (Page 61)
Be has agreed not to consider a business combination or other similar
transaction with another party while the asset sale is pending unless the other
party has made an unsolicited, bona fide written offer to the Be board of
directors to purchase a majority of the outstanding shares of Be common stock
or all or substantially all of the assets of Be on terms that the Be board of
directors determines to be more favorable to its stockholders than the terms of
the asset sale.
10
Funding Agreement (Page 72)
Contemporaneously with the execution and delivery of the asset purchase
agreement, Palm and Be entered into a funding agreement whereby Palm agreed to
pay weekly fees to Be to compensate Be for employment expenses associated with
the continued development and enhancement of the BeOS and BeIA operating
systems and related technology until the earlier of the completion of the asset
sale or termination of the asset purchase agreement. Pursuant to the funding
agreement, Palm agreed to pay Be an amount equal to $2,500 multiplied by the
number of designated employees employed by Be at the start of the applicable
weekly period. The form of the funding agreement is attached to this proxy
statement/prospectus as Annex C, and you are urged to read it in its entirety.
Be is not required to submit the funding agreement to its stockholders for
their approval under Delaware law. Under no circumstances will Be be required
to repay to Palm any of the amounts received by Be under the funding agreement.
Stockholder Support Agreements (Page 72)
All of the directors and executive officers of Be entered into stockholder
support agreements with Palm contemporaneously with the execution and delivery
of the asset purchase agreement. Pursuant to the agreements, each director and
executive officer agreed to vote, and granted Palm an irrevocable proxy to
vote, all shares of Be common stock beneficially owned by them as of the record
date in favor of the approval of the asset sale and the dissolution pursuant to
the plan of dissolution and against any actions that would interfere with the
asset sale or dissolution. As of the record date, these individuals
collectively beneficially owned 4,961,070 shares of Be common stock, which
represented approximately 14% of the outstanding shares of Be common stock. The
form of stockholder support agreement is attached to this proxy
statement/prospectus as Annex D, and you are urged to read it in its entirety.
Non-Competition Agreements (Page 73)
Contemporaneously with the execution and delivery of the asset purchase
agreement, certain key employees of Be entered into non-competition agreements
with Palm whereby the key employee agreed, subject to the closing of the asset
sale and for a period of two years thereafter, not to compete with Palm in any
business activity competitive with Palm's operating system platform business
without the prior written consent of Palm. The non-competition agreements also
provide that the key employee may not solicit, encourage or take any other
action which is intended to induce or encourage, or could reasonably be
expected to have the effect of inducing or encouraging, any employee of Palm or
any of its subsidiaries to terminate his or her employment with Palm. The form
of non-competition agreement is attached to this proxy statement/prospectus as
Annex E, and you are urged to read it in its entirety.
Expenses (Page 63)
The asset purchase agreement provides that regardless of whether the asset
sale is completed, all expenses incurred by the parties shall be borne by the
party incurring such expenses.
Material U.S. Federal Income Tax Consequences (Page 53)
The asset sale and dissolution are taxable events to Be. While Be cannot
determine at this time its tax liability attributable to the asset sale and
dissolution, Be expects that it may incur some tax liability as a result of
such events. The receipt by Be stockholders of any liquidating distributions
that might be made by Be in connection with its dissolution would cause each
stockholder to recognize a gain or loss for federal income tax purposes. Such
gain or loss will be taxable as a capital gain or loss assuming that the Be
stockholder held his, her or its Be shares as a capital asset.
11
Tax matters can be complicated, and the tax consequences of the transactions
discussed in this proxy statement/prospectus to you will depend on the facts of
your own situation. You should consult your own tax advisor to fully understand
the tax consequences of the asset sale and dissolution of Be to you.
Accounting Treatment (Page 64)
The asset sale will be accounted for by Palm using the purchase method of
accounting. The purchase price will be allocated to the identifiable assets
acquired and will be recorded on Palm's books at their respective fair values
as determined on the closing date. A portion of the purchase price may be
identified as in-process research and development. This amount, if any, will be
charged to Palm's operations in the quarter in which the asset sale is
completed and the purchase accounting and valuation amounts are finalized. The
remaining purchase price will be recorded as goodwill.
Absence of Appraisal Rights (Page 55)
Be stockholders do not have appraisal rights in connection with the asset
sale or the dissolution of Be.
Regulatory Matters Relating to the Asset Sale and the Dissolution (Page 53)
Be is not aware of any regulatory or governmental requirements that must be
complied with or approvals that must be obtained in connection with the asset
sale or the dissolution other than the requirements of the Delaware General
Corporation Law governing the dissolution of Delaware corporations.
Selling Stockholder; Plan of Distribution (Pages 56 and 74)
This document also relates to the offer and resale by Be of all of the
shares of Palm common stock issued to it in the asset sale. It is anticipated
that the sale or distribution of all of the resale shares offered hereby will
be effected promptly after the closing of the asset sale by Be directly or
indirectly to or through brokers or dealers on the Nasdaq National Market, or
otherwise, at market prices prevailing at the time of sale, at prices related
to such prevailing market prices or at negotiated prices.
12
PALM SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The tables below present summary selected historical consolidated financial
data of Palm. The information set forth below should be read in conjunction
with Palm's annual report on Form 10-K for the fiscal year that ended on June
1, 2001, incorporated herein by reference and together with the section thereof
entitled "Management's Discussion and Analysis of Financial Condition and
Results of Operations," in addition to other annual reports, quarterly reports
and other information on file with the Securities and Exchange Commission.
The selected consolidated statements of operations for the three years in
the period ended June 1, 2001 and the selected condensed consolidated balance
sheet data as of June 1, 2001 and June 2, 2000 have been derived from Palm's
audited consolidated financial statements, incorporated by reference into this
proxy statement/prospectus, which have been audited by Deloitte & Touche LLP,
independent auditors, whose report is also incorporated by reference into this
proxy statement/prospectus. The selected consolidated statement of operations
data for the years ended May 31, 1998 and May 25, 1997 and the selected
condensed consolidated balance sheet data as of May 28, 1999 and May 31, 1998
have been derived from Palm's audited financial statements not included or
incorporated by reference into this proxy statement/prospectus. The selected
condensed consolidated balance sheet data as of May 25, 1997 has been derived
from Palm's unaudited consolidated financial data not included or incorporated
by reference into this proxy statement/prospectus. Certain reclassifications
have been made to prior periods to conform to the current period presentation.
Such reclassifications had no effect on net income (loss) or net income (loss)
per share. The historical financial information may not be indicative of Palm's
future performance.
Years Ended
-------------------------------------------------
May 25, May 31, May 28, June 2, June 1,
1997 1998 1999 2000 2001
-------- -------- -------- ---------- ----------
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Revenues...................................... $114,157 $272,137 $563,525 $1,057,597 $1,559,312
Gross profit.................................. 36,472 114,388 247,909 444,514 226,338
Net income (loss)............................. (7,862) 4,171 29,628 45,910 (356,476)
Net income (loss) per share:
Basic...................................... $ (0.01) $ 0.01 $ 0.06 $ 0.09 $ (0.63)
Diluted.................................... $ (0.01) $ 0.01 $ 0.06 $ 0.09 $ (0.63)
Shares used in computing net income (loss) per
share:
Basic...................................... 532,000 532,000 532,000 539,739 566,132
Diluted.................................... 532,000 532,000 532,000 539,851 566,132
As of As of As of As of As of
May 25, May 31, May 28, June 2, June 1,
1997 1998 1999 2000 2001
-------- -------- -------- ---------- ----------
(in thousands)
Condensed Consolidated Balance Sheet Data:
Cash and cash equivalents..................... $ -- $ -- $ 478 $1,062,128 $ 513,769
Working capital............................... 26,963 53,354 12,682 1,012,476 350,668
Total assets.................................. 45,984 115,359 152,247 1,282,676 1,297,251
Payable to 3Com Corporation................... 4,412 15,617 40,509 18,374 --
Total stockholders' equity.................... 31,245 65,675 34,018 1,029,188 734,152
13
BE SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA
The following summary selected historical consolidated financial data for Be
should be read in conjunction with Be's financial statements included in this
proxy statement/prospectus and together with the section herein entitled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," in addition to other annual reports, quarterly reports and other
information of Be on file with the Securities and Exchange Commission.
The consolidated financial data for the three fiscal years ended December
31, 2000, December 31, 1999 and December 31, 1998, and the consolidated balance
sheet data as of December 31, 2000 and December 31, 1999, have been derived
from Be's audited consolidated financial statements, included in this proxy
statement/prospectus, which have been audited by PricewaterhouseCoopers LLP,
independent accountants, whose report is also included in this proxy
statement/prospectus. The consolidated statement of operations data for the
years ended December 31, 1997 and December 31, 1996, and the consolidated
balance sheet data as of December 31, 1998, December 31, 1997 and December 31,
1996, are derived from Be's audited financial statements not included or
incorporated by reference into this proxy statement/prospectus. The
consolidated statement of operations data for the six months ended June 30,
2001 and June 30, 2000, and the consolidated balance sheet data as of June 30,
2001, are derived from Be's unaudited financial statements included in this
prospectus/proxy statement and which, in the opinion of management, include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair statement of the results for the unaudited interim periods. The historical
results presented below are not necessarily indicative of future results.
The consolidated statement of operations data below and consolidated balance
sheet and other data below reflects Be's operations, including the following:
(1) The cost of revenues for the year ended December 31, 1998 includes a
$1.2 million expense attributable to the write-off of capitalized costs
relating to the acquisition of technology no longer useful to the
development of BeOS.
(2) Operating expenses include the amortization of deferred compensation
which was recorded by Be and which represents the difference between the
deemed fair value of Be's common stock, as determined for accounting
purposes and the exercise price of options at the date of grant. For the
purposes of the financial statements, this expense was disclosed as being
applicable to each line item.
14
Be Incorporated
Six Months Ended
Year Ended December 31, June 30,
----------------------------------------------- -----------------
1996 1997 1998 1999 2000 2000 2001
------- -------- -------- -------- -------- -------- -------
(in thousands, except per share data)
Consolidated Statement of Operations Data:
Net revenues.......................................... $ -- $ 86 $ 1,199 $ 2,656 $ 480 $ 396 $ 815
Cost of revenues(1)................................... -- 84 2,161 1,436 1,097 554 571
------- -------- -------- -------- -------- -------- -------
Gross profit (loss)................................... -- 2 (962) 1,220 (617) (158) 244
Operating expenses(2):
Research and development............................ 3,629 5,170 8,133 10,429 9,139 4,500 4,807
Sales and marketing................................. 2,971 4,452 5,617 10,966 7,812 4,400 2,074
General and administrative.......................... 1,397 1,393 2,729 5,120 4,740 2,724 2,596
Restructuring charge................................ -- -- -- -- -- -- 450
------- -------- -------- -------- -------- -------- -------
Total operating expenses........................... 7,997 11,015 16,479 26,515 21,691 11,624 9,927
------- -------- -------- -------- -------- -------- -------
Loss from operations.................................. (7,997) (11,013) (17,441) (25,295) (22,308) (11,782) (9,683)
Other income, net..................................... 220 580 580 789 1,156 663 230
------- -------- -------- -------- -------- -------- -------
Net loss.............................................. $(7,777) $(10,433) $(16,861) $(24,506) $(21,152) $(11,119) $(9,453)
======= ======== ======== ======== ======== ======== =======
Net loss attributable to common stockholders.......... $(7,902) $(10,448) $(18,423) $(24,798) $(21,152) $(11,119) $(9,453)
======= ======== ======== ======== ======== ======== =======
Net loss per common share--basic and diluted.......... $(10.85) $ (4.87) $ (5.80) $ (1.41) $ (0.60) $ (0.32) $ (0.26)
======= ======== ======== ======== ======== ======== =======
Shares used in per common share calculation--basic and
diluted.............................................. 728 2,145 3,178 17,589 35,533 35,247 36,330
======= ======== ======== ======== ======== ======== =======
As of December 31, As of
-------------------------------------------- June 30,
1996 1997 1998 1999 2000 2001
------- -------- -------- ------- ------- --------
(in thousands)
Consolidated Balance Sheet Data:
Cash, cash equivalents and short-term investments..... $ 6,670 $ 899 $ 11,648 $29,129 $14,057 $4,902
Working capital (deficit)............................. 6,222 (3,206) 9,702 26,740 12,205 3,935
Total assets.......................................... 7,385 1,303 13,634 32,310 16,071 6,558
Long-term liabilities................................. -- -- 779 597 320 238
Mandatory redeemable convertible preferred stock...... 14,037 14,052 38,005 -- -- --
Total stockholders' equity (deficit).................. $(7,570) $(16,978) $(27,900) $28,427 $13,324 $4,721
15
COMPARATIVE HISTORICAL AND PRO FORMA PER SHARE DATA
The following table sets forth the historical net loss and the book value
per share of Palm and Be common stock, and the combined per share data for Palm
on an unaudited pro forma basis after giving effect to the proposed asset sale
using the purchase method of accounting. The following data should be read in
connection with the separate historical consolidated financial statements of
Palm and Be, which are incorporated by reference into or included in this proxy
statement/prospectus.
The unaudited pro forma combined per share data is presented for
illustrative purposes only and is not necessarily indicative of the operating
results or financial position that would have occurred if the transactions had
been consummated at the beginning of the earliest period presented, nor is it
necessarily indicative of future operating results or financial position. The
pro forma adjustments are estimates based upon information and assumptions
available at the time of the filing of this proxy statement/prospectus.
Year Ended
June 1, 2001
-------------
Historical Palm:
Net loss per share:
Basic.............................................. $(0.63)
Diluted............................................ (0.63)
Book value per share at the end of the period(1)...... 1.29
Twelve Months
Ended
June 30, 2001
-------------
Historical Be(3):
Net loss per share:
Basic.............................................. $(0.54)
Diluted............................................ (0.54)
Book value per share at the end of the period(1)...... 0.13
Year Ended
June 1, 2001
-------------
Palm Pro Forma Combined(4):
Pro forma combined net loss per share:
Basic.............................................. $(0.64)
Diluted............................................ (0.64)
Pro forma book value per Palm share at the end of the
period(2)........................................... 1.27
--------
(1) Historical book value per share is computed by dividing total stockholders'
equity by the number of shares of Palm or Be common stock outstanding at
the end of the period.
(2) Pro forma combined book value per share is computed by dividing pro forma
total stockholders' equity by the pro forma number of shares of Palm common
stock outstanding at the end of the period assuming the proposed asset sale
had occurred on that date.
(3) The Be historical data has been derived from the historical financial
statements of Be; however, the period presented was selected to conform
more closely with Palm's fiscal year end rather than the historical
presentation of Be's year end of December 31.
(4) The pro forma combined per share information is computed by dividing the
pro forma net loss by Palm's weighted average common and equivalent shares
outstanding plus the number of shares of Palm common stock equal to the
quotient determined by dividing $11,000,000 by the opening price of Palm's
common stock as quoted on the Nasdaq National Market on October 3, 2001 of
$1.46.
16
COMPARATIVE PER SHARE MARKET PRICE DATA
Be's Market Price Data
Be's common stock is listed on the Nasdaq National Market under the symbol
"BEOS." Public trading of the common stock commenced on July 20, 1999. This
table sets forth, for the periods indicated, the high and low closing sales
prices for Be's common stock as reported on the Nasdaq National Market. Be's
fiscal year ends on December 31 of each year.
Be Common Stock
---------------
High Low
------ ------
Fiscal Year Ended December 31, 1999
Third quarter.................................... $ 8.66 $ 6.00
Fourth quarter................................... $37.56 $ 3.81
Fiscal Year Ended December 31, 2000
First quarter.................................... $27.19 $12.88
Second quarter................................... $16.63 $ 3.75
Third quarter.................................... $ 6.00 $ 3.91
Fourth quarter................................... $ 4.00 $ 0.66
Fiscal Year Ending December 31, 2001
First quarter.................................... $ 2.22 $ 0.88
Second quarter................................... $ 1.44 $ 0.45
Third quarter.................................... $ 0.12 $ 0.62
Fourth quarter (through October 3, 2001)......... $ 0.17 $ 0.20
Palm's Market Price Data
Palm's common stock is listed on the Nasdaq National Market under the symbol
"PALM." Public trading of the common stock commenced on March 2, 2000. This
table sets forth, for the periods indicated, the high and low closing sales
prices for Palm's common stock as reported on the Nasdaq National Market.
Palm's fiscal year ends on the Friday nearest to May 31 of each year.
Palm Common Stock
-----------------
High Low
------ ------
Fiscal Year Ended June 2, 2000
Fourth quarter................................... $95.06 $20.81
Fiscal Year Ended June 1, 2001
First quarter.................................... $45.00 $25.44
Second quarter................................... $66.94 $34.50
Third quarter.................................... $56.63 $17.38
Fourth quarter................................... $22.06 $ 5.05
Fiscal Year Ending May 31, 2002
First quarter.................................... $ 6.26 $ 3.58
Second quarter (through October 3, 2001)......... $ 3.56 $ 1.46
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Recent Closing Prices
The following table sets forth the closing per share sales prices of Be
common stock and Palm common stock, as reported on the Nasdaq National Market,
on August 15, 2001, the last full trading day before the public announcement of
the proposed asset sale, and on October 3, 2001, the most recent practicable
trading day prior to the printing of this proxy statement/prospectus:
Be Common Stock Palm Common Stock
--------------- -----------------
August 15, 2001........................ $0.46 $4.20
October 3, 2001........................ $0.17 $1.54
Following the closing of the asset sale transaction, Palm common stock will
continue to be listed on the Nasdaq National Market; however, since Be intends
to sell for cash the Palm shares received in the transaction promptly following
the closing, the listing status of Palm shares following such sale is not
currently anticipated to have any effect on Be. Since Be's common stock no
longer meets all of the requirements for listing on the Nasdaq National Market,
Be's common stock will likely be delisted from the Nasdaq National Market
following the closing of the asset sale. After delisting, the ability to buy
and sell shares of Be common stock may be materially impaired, which would
likely have an adverse effect on the price and liquidity of Be common stock.
Other than the $150 million cash dividend paid by Palm to 3Com Corporation,
Palm's former parent company, out of the proceeds from Palm's initial public
offering, neither Palm nor Be has ever declared or paid cash dividends on its
common stock. The policy of Palm is to retain earnings for use in its
businesses. While Be intends to make one or more distributions to its
stockholders out of the net proceeds from the Palm shares received in the asset
sale, Be cannot predict at this time the amount of any such distributions, if
any.
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RISK FACTORS
When you decide whether to vote for approval of the asset sale and the
dissolution, you should consider the following factors in conjunction with the
other information included or incorporated by reference in this proxy
statement/prospectus.
Risks Relating to the Asset Sale
Whether or not the asset sale is completed, Be may not be able to pay, or
provide for the payment of, all of its liabilities and obligations. If the sale
is not completed, it is likely that Be will file for or be forced into
bankruptcy by its creditors and no assets may be available for distribution to
Be stockholders.
If the asset sale is not completed, Be believes that it is likely that it
will file for or be forced to resort to bankruptcy protection. In this event,
it is extremely unlikely that Be would be able to pay, or provide for the
payment of, all of its liabilities and obligations, and, therefore, there would
be no assets available for distribution to Be's stockholders. Even if the
parties complete the asset sale, the proceeds provided by the sale of the Palm
stock received at the closing, together with Be's other assets, may not be
sufficient to pay, or provide for the payment of, all of Be's known and unknown
liabilities and obligations. If the proceeds from the asset sale together with
Be's other assets were insufficient to pay or provide for the payment of Be's
liabilities and other obligations, it is likely that Be could be required to
file for or be forced to resort to bankruptcy protection. Further, if there are
insufficient proceeds from the asset sale to pay or otherwise provide for the
liabilities and obligations of Be, there will be no assets available for
distribution to Be's stockholders.
Even if Be's stockholders approve the asset sale, the asset sale may not be
completed and it is likely that Be could be required to file for or be forced
to resort to bankruptcy protection.
The completion of the asset sale is subject to numerous conditions. Even if
stockholders of Be holding a majority of the outstanding shares of Be common
stock vote to approve the asset sale and the dissolution, Be cannot guarantee
that the asset sale will be completed. If it is not completed, Be would likely
not be able to sell its assets to another buyer on terms as favorable as those
provided in the asset purchase agreement, or at all, which would mean that it
is likely that Be could be required to file for or be forced to resort to
bankruptcy protection.
Failure to hire and retain key employees could diminish the benefits of the
asset sale to Palm and could prevent consummation of the asset sale.
It is a condition to closing the asset sale that seven out of eight
employees of Be designated as "key employees" and 33 out of 42 other designated
employees of Be enter into "at will" employment arrangements with Palm as of
the closing date of the asset sale. Therefore, failure by Palm to effectively
recruit these employees could prevent consummation of the asset sale.
Furthermore, the successful integration of the Be assets into Palm's current
business operations will depend in part on the hiring and retention of
personnel critical to the business and operations of Palm and the Be operating
systems business. The Be employees to be hired by Palm in connection with the
asset sale have technical and engineering expertise that is in high demand and
short supply. Palm may be unable to retain technical and engineering personnel
that are critical to the successful integration of the Be assets, which may
result in loss of key information, expertise or know-how and unanticipated
additional recruiting and training costs and otherwise diminishing anticipated
benefits of the asset sale for Palm and its stockholders.
The proceeds from the sale of the Palm common stock received in the asset sale
are uncertain.
If the transactions contemplated by the asset purchase agreement are
completed, Be intends to sell the Palm shares received in the transaction for
cash promptly following the closing. Although the Palm shares issued to Be will
have a value of $11,000,000 (subject to adjustment under certain
circumstances), based on the opening price of Palm common stock as quoted on
the Nasdaq National Market on the closing date of the transaction, the actual
proceeds realized by Be from the sale of the shares is likely to be less than
$11,000,000 after payment of commissions and expenses. Furthermore, Be may not
be able to promptly resell the shares as a result of market
19
conditions, securities laws restrictions or other factors. Accordingly, Be will
bear market risk with respect to a decline in the trading price of Palm's stock
between closing and the time Be is able to sell the shares. See "Be's Use of
Proceeds from the Sale of Palm Common Stock" for a summary of Be's estimated
known obligations that must be paid before any distributions may be made to Be
stockholders.
Failure to complete the asset sale could cause Be's stock price to decline.
If the asset sale is not completed, Be's stock price may decline due to any
or all of the following potential consequences:
. Be may not be able to dispose of its assets for values equaling or
exceeding those currently estimated by Be; in particular, the assets that
are the subject of the asset sale will likely be substantially diminished
in value;
. Be may file for or be forced into bankruptcy;
. Be's costs related to the asset sale, such as legal, accounting and
financial advisor fees, must be paid even if the asset sale is not
completed; and
. Be may have difficulty retaining its key remaining personnel.
In addition, if the asset sale is not completed, Be's stock price may
decline to the extent that the current market price of Be common stock reflects
a market assumption that the asset sale will be completed.
Following the completion of the asset sale, Be may no longer have access to
certain intellectual property assets or the human resources, including the
services of certain key employees, necessary to fulfill its obligations under
existing agreements with third parties.
Upon the completion of the asset sale, Be will have sold its rights, title
and interest in substantially all of its intellectual property and other
technology assets, including those related to the BeOS and BeIA operating
systems, to Palm. Because of this, Be may no longer be able to comply with its
existing contractual obligations or commitments under certain license
agreements, distribution agreements and service contracts with third parties
that are not to be transferred to Palm in the asset sale. In addition, under
the terms of the asset purchase agreement, at least 33 designated employees and
seven key employees shall have entered into "at-will" employment arrangements
with Palm at the closing of the transaction. As a result of this, after the
closing of the asset sale, Be will have no more than seven employees. The loss
of the services of any of Be's executive officers or other key employees, and
the loss of a significant portion of Be's current workforce to Palm could
prevent Be from effectively continuing its operations and fulfilling its
contractual obligations with third parties under existing agreements before the
dissolution of Be.
If Palm is not successful in integrating the Be operating system business,
Palm's operations may be affected.
Palm's ability to realize some of the anticipated benefits of the asset sale
will depend in part on Palm's ability to integrate the assets purchased from Be
into Palm's current operations in a timely and efficient manner. This
integration may be difficult and unpredictable because Palm's current products
are highly complex and have been developed independently from those of Be.
Successful integration requires coordination of different development and
engineering teams. If Palm cannot successfully integrate the Be assets with its
operations, Palm may not realize some of the expected benefits of the asset
sale.
Risks Relating to the Dissolution of Be
Be cannot determine at this time whether any distributions will be made to its
stockholders or the amount of any such distributions to its stockholders,
because there are a variety of factors, some of which are outside of Be's
control, that could affect the ability of Be to make distributions to its
stockholders.
Be cannot determine at this time the amount of or whether there will be any
distributions to its stockholders because that determination depends on a
variety of factors, including, but not limited to, the likelihood of closing
the asset sale, the net proceeds from the sale of the Palm shares received in
the asset sale, the value of Be's other
20
assets, the amount of Be's unknown debts and liabilities to be paid in the
future, the resolution of pending litigation and other contingent liabilities,
general business and economic conditions and other matters. The amount of
proceeds from the asset sale and the amount to be distributed to Be
stockholders, if any, are subject to various significant uncertainties, many of
which are beyond Be's control. See "Principal Provisions of the Plan of
Dissolution -- Liquidating Distributions; Nature; Amount; Timing." Examples of
uncertainties that could reduce the value of or eliminate distributions to Be
stockholders include the following:
. Changes in the anticipated net proceeds from the sale of the Palm shares
received in the asset sale, the amount of Be's liabilities and obligations
and the estimate of the costs and expenses of the asset sale and Be's
dissolution, including any resulting tax liabilities.
. If liabilities of Be that are unknown or contingent later arise or become
fixed in amount and must be satisfied or reserved for as part of the
dissolution.
. Delays in completing the asset sale or the dissolution of Be that could
result in additional expenses and result in reductions in distributions to
Be stockholders.
. A decline in the value of Palm common stock between the time Be receives
the shares of Palm stock as consideration for the asset sale and the time
Be is reasonably able to dispose of such shares.
For the foregoing reasons, there can be no assurance that there will be any
distributions to Be stockholders, or as to the amount of such distributions,
even if the asset sale is completed.
Be's board of directors may abandon or delay implementation of the plan of
dissolution even if it is approved by Be's stockholders.
Be's board of directors has adopted a plan of dissolution for the
dissolution and winding-up of Be following the completion of the asset sale.
Even if the plan of dissolution is approved and adopted by Be's stockholders,
Be's board of directors has reserved the right, in its discretion, to abandon
or delay implementation of the plan of dissolution for various reasons,
including in order to permit Be to pursue (or more easily pursue) any retained
claims or causes of action.
Be's stockholders may be liable to creditors of Be for an amount up to the
amount received from Be if Be's reserves for payments to creditors are
inadequate.
If the plan of dissolution is approved by Be's stockholders, and the board
of directors of Be determines to proceed with the dissolution of Be, a
certificate of dissolution will be filed with the State of Delaware dissolving
Be. Pursuant to the Delaware General Corporation Law, or Delaware law, Be will
continue to exist for three years after the dissolution becomes effective or
for such longer period as the Delaware Court of Chancery shall direct for the
purpose of prosecuting and defending suits against it and enabling Be to close
its business, to dispose of its property, to discharge its liabilities and to
distribute to its stockholders any remaining assets. Under applicable Delaware
law, in the event Be fails to create an adequate contingency reserve for
payment of its expenses and liabilities during this three-year period, each Be
stockholder could be held liable for payment to Be's creditors of such
stockholder's pro rata share of amounts owed to creditors in excess of the
contingency reserve. The liability of any stockholder would be limited to the
amounts previously received by such stockholder from Be (and from any
liquidating trust or trusts). Accordingly, in such event a stockholder could be
required to return all distributions previously made to such stockholder. In
such event, a stockholder could receive nothing from Be under the plan of
dissolution. Moreover, in the event a stockholder has paid taxes on amounts
previously received, a repayment of all or a portion of such amount could
result in a stockholder incurring a net tax cost if the stockholder's repayment
of an amount previously distributed does not cause a commensurate reduction in
taxes payable. There can be no assurance that the contingency reserve
established by Be will be adequate to cover any expenses and liabilities.
However, Be intends to exercise caution in making distributions to stockholders
in order to minimize this type of risk. See "Principal Provisions of the Plan
of Dissolution -- Contingent Liabilities; Contingency Reserve; Liquidating
Trust."
21
If Be fails to retain the services of current key personnel, the plan of
dissolution may not succeed.
The success of the plan of dissolution depends in large part upon Be's
ability to retain the services of certain of its current personnel who will not
become employed by Palm at the closing, or to attract qualified replacements
for them. The retention of qualified personnel is particularly difficult under
Be's current circumstances. For this reason and others discussed below, Be has
entered into incentive arrangements with certain executive officers and
employees. See "The Asset Sale and Dissolution of Be -- Interests of Some Be
Officers and Directors in the Asset Sale and Dissolution of Be."
Be expects its stock to be delisted from the Nasdaq National Market in the near
future.
Be expects it will be unable to satisfy the requirements for continued
listing of its common stock on the Nasdaq National Market following the closing
of the asset sale. Rules of the Nasdaq National Market require that companies
listed on the Nasdaq National Market continue to have an operating business. If
Be completes its plans to conclude business activities it will no longer have
an operating business. In addition, as Be distributes cash to its stockholders,
certain other listing criteria may not be met. If Nasdaq delists Be's common
stock from the Nasdaq National Market, the ability of stockholders to buy and
sell shares will be materially impaired, and the trading price of Be common
stock may be materially impaired.
Be's board members may have a potential conflict of interest in recommending
approval of the asset sale and the plan of dissolution.
Members of the Be board of directors may be deemed to have a potential
conflict of interest in recommending approval of the asset sale and the plan of
dissolution. See "The Asset Sale and Dissolution of Be -- Interests of Some Be
Officers and Directors in the Asset Sale and Dissolution of Be."
If Be's board of directors abandons or delays implementation of the plan of
dissolution after the completion of the asset sale, Be may be the potential
target of a reverse acquisition.
If Be's board of directors decides to delay implementation of the plan of
dissolution following completion of the asset sale, Be will continue to exist
as a public shell company. Public companies that exist as non-operating shell
entities have from time to time been the target of reverse acquisitions by
private companies seeking to bypass the costly and time-intensive registration
process to become publicly traded companies. If Be becomes the target of a
successful reverse acquisition, the new board of directors of Be could
potentially decide to either delay or completely abandon the dissolution, and
Be stockholders may not receive any proceeds that would have otherwise been
distributed in connection with the dissolution.
Risks Relating to Palm
Investors in Palm's common stock should consider the following factors in
conjunction with the other information included or incorporated by reference in
this proxy statement/prospectus in evaluating Palm and its business before
purchasing shares of Palm's common stock. Stockholders of Be will not receive
shares of Palm's common stock in connection with either the asset sale or the
dissolution. In addition, if Be were to be unsuccessful in liquidating for cash
the Palm shares to be received by it in the asset sale promptly following the
closing of the asset sale, it (and indirectly the stockholders of Be) would,
pending the completion of such liquidation, become subject to the risks
inherent in owning common stock of Palm. These risks include, without
limitation, the following risks. These risks could also potentially affect
Palm's ability to complete the asset sale transaction.
Company-Specific Trends and Risks:
Risks Related to Palm's Business
If Palm fails to develop and introduce new products and services timely and
successfully, Palm will not be able to compete effectively and Palm's ability
to generate revenues will suffer.
Palm operates in a highly competitive, quickly changing environment, and
Palm's future success depends on its ability to develop and introduce new
products and services that its customers and end users choose to buy. If Palm
is unsuccessful at developing and introducing new products and services that
are appealing to end users
22
with acceptable prices and terms, Palm's business and operating results would
be negatively impacted because Palm would not be able to compete effectively
and its ability to generate revenues would suffer.
The development of new products and services can be very difficult and
requires high levels of innovation. The development process is also lengthy and
costly. If Palm fails to anticipate its end users' needs and technological
trends accurately or are otherwise unable to complete the development of
products and services in a timely fashion, Palm will be unable to introduce new
products and services into the market to successfully compete. For example, in
the fourth quarter of fiscal year 2001, Palm introduced its m500 and m505
handheld device products that feature a Secure Digital expansion slot. The
production release for these products was delayed and production volumes ramped
later than Palm had originally expected, which negatively impacted Palm's
fourth quarter revenues and operating results. Palm cannot assure you that it
will be able to introduce other products on a timely or cost-effective basis or
that customer demand for the m500 series or other products will meet Palm's
expectations. In addition, Microsoft has announced that it will release later
in calendar year 2001 Windows XP, a new version of its operating system for
desktop and laptop computers, and Apple has recently released a new version of
its Mac OS desktop and laptop operating system. Demand for Palm's products
could be adversely affected if Palm does not timely release new versions of its
products that interoperate with these new operating systems, and additional
development and technical support resources could be required to fix any
incompatibilities which arise, which could adversely affect Palm's results of
operations.
Because the sales and marketing life cycle of Palm's handheld solutions is
generally 12 to 18 months or less, Palm must:
. continue to develop updates to the Palm platform, new handheld devices and
new wireless services, or Palm's existing products and services will
quickly become obsolete;
. manage the timing of new product introductions so that Palm minimizes the
impact of customers delaying purchases of existing products in
anticipation of new product releases;
. manage the timing of new product introductions to meet seasonal market
demands;
. manage the levels of inventories to minimize inventory write-offs; and
. adjust the prices of Palm's products and services over the course of their
life cycles in order to increase or maintain customer demand for these
products and services.
If Palm does not correctly anticipate demand for its products, Palm could have
costly excess production or inventories or Palm may not be able to secure
sufficient quantities or cost-effective production of its handheld devices.
The demand for Palm's products depends on many factors and is difficult to
forecast, in part due to the market for Palm's products being relatively new,
variations in economic conditions and relatively short product life cycles. As
Palm introduces and supports additional handheld device products and as
competition in the market for Palm's products intensifies, Palm expects that it
will become more difficult to forecast demand. Significant unanticipated
fluctuations in demand could adversely impact Palm's financial results and
cause the following problems in Palm's operations:
. If forecasted demand does not develop, Palm could have excess production
resulting in higher inventories of finished products and components, which
would use cash and could lead to write-offs of some or all of the excess
inventories, increased returns and price promotion actions each of which
could result in lower revenue or lower gross margins. In addition, Palm
may also incur certain costs, such as fees for excess manufacturing
capacity and cancellation of orders and charges associated with excess and
obsolete materials and goods in Palm's inventory, which could result in
lower margins and increased cash usage. For example, in Palm's fourth
quarter of fiscal year 2001, Palm's sales were lower than Palm had
previously forecasted. Because demand was lower than the manufacturing
quantities to which Palm had previously committed, Palm's inventory
balances and inventory commitments were higher than Palm's forecasted
future sales for certain products. In the fourth quarter of fiscal year
2001, Palm took a charge
23
of $268.9 million for excess inventory and related costs. Palm also
implemented pricing actions in order to assist its channel customers in
selling their Palm product inventory. These pricing actions lowered Palm's
revenue and gross margins.
. If Palm does not correctly anticipate declines in demand, its future
results of operations, liquidity and capital resources may be impacted.
For instance, in the fourth quarter of fiscal year 2001, Palm experienced
a sudden and unanticipated significant decrease in demand for its
products. As a result, Palm incurred a charge to cost of revenues of
$268.9 in the fourth quarter of fiscal year 2001 related to excess
inventory and related costs, including $124.7 for non-cancelable component
commitments which will impact cash flow in fiscal year 2002. In addition,
due to this decrease in demand for its products,Palm experienced reduced
revenues, an operating loss and negative cash flow from operations in the
first quarter of fiscal year 2002. Palm initiated cost reduction actions
in the fourth quarter of fiscal year 2001. These actions reduced Palm's
cost structure for fiscal year 2002. However, if the decrease in demand
continues or worsens, Palm will continue to experience decreased revenues
and will experience operating losses and negative cash flow from
operations until such time as Palm is able to realize the benefit of
additional reductions in its operating cost structure or until demand
recovers.
. If demand increases beyond what Palm forecasts, Palm may have to increase
production at its third party manufacturers. Palm depends on its suppliers
to provide additional volumes of components and those
suppliers might not be able to increase production rapidly enough to meet
unexpected demand or may choose to allocate capacity to other customers.
Even if Palm is able to procure enough components, Palm's third party
manufacturers might not be able to produce enough of Palm's devices to
meet the market demand for Palm's products. The inability of either Palm's
manufacturers or Palm's suppliers to increase production rapidly enough
could cause Palm to fail to meet customer demand. For example, in the
first three quarters of fiscal year 2001, Palm experienced shortages of
some key components, which resulted in an inability to meet customer
demand for some of Palm's products.
. Rapid increases or decreases in production levels could result in higher
costs for manufacturing, supply of components and other expenses. These
higher costs could lower Palm's profits. Furthermore, if production is
increased rapidly, manufacturing yields could decline, which may also
lower Palm's profits.
Palm's quarterly operating results are subject to fluctuations and seasonality,
and if Palm fails to meet the expectations of securities analysts or investors,
Palm's share price may decrease significantly.
Palm's operating results are difficult to predict. Palm's future quarterly
operating results may fluctuate significantly and may not meet Palm's
expectations or those of securities analysts or investors. If this occurs, the
price of Palm's stock would likely decline. Factors that may cause fluctuations
in Palm's operating results include the following:
. Seasonality. Historically, Palm's revenues have usually been weaker in the
first and third quarters of each fiscal year and have, from time to time,
been lower than the preceding quarter. This seasonality is due to Palm's
devices being highly consumer-oriented, and consumer buying being
traditionally lower in these quarters. In addition, Palm attempts to time
its new product releases to coincide with relatively higher consumer
spending in the second and fourth fiscal quarters, which contributes to
these seasonal variations.
. Fluctuations in Operating Expenses. Palm has embarked on a cost reduction
and restructuring program which it expects will lower overall expenses.
The cost reduction and restructuring program includes actions taken or
announced in the fourth quarter of fiscal year 2001 to reduce Palm's
workforce of both employees and contractors, actions taken to consolidate
or reduce facilities, and cancellation of certain projects. Palm is also
evaluating and taking other actions to reduce costs. To the extent that
Palm is not able to achieve the planned expense reductions, Palm's
operating results and ability to operate the business could be adversely
impacted. It is possible that additional changes in the economy, in
competition, or in Palm's business may necessitate additional
restructuring activities and expenses in the future that may affect Palm's
operating results and Palm's business could be adversely impacted.
24
. Economic Conditions. Demand for Palm's products and services by consumers,
individual business users as well as by enterprise customers is effected
by economic conditions. For example, in the fourth quarter of fiscal year
2001, Palm's business was impacted globally by an economic slowdown. In
the current economic environment, demand is difficult to predict and
revenue could fluctuate significantly from Palm's forecasts. The terrorist
attacks in the United States that occurred in September 2001 add further
uncertainty to worldwide economic forecasts, including both end-user and
enterprise demand.
. Revenue Mix and Pricing. Palm's profit margins differ among the handheld
device, Palm platform licensing and wireless services parts of Palm's
business. In addition, the product mix and sales prices of Palm's device
products affect profit margins in any particular quarter. The product mix
and sales prices of Palm's device products in a particular quarter depend
in part on the timing of new product introductions and the relative demand
for different products in Palm's product offerings. For example, in the
fourth quarter of fiscal year 2001, Palm offered price protection to its
resellers in connection with Palm's reduction in the price of certain
products, such as the Palm Vx and the Palm VIIx devices, as well as other
pricing and promotion programs, which resulted in lower gross margins.
Palm cannot anticipate with certainty when it will need to take actions
such as these and its profit margins will fluctuate from quarter to
quarter depending on the timing of such pricing and promotion actions. In
addition, as Palm's business evolves and the mix of revenues from devices,
licenses and services varies from quarter to quarter, Palm's operating
results will likely fluctuate.
. New Product Introductions and Transitions. As Palm introduces new products
and services, the timing of these introductions will affect Palm's
quarterly operating results. Palm may have difficulty predicting the
timing of new product and service introductions and the user acceptance of
these new products and services. If products and services are introduced
earlier or later than anticipated, or if user acceptance is unexpectedly
high or low, Palm's quarterly operating results may fluctuate
unexpectedly. For example, Palm believes its sales were negatively
impacted by the delay of the volume availability of the m500 and m505
devices because potential purchasers postponed buying certain other
products in anticipation of this availability. In addition, Palm cannot
predict the timing of new product and service introductions from Palm's
competitors or the level of market acceptance they will achieve. As a
result, if a competitor introduces a product, users may delay purchasing
Palm's products while they wait for the release of Palm's competitor's
product or purchase Palm's competitor's product instead of Palm's, which
would cause Palm's quarterly operating results to fluctuate unexpectedly.
. Quarterly Linearity of Revenues. In each of the four quarters of fiscal
year 2001, Palm shipped a significant and increasing percentage of Palm's
quarterly revenues in the latter weeks of the third month of each quarter
due primarily to issues related to component availability and
manufacturing ramps. Shipping a high percentage of Palm's quarterly
revenues near the end of the quarter subjects Palm to risks such as
unexpected disruptions in component availability, manufacturing, order
management, information systems and shipping. If a significant disruption
occurs, Palm's results of operations or financial condition could be
adversely affected. In addition, shipping a significant portion of the
quarterly revenues near the end of the quarter could also cause Palm's
channel customers to delay placing new orders until later in the following
quarter when they have reduced their inventory levels. This makes
projecting quarterly results difficult.
. Use of Purchase Orders with Customers. Palm relies on one-time purchase
orders rather than long-term purchase contracts with its customers.
Because Palm cannot predict with certainty incoming purchase orders,
decreases in orders or failure to fulfill orders may cause Palm's
operating results to fluctuate.
. Product Introductions by Palm's Licensees. Palm derives licensing revenue
from the sale of products by Palm's licensees. Because Palm cannot predict
with certainty the timing of new product introductions by Palm's licensees
or the level of market acceptance such products will achieve, it is
difficult to predict the level of licensing revenue in a particular
quarter. If one of Palm's licensees fails to introduce a new product on
its anticipated schedule or at all, Palm's quarterly operating results
could suffer. In addition, increased demand for Palm's licensees' products
could negatively impact sales of Palm's handheld devices, which could
adversely impact Palm's operating results.
25
Palm relies on third party manufacturers and distributors to manufacture and
distribute Palm's handheld devices, and Palm's reputation and results of
operations could be adversely affected by Palm's inability to control their
operations.
Palm outsources all of its manufacturing to Flextronics and Manufacturers'
Services Limited ("MSL"). Palm depends on these third party manufacturers to
produce sufficient volume of Palm's products in a timely fashion and at
satisfactory quality levels. In addition, Palm relies on its third party
manufacturers to place orders with suppliers for the components they need to
manufacture Palm's products. If Palm's third party manufacturers fail to
produce quality products on time and in sufficient quantities, Palm's
reputation and results of operations would suffer. If they fail to place timely
and sufficient orders with suppliers, Palm's results of operations would
suffer. For example, in the second quarter of fiscal year 2001, one of Palm's
third party manufacturers failed to order certain components on a timely basis,
which resulted in delayed shipments and contributed to unfavorable linearity of
shipments in the quarter, and may have limited Palm's ability to further
increase revenues from the prior quarters.
Palm depends on Flextronics to manufacture most of Palm's device products at
its facilities in Mexico and Hungary, and the rest of Palm's device products
are manufactured by MSL at its Utah facility. The cost, quality and
availability of third party manufacturing operations are essential to the
successful production and sale of Palm's handheld devices. Palm's reliance on
third parties exposes Palm to the following risks:
. unexpected increases in manufacturing costs;
. less ability to rapidly adjust build plans in response to changing demand
forecasts;
. interruptions in shipments if one of Palm's manufacturers is unable to
complete production;
. less ability to control quality of finished device products;
. less ability to control delivery schedules;
. unpredictability of manufacturing yield;
. potential lack of adequate capacity; and
. potential inability to control component availability and purchase
commitments.
Palm does not have a manufacturing agreement with Flextronics, upon whom
Palm relies to manufacture Palm's device products. Palm presently orders its
products on a purchase order basis from Flextronics. The absence of a
manufacturing agreement means that, with little or no notice, Flextronics could
refuse to continue to manufacture all or some of the units of Palm's devices
that Palm requires or change the terms under which it manufactures Palm's
device products. If Flextronics were to stop manufacturing Palm's devices, Palm
may be unable to replace the lost manufacturing capacity on a timely basis and
Palm's results of operations could be harmed. In addition, if Flextronics were
to change the terms under which they manufacture for Palm, Palm's manufacturing
costs could increase and Palm's profitability could suffer.
In March 2001, Palm transitioned its U.S. product distribution from MSL in
Utah to Flextronics in Tennessee. This results in the physical separation of
U.S. manufacturing and distribution, which will require additional lead-time
for movement of product between manufacturing and final shipment to customers.
If the infrastructure and processes set up by Flextronics are insufficient to
meet Palm's needs or if lead-time for shipment between manufacturing and
distribution facilities is excessive, Palm may not be able to achieve required
shipment volumes which may negatively impact Palm's results of operations.
Disruptions in air transportation as a result of the terrorist attacks in
the United States in September 2001 and further enhanced security measures in
response to the attacks may cause some increase in Palm's costs for both
receipt of inventory and shipment of products to its customers. If these types
of disruptions continue or increase, Palm's results of operations could be
adversely impacted.
26
Palm depends on its suppliers, some of which are the sole source for certain
components and elements of Palm's technology, and Palm's production would be
seriously harmed if these suppliers are not able to meet Palm's demand on a
cost effective basis and alternative sources are not available.
Palm's products contain components, including liquid crystal displays, touch
panels, memory chips and microprocessors, that are procured from a variety of
suppliers. The cost, quality and availability of components are essential to
the successful production and sale of Palm's device products. During the first
three quarters of fiscal year 2001, Palm experienced shortages of some key
components, including liquid crystal displays and related components, flash
memory chips and dynamic random access memory ("DRAM") chips.
Some components, such as displays and related driver chips, power supply
integrated circuits, digital signal processors, microprocessors, crystals and
several radio frequency and discrete components, come from sole source
suppliers. Alternative sources are not currently available for all of these
sole source components. If suppliers are unable or unwilling to meet Palm's
demand for sole source components and if Palm is unable to obtain an
alternative source or if the price for an alternative source is prohibitive,
Palm's ability to maintain timely and cost-effective production of Palm's
handheld computing device products would be seriously harmed.
Palm enters into agreements for the development and licensing of third party
technology to be incorporated into some of Palm's products. Palm's ability to
release and sell these products could be seriously harmed if the third party
technology is not delivered to Palm in a timely manner or contains errors or
defects which are not discovered and fixed prior to release of the products and
Palm is unable to obtain alternative technology to use in Palm's products.
Palm's inability to obtain alternative technology could result in damage to
Palm's reputation as well as lost revenues and diverted development resources.
Palm uses third parties to provide significant operational and administrative
services, and Palm's ability to satisfy its customers and operate its business
will suffer if the level of services does not meet Palm's requirements.
Palm uses third parties to provide services such as customer service, data
center operations and desktop computer support, and facilities services. Should
any of these third parties fail to deliver an adequate level of service, Palm's
business could suffer.
Palm does not know if the Palm platform licensing and wireless services parts
of Palm's business will be able to generate significant revenues in the future,
and Palm will continue to rely on its handheld device products as the primary
source of its revenues for the foreseeable future.
Most of Palm's revenues depend on the commercial success of Palm's handheld
devices, which comprise the primary product line that Palm currently offers.
Expansion of the Palm platform licensing and wireless services parts of Palm's
business have generated a small percentage of Palm's revenues. If revenues from
Palm's device business fail to meet expectations, Palm's other business
activities will likely not be able to compensate for this shortfall. For the
first quarter of fiscal year 2002, revenues from sales of devices and
accessories constituted approximately 92% of Palm's revenues.
A significant portion of Palm's revenues currently comes from a small number of
customers, and any decrease in revenues from these customers could harm Palm's
results of operations.
A significant portion of Palm's revenues comes from only a small number of
customers. For example, in the first quarter of fiscal year 2002, Ingram Micro
represented approximately 10.6% and Tech Data represented approximately 8.7% of
Palm's revenues. Palm expects that a significant portion of its revenues will
continue to depend on sales of its handheld devices to a small number of
customers. Any downturn in the business from these customers could seriously
harm Palm's revenues and results of operations.
27
Palm relies on distributors, retailers, and resellers to sell Palm's products,
and disruptions to these channels would adversely affect Palm's ability to
generate revenues from the sale of Palm's handheld devices.
Palm's distributors, retailers and resellers sell products offered by Palm's
competitors. If Palm's competitors offer Palm's distributors, retailers and
resellers more favorable terms or have more products available to meet their
needs, those distributors, retailers and resellers may de-emphasize or decline
to carry Palm's products or carry Palm's competitors' products instead. In the
future, Palm may not be able to retain or attract a sufficient number of
qualified distributors, retailers and resellers. Further, distributors,
retailers and resellers may not recommend, or continue to recommend, Palm's
products. If Palm is unable to maintain successful relationships with
distributors, retailers and resellers or to expand Palm's distribution
channels, Palm's business will suffer.
When Palm reduces the prices of its products to its distributors, retailers
and resellers, Palm may have to compensate them for the difference between the
higher price they paid to buy their inventory and the new lower prices. In
addition, like other manufacturers, Palm is exposed to the risk of product
returns from distributors, retailers and resellers, either through their
exercise of contractual return rights or as a result of Palm's strategic
interest in assisting them in balancing inventories.
Because Palm sells its products primarily to distributors, retailers, and
resellers, Palm is subject to many risks, including risks related to their
inventory levels and support for Palm's products. From the fourth quarter of
fiscal year 2000 through the second quarter of fiscal year 2001, Palm was
generally unable to fully meet the demand for certain of Palm's products from
Palm's distributors, retailers, and resellers. If Palm is unable to supply its
distributors, retailers and resellers with sufficient levels of inventory to
meet customer demand, Palm's sales could be negatively impacted.
Many of Palm's distributors, retailers and resellers are being impacted by
the current economic environment. The economic downturn could cause Palm's
distributors, retailers or resellers to modify their business practices, such
as payment terms or inventory levels, which could in turn negatively impact
Palm's balance sheet or results of operations.
Distributors, retailers and traditional resellers experience competition
from Internet-based resellers that distribute directly to end-user customers,
and there is also competition among Internet-based resellers. Palm also sells
its products directly to end-user customers from its Palm.com web site. These
varied sales channels could cause conflict among Palm's channels of
distribution, which could seriously harm Palm's revenues and results of
operations.
If Palm is unable to compete effectively with existing or new competitors,
Palm's resulting loss of competitive position could result in price reductions,
fewer customer orders, reduced margins and loss of market share.
Palm competes in the handheld device, operating system software and wireless
services markets. The markets for these products and services are highly
competitive and Palm expects competition to increase in the future. Some of
Palm's competitors or potential competitors have significantly greater
financial, technical and marketing resources than Palm does. These competitors
may be able to respond more rapidly than Palm 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 Palm does. For
example, several of these competitors sell or license server, desktop and/or
laptop computing products in addition to handheld computing products and may
choose to market and sell or license their handheld products at a discounted
price or give them away for free with their other products. These competitors
also may have longer and closer relationships with the senior management of
enterprise customers who decide what products and technologies will be deployed
in their enterprises. Consequently, these competitors could have a better
competitive position than Palm does, which
28
could result in potential enterprise customers deciding not to choose Palm's
products and services, which would adversely impact Palm's business, financial
condition and results of operations.
. Palm's handheld computing device products compete with a variety of smart
handheld devices, including keyboard based devices, sub-notebook
computers, smart phones and two-way pagers. Palm's principal competitors
include Casio, Compaq, Hewlett-Packard, Psion, Research in Motion Limited
("RIM"), and AOL Time Warner (which resells RIM devices), Sharp and Palm
platform licensees such as HandEra (formerly TRG), Handspring, Kyocera,
Samsung and Sony. In addition, companies such as Matsushita, NEC and
Toshiba as well as several smaller companies in Asia and Europe have
announced handheld devices they intend to sell.
. The Palm platform competes primarily with operating systems such as
Microsoft's Windows CE for sub-PC computers, Microsoft's Pocket PC,
Symbian's EPOC for wireless devices, proprietary operating systems from
companies such as Sharp Electronics, and more recently operating systems
based on Linux. Licensees of the Palm platform are under no obligation to
introduce new products based on Palm's operating system, and may elect not
to use the Palm platform and instead use an alternative operating system,
in which case Palm may not be able to increase Palm's revenues from
licensing the Palm platform or expand the proliferation of the Palm
economy. For example, Palm and Nokia have jointly decided to discontinue
the development of a previously planned project.
. Palm's wireless services compete with a variety of alternative
technologies and services, such as those based on different industry
standards for wireless access, information appliances that provide
wireless connectivity and other traditional and developing methods.
Competitors to Palm's wireless services include Go America, OmniSky, RIM
and potentially other device manufacturers such as Sony who offer Internet
services. Palm's wireless access business also competes indirectly with
other providers of wireless access, ranging from dedicated Internet
service providers, such as AOL Time Warner and Earthlink, to local phone
companies and telecommunications carriers. Wireless email that can
synchronize with corporate mail servers is an important offering to many
enterprise customers. RIM currently has such an email offering, and while
Palm is developing such an offering, Palm cannot be certain that its
development efforts in this area will be successful or that any product
offering Palm did develop would compete favorably in the market.
Palm expects its competitors to continue to improve the performance of their
current products and services and to introduce new products, services and
technologies. For example, Microsoft recently introduced a new version of its
Pocket PC operating system. Palm believes that Microsoft is investing
aggressively to assist its licensees in marketing handheld computers based on
Microsoft's handheld operating systems. Moreover, Microsoft has announced its
.Net and Hailstorm Internet initiatives. If the products and services proposed
in these initiatives and similar initiatives announced by other companies are
successful in the market, the demand for products based on Palm's technologies
could decrease. Software layer technologies such as Java and Microsoft's .Net
Compact Framework might reduce Palm's ability to attract software developers
and differentiate Palm's products. Successful new product introductions or
enhancements by Palm's competitors, or increased market acceptance of competing
products, such as the Pocket PC and RIM devices or devices offered by Palm's
licensees, such as Handspring and Sony, could reduce the sales and market
acceptance of Palm's products and services, cause intense price competition or
make Palm's products obsolete. To be competitive, Palm must continue to invest
significant resources in research and development, sales and marketing and
customer support. Palm cannot be sure that it will have sufficient resources to
make these investments or that it 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. Palm's failure to compete successfully against current or future
competitors could seriously harm Palm's business, financial condition and
results of operations.
29
If Palm fails to effectively respond to competition from products introduced by
licensees of the Palm platform or if Palm's licensees fail to sell products
based on the Palm platform, Palm's results of operations may suffer.
The near term success of Palm's business depends on both the sale of
handheld device products and the licensing of the Palm platform. However,
licensees of the Palm platform offer products that compete directly or
indirectly with Palm's handheld computing devices. For example, licensees such
as Handspring and Sony use the Palm platform in products that can compete with
Palm's handheld devices. In addition, the Palm platform has been licensed by
other manufacturers such as Kyocera and Samsung for use in devices such as
mobile phones or other similar products that can compete indirectly with Palm's
handheld devices. If revenues from Palm's handheld devices suffer because of
competition from licensees of the Palm platform, Palm's results of operations
would suffer and Palm's ability to implement Palm's business model would be
seriously challenged. In addition, Palm's licensees may not be successful in
selling products based on the Palm platform or may seek reductions in the
royalties payable to Palm, which could harm Palm's business and results of
operations.
Demand for Palm's products is partially dependent upon support from third party
software and hardware developers.
Decisions by customers to purchase Palm's handheld device products, as
opposed to competitive product offerings, are sometimes based on the
availability of third party software, hardware, accessories and other expansion
capabilities. In the future, Palm believes that in addition to its efforts to
develop products which provide expansion capabilities to handheld devices, the
level of support from third party developers will become increasingly
important. For example, Palm, as well as Palm's licensees HandEra, Handspring
and Sony, all have products that feature a hardware expansion slot. Devices
offered by other competitors also have hardware expansion slots. Because many
of these third party developers are small companies, their operations and
financial condition could be adversely affected by negative general economic
conditions. Palm's operating results could suffer if third party developers
cease to develop for Palm's products or focus their efforts on developing
software or hardware for products offered by Palm's competitors, especially if
Palm is unable to offer attractive software, hardware, accessories and
expansion capabilities.
If the Secure Digital Association does not ratify the Secure Digital
input/output ("SDIO") specifications in a timely manner or if the SDIO
standards ratified by the Secure Digital Association are not favorable to third
party expansion solution developers, the deployment of third party expansion
solutions might be delayed or affected, which could negatively impact sales of
Palm's products that include Secure Digital expansion slots, such as the m500
and m505 devices.
The Secure Digital ("SD") standards are governed by the Secure Digital
Association. The Secure Digital Association is currently reviewing the SDIO
specifications. If the specifications are not ratified by the Secure Digital
Association in a timely manner or if the specifications that are ratified are
not favorable to third party expansion solution developers, development or
deployment of SD expansion solutions for Palm's products could be negatively
affected. Furthermore, some device manufacturers may incorporate SD into their
products in a manner that is not fully compliant with the SD Association
standards, which may result in potential compatibility problems among devices
offered by different manufacturers. This possible impact on the development or
deployment of SD expansion solutions or on the timing of such development or
deployment of SD expansion solutions and their functionality could negatively
impact Palm's sales of Palm's products that include SD expansion card slots,
such as the m500 and m505 devices, which could harm Palm's business and results
of operations.
30
The Palm platform and Palm's handheld devices may contain errors or defects,
which could result in the rejection of Palm's products and damage to Palm's
reputation, as well as lost revenues, diverted development resources and
increased service costs and warranty claims.
The Palm platform and Palm's devices are complex and must meet stringent
user requirements. Palm must develop Palm's software and hardware products
quickly to keep pace with the rapidly changing handheld device market. Products
and services as sophisticated as Palm's are likely to contain undetected errors
or defects, especially when first introduced or when new models or versions are
released. Palm has in the past experienced delays in releasing some models and
versions of Palm's products until problems were corrected. For example, in the
fourth quarter of fiscal year 2001, the initial shipment of Palm's m500 series
of handhelds was delayed due to start-up design and manufacturing issues which
Palm needed to resolve in order to meet Palm's quality standards. Palm's
products may not be free from errors or defects after commercial shipments have
begun, which could result in the rejection of Palm's products, damage to Palm's
reputation, lost revenues, diverted development resources and increased
customer service and support costs and warranty claims. Any of these results
could harm Palm's business. For instance Palm has, in the past experienced
increased support costs related to a faulty memory component used in a limited
number of Palm's handheld devices, which required Palm to develop a software
patch to address the problem. There have been reports of computer viruses and
security gaps impacting handheld device operating systems. These viruses and
security gaps and publicity about them may adversely impact sales of Palm's
products. In particular, if anti-virus protection and solutions for security
gaps which users deem to be adequate are not developed to combat these viruses
and security gaps, this could harm Palm's business.
Palm depends on third party software as part of its Palm platform, and Palm's
ability to release next generation versions of its Palm platform would be
seriously harmed if this third party software is not available in a timely
fashion, which could result in the decreased demand for Palm's products and
damage to Palm's reputation as well as lost revenues and diverted development
resources.
Palm licenses third party software for use in the Palm platform. In addition
to third party licensed software, Palm also enters into joint development
agreements with certain licensees of the Palm platform whereby a licensee will
develop a specific feature for the Palm OS, which Palm will then own and may
later incorporate into new releases of the Palm platform. Palm expects that
Palm will continue to license third party software and to enter into joint
development arrangements. If a third party developer or a joint developer fails
to develop software in a timely fashion or at all, Palm may not be able to
deliver certain features in Palm's products as expected or Palm could be
required to expend unexpected development costs to develop the software itself
or to use cash to obtain it from another third party. As a result, Palm's
product introductions could be delayed or Palm's offering of features could be
reduced, which could affect Palm's operating results. Furthermore, the third
party developer or joint developer may improperly use or disclose the software,
which could adversely affect Palm's competitive position. In addition, because
Palm licenses some of Palm's development tools from third parties, Palm's
business would suffer if Palm could no longer obtain those tools from those
third parties.
If Palm fails to adequately evolve its systems and processes in a changing
business environment, Palm's ability to manage Palm's business and results of
operations may be negatively impacted.
Palm's ability to successfully offer Palm's products and implement Palm's
business plan in a rapidly evolving market requires an effective planning and
management process. Palm expects that Palm will need to continue to improve
Palm's financial and managerial controls, reporting systems and procedures.
Palm has recently implemented new transaction processing, customer relationship
management and data warehouse systems. This was a significant change to the
previous systems, and Palm intends to continue to enhance and refine these new
systems and processes, in areas such as product development and supply chain.
If Palm fails to evolve its systems and processes, Palm's ability to manage
Palm's business and results of operations may be negatively impacted. Some of
Palm's systems use the Internet to communicate information. Interruptions in
Internet availability and functionality could adversely impact the operation of
these systems and consequently Palm's results of operations.
31
The market for the delivery of wireless services through handheld devices is
new and rapidly evolving, and Palm's ability to generate revenues from handheld
devices, Palm platform licensing or wireless services could suffer if this
market does not develop or Palm fails to address this market effectively.
Palm must continue to adapt Palm's wireless services strategy to compete in
the rapidly evolving wireless services market. Palm currently offers a
subscription-based wireless access service that enables users of the Palm VII
family of handheld devices to access web-clipped content on the Internet. In
addition, Palm offers its MyPalm portal, which enables users to sync with a
datebook on the web and provides other services to the handheld user.
Competitors have introduced or developed, or are in the process of introducing
or developing, competing wireless services accessible through a variety of
handheld devices and other information appliances. Palm cannot assure you that
there will be demand for the wireless services provided by Palm or that
individuals will widely adopt Palm's handheld devices as a means of accessing
wireless services. Accordingly, it is extremely difficult to predict which
products and services will be successful in this market or the future size and
growth of this market. In addition, given the limited history and rapidly
evolving nature of this market, Palm cannot predict the price that wireless
subscribers will be willing to pay for these products and services. If
acceptance of Palm's wireless services and solutions is less than anticipated,
Palm's results from operations could be impacted.
Palm may not be able to deliver or expand wireless access if Palm's wireless
carrier raises its rates, discontinues doing business with Palm or does not
deliver acceptable service or if Palm fails to provide Palm's services on
additional carrier networks, including networks in international markets.
The future success of Palm's wireless services business substantially
depends on the capacity, affordability, reliability and security of wireless
networks. Only a small number of wireless providers offer the network services
Palm requires. Palm currently relies on Cingular Wireless (formerly BellSouth
Wireless Data) to provide all of its Palm VII and Palm VIIx handheld wireless
network services pursuant to an agreement. Palm's agreement with Cingular
Wireless permits each party to terminate the agreement on an annual basis. If
Cingular Wireless failed to provide Palm with service at rates acceptable to
Palm or at all, Palm may not be able to provide wireless access to Palm's
users. If Cingular Wireless delivers unacceptable service, the quality of
Palm's wireless services would suffer and Palm would likely lose users who are
dissatisfied with Palm's service. For example, Palm is aware that Cingular
Wireless, like other wireless carriers, has experienced service outages from
time to time in their wireless data network. In addition, the Palm VII series
of products are configured around the frequency standard used by Cingular
Wireless. If Palm needed to switch to another wireless carrier, Palm would have
to redesign significant portions of Palm's software and hardware to permit
transmission on a different frequency. Users of Palm VII series products
existing before the redesign would not be able to access the service provided
by the new wireless carrier. If Palm was required to redesign these elements,
Palm's business could be adversely affected.
Palm's wireless services strategy depends on Palm's ability to develop new
wireless access devices that operate on additional wireless networks other than
Cingular Wireless in the U.S. Palm may be unsuccessful at building favorable
relationships with additional U.S. and international carriers, and Palm may not
be successful at developing new devices that operate on other wireless
networks.
In addition, because many international wireless carriers use different
standards and transmit data on different frequencies than Cingular Wireless,
Palm is likely to incur incremental expenses related to the redesign of certain
portions of Palm's software and hardware. Palm's products may be subject to a
lengthy certification process with each wireless carrier with whom Palm seeks
to enter into a relationship. These certification requirements could delay the
offering of wireless products and services into international markets.
Consequently, Palm's ability to expand its wireless services business, and
therefore its results of operations, could suffer.
32
Palm's reputation and ability to generate revenues will be harmed if demand for
Palm's Internet services exceeds Palm's telecommunications and network
capacity.
Palm may from time to time experience increases in Palm's Internet services
usage which exceed Palm's available telecommunications capacity and the
capacity of Palm's third party network servers. As a result, users may be
unable to register or log on to Palm's service, may experience a general
slow-down in their Internet access or may be disconnected from their sessions.
Excessive user demand could also result in system failures of Palm's third
party network servers' networks. Inaccessibility, interruptions or other
limitations on the ability to access Palm's service due to excessive user
demand, or any failure of Palm's third party network servers to handle user
traffic, could have an adverse effect on Palm's reputation and Palm's revenues.
If the security of Palm's websites is compromised, Palm's reputation could
suffer and customers may not be willing to use Palm's services, which could
cause Palm's revenues to decline.
A significant barrier to widespread use of electronic commerce sites and
network services sites, such as the Palm.com site, is concern for the security
of confidential information transmitted over public networks. Despite Palm's
efforts to protect the integrity of the Palm.com site, a party may be able to
circumvent Palm's security measures and could misappropriate proprietary
information or cause interruptions in Palm's operations and damage Palm's
reputation. Any such action could negatively affect Palm's customers'
willingness to engage in online commerce with Palm or purchase wireless
services from Palm, which could harm Palm's revenues and results of operations.
In addition, Palm may be required to expend significant capital and other
resources to protect against these security breaches or to alleviate problems
caused by these breaches.
Palm may not be able to maintain and expand Palm's business if Palm is not able
to hire, retain, integrate and motivate sufficient qualified personnel.
Palm's future success depends to a significant extent on the continued
contribution of Palm's key executive, technical, sales, marketing, supply chain
and administrative personnel. It also depends on Palm's ability to expand,
integrate and retain Palm's management team. The loss of services of key
employees could adversely affect Palm's business, operating results or
financial condition. In addition, recruiting and retaining skilled personnel,
including software and hardware engineers, is highly competitive, particularly
in the San Francisco Bay Area where Palm is headquartered. Further, Palm's
common stock price has been, and may continue to be, extremely volatile. When
Palm's common stock price is less than the exercise price of stock options
granted to employees, turnover may increase, which could harm Palm's results of
operations or financial condition. If Palm fails to retain, hire and integrate
qualified employees and contractors, Palm will not be able to maintain and
expand Palm's business. In addition, Palm must carefully balance the growth of
Palm's employee base with Palm's anticipated revenue base. If Palm's revenue
growth or attrition levels vary significantly, Palm's results of operations or
financial condition could be adversely affected.
In recent quarters, Palm initiated reductions in Palm's workforce of both
employees and contractors. These reductions have resulted in reallocations of
employee duties which could result in employee and contractor uncertainty.
Reductions in Palm's workforce could make it difficult to motivate and retain
the remaining employees and contractors, which would affect Palm's ability to
deliver Palm's products in a timely fashion and otherwise negatively affect
Palm's business.
Third parties have claimed and may claim in the future Palm is infringing their
intellectual property, and Palm could suffer significant litigation, licensing
or indemnification expenses or be prevented from selling products if these
claims are successful.
In the course of Palm's business, Palm frequently receives claims of
infringement or otherwise become aware of potentially relevant patents or other
intellectual property rights held by other parties. Palm evaluates the validity
and applicability of these intellectual property rights, and determine in each
case whether Palm must
33
negotiate licenses or cross-licenses to incorporate or use the proprietary
technologies in Palm's products. Third parties may claim that Palm or Palm's
customers or Palm platform licensees are infringing or contributing to the
infringement of their intellectual property rights, and Palm may be found to
infringe or contribute to the infringement of those intellectual property
rights and require a license to use those rights. Palm may be unaware of
intellectual property rights of others that may cover some of Palm's
technology, products and services.
Any litigation regarding patents or other intellectual property could be
costly and time-consuming, and divert Palm's management and key personnel from
Palm's business operations. The complexity of the technology involved and the
uncertainty of intellectual property litigation increase these risks. Claims of
intellectual property infringement might also require Palm to enter into costly
royalty or license agreements or indemnify Palm's customers or Palm platform
licensees. However, Palm may not be able to obtain royalty or license
agreements on terms acceptable to Palm, or at all. Palm also may be subject to
significant damages or injunctions against development and sale of Palm's
products.
Palm often relies on licenses of intellectual property for use in Palm's
business. Palm cannot assure you that these licenses will be available in the
future on favorable terms or at all.
On April 28, 1997, Xerox Corporation filed suit against U.S. Robotics
Corporation and U.S. Robotics Access Corp. in the United States District Court
for the Western District of New York. The case came to be captioned: Xerox
Corporation v. U.S. Robotics Corporation, U.S. Robotics Access Corp., Palm
Computing, Inc. and 3Com Corporation, Civil Action No. 97-CV-6182T. The
complaint alleged willful infringement of U.S. Patent No. 5,596,656, entitled
"Unistrokes for Computerized Interpretation of Handwriting." The complaint
sought unspecified damages and to permanently enjoin the defendants from
infringing the patent in the future. In an Order entered on June 6, 2000, the
U.S. District Court granted the defendants' motion for summary judgment of
non-infringement and dismissed the case in its entirety. Xerox appealed the
dismissal to the U.S. Court of Appeals for the Federal Circuit as Appeal No.
00-1464. On October 5, 2001, the Court of Appeals issued a decision, affirming
the lower court's decision in part, but also reversing the lower court's entry
of summary judgment. The Court of Appeals also remanded the case for further
proceedings consistent with its opinion.
On February 28, 2000, E-Pass Technologies, Inc. filed suit against "3Com,
Inc." in the United States District Court for the Southern District of New York
and later filed on March 6, 2000 an amended complaint against Palm and 3Com.
The case is now captioned E-Pass Technologies, Inc. v. 3Com Corporation, a/k/a
3Com, Inc. and Palm, Inc. (Civil Action No. 00 CIV 1523). The amended complaint
alleges willful infringement of U.S. Patent No. 5,276,311, entitled "Method and
Device for Simplifying the Use of Credit Cards, or the Like." The complaint
seeks unspecified compensatory and treble damages and to permanently enjoin the
defendants from infringing the patent in the future. The case was transferred
to the U.S. District Court for the Northern District of California. The parties
have engaged in discovery. The U.S. District Court has scheduled a Markman
hearing for October 26, 2001 to determine the meaning of certain terms used in
the claims of the patent in suit. No trial date has been set.
On March 14, 2001, NCR Corporation filed suit against Palm and Handspring,
Inc. in the United States District Court for the District of Delaware. The case
is captioned, NCR Corporation v. Palm, Inc. and Handspring, Inc. (Civil Action
No. 01-169). The complaint alleges infringement of U.S. Patent Nos. 4,634,845
and 4,689,478, entitled, respectively, "Portable Personal Terminal for Use in a
System for Handling Transactions" and "System for Handling Transactions
Including a Portable Personal Terminal." The complaint seeks unspecified
compensatory and treble damages and to permanently enjoin the defendants from
infringing the patents in the future. The parties have engaged in discovery.
The Court has tentatively scheduled trial to begin on July 29, 2002.
In connection with Palm's separation from 3Com, pursuant to the terms of the
Indemnification and Insurance Matters Agreement between 3Com and Palm, Palm
agreed to indemnify and hold 3Com harmless for any damages or losses which
might arise out of the Xerox and E-Pass litigation.
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If third parties infringe Palm's intellectual property, Palm may expend
significant resources enforcing Palm's rights or suffer competitive injury.
Palm's success depends in large part on Palm's proprietary technology. Palm
relies on a combination of patents, copyrights, trademarks and trade secrets,
confidentiality provisions and licensing arrangements to establish and protect
Palm's proprietary rights. If Palm fails to protect or to enforce Palm's
intellectual property rights successfully, Palm's competitive position could
suffer, which could harm Palm's operating results.
Palm's pending patent and trademark registration applications may not be
allowed or competitors may challenge the validity or scope of these patent
applications or trademark registrations. In addition, Palm's patents may not
provide Palm a significant competitive advantage.
Palm may be required to spend significant resources to monitor and police
Palm's intellectual property rights. Palm may not be able to detect
infringement and may lose competitive position in the market before Palm does
so. In addition, competitors may design around Palm's 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.
On July 22, 1999, Palm filed a copyright infringement action against
Olivetti Office USA, Inc. and CompanionLink Software, Inc. in the United States
District Court for the Northern District of California alleging that Olivetti's
"Royal daVinci" handheld device and the daVinci OS Software Development Kit
(distributed by CompanionLink) contained source code copied from the Palm OS
operating system. Palm obtained a preliminary injunction against further
distribution, sale, import or export of any product containing source code or
object code copied or derived from the Palm OS operating system. The injunction
is to remain in effect pending the outcome of the lawsuit. Palm also initiated
a copyright infringement action in Hong Kong on July 21, 1999, against EchoLink
Design, Ltd., the company responsible for developing the operating system
software contained in the Olivetti daVinci devices that are the subject of the
action against Olivetti in the Northern District of California. The High Court
of the Hong Kong Special Administrative Region issued an order the same day
restraining EchoLink from further copying, distribution, sale, import or export
of Palm OS operating system source code or EchoLink's "NEXUS OS" source code,
which Palm maintains infringes Palm's copyrights. Kessel Electronics (H.K.),
Limited, which supplied Olivetti with the daVinci devices, was subsequently
added to the Hong Kong action. Kessel consented to an injunction against
reproducing, copying, importing, exporting, distributing, or making available
to the public any software contained in certain files of the Palm OS source
code or object code. By letter dated October 7, 1999, 3Com notified certain
third party retailers about the preliminary injunction order issued against
Olivetti and CompanionLink. On October 5, 2000, Olivetti filed an action
against Palm and 3Com in the Superior Court of California, Santa Clara County,
for unfair competition, intentional interference with potential economic
advantage, libel and trade libel, based upon certain statements that were
allegedly made, or that 3Com allegedly omitted to make, in the October 7, 1999
letter. In addition, Olivetti has filed the identical action, as counterclaims
and third-party claims against Palm and 3Com, in the United States District
Court for the Northern District of California. Palm and 3Com filed a motion to
strike Olivetti's state court complaint under California's anti-SLAPP statute.
On April 3, 2001, the Superior Court granted Palm's and 3Com's motion. Olivetti
has appealed from the order granting the motion to strike. Olivetti's identical
claims against Palm (and 3Com) have been stayed in the federal action pending
Olivetti's appeal of the state court ruling dismissing Olivetti's claims.
In connection with Palm's separation from 3Com, pursuant to the terms of the
Indemnification and Insurance Matters Agreement between 3Com and Palm, Palm
agreed to indemnify and hold 3Com harmless for any damages or losses which
might arise out of the Olivetti litigation.
In the past, there have been thefts of computer equipment from Palm and
Palm's employees. This computer equipment has contained proprietary
information. Palm has formulated a security plan to reduce the risk of any
future thefts and has cooperated with state and federal law enforcement
officials in an investigation of past
35
incidents. Palm may not be successful in preventing future thefts, or in
preventing those responsible for past thefts from using Palm's technology to
produce competing products. The unauthorized use of Palm technology by
competitors could have a material adverse effect on Palm's ability to sell
Palm's products in some markets.
Palm's future results could be harmed by economic, political, regulatory and
other risks associated with international sales and operations.
Since Palm sells its products worldwide, Palm's business is subject to risks
associated with doing business internationally. Palm anticipates that revenues
from international operations will represent an increasing portion of Palm's
total revenues over time. In addition, several of the facilities where Palm's
devices are manufactured and distributed are located outside the United States.
Accordingly, Palm's future results could be harmed by a variety of factors,
including:
. changes in foreign currency exchange rates;
. changes in a specific country's or region's political or economic
conditions, particularly in emerging markets;
. trade protection measures and import or export licensing requirements;
. potentially negative consequences from changes in tax laws;
. difficulty in managing widespread sales and manufacturing operations;
. difficulty in managing a geographically dispersed workforce in compliance
with diverse local laws and customs; and
. less effective protection of intellectual property.
Although substantially all of Palm's revenues are denominated in U.S.
dollars, Palm is subject to changes in demand for Palm's products resulting
from exchange rate fluctuations that make Palm's products relatively more or
less expensive in international markets. If exchange rate fluctuations occur,
Palm's business could be harmed by decreases in demand for Palm's products or
reductions in gross margins.
Palm may pursue strategic acquisitions and investments which could have an
adverse impact on Palm's business if unsuccessful.
Within the last eighteen months, Palm has acquired peanutpress.com, Inc.,
WeSync.com, Inc., AnyDay.com, Inc., and Actual Software Corporation and has
entered into the asset purchase agreement with Be. Palm evaluates other
acquisition opportunities that could provide Palm with additional product or
services offerings or additional industry expertise. Acquisitions could result
in difficulties assimilating acquired operations and products, and result in
the diversion of capital and management's attention away from other business
issues and opportunities. Integration of acquired companies may result in
problems related to integration of technology and management teams. Palm may
not successfully integrate operations, personnel or products that Palm has
acquired or may acquire in the future. If Palm fails to successfully integrate
acquisitions, Palm's business could be materially harmed. In addition, Palm's
acquisitions may not be successful in achieving Palm's desired strategic
objectives, which would also cause Palm's business to suffer. For example, in
the fourth quarter of fiscal year 2001, Palm had to record a charge of
approximately $47.7 million in connection with the impairment of certain
intangibles as a result of Palm's reduced expectations for revenue and
cashflows from Palm's web calendaring associated with Palm's acquisition of
AnyDay. These transactions may result in the diversion of capital and
management's attention away from other business issues and opportunities.
In addition, Palm has made strategic venture investments in other companies
which provide products and services which are complementary to Palm's products
and services. If these investments are unsuccessful, this could have an adverse
impact on Palm's results of operations and financial position.
36
Palm's ability to pursue mergers and acquisitions may be limited.
3Com has obtained a ruling from the Internal Revenue Service that the
distribution of 3Com's shares of Palm common stock to 3Com's stockholders will
not be taxable. This ruling could be revoked if either 3Com or Palm, through
July 27, 2002, engaged in certain transactions that would constitute a change
of more than 50% of the equity interest in either company and that transaction
was deemed to be related to Palm's separation from 3Com in 2000. Consequently,
Palm's ability to engage in mergers and acquisitions could be limited. If
either 3Com or Palm takes any action that causes the ruling to be revoked,
there would be material adverse consequences, potentially including making the
distribution taxable, and causing the company that was responsible for the
revocation to indemnify the other company for any resulting damages.
Palm intends to form an internal subsidiary to contain its business relating to
the Palm platform and Palm's licensing strategy, which will utilize Palm's time
and money and could distract personnel from other business issues.
In the first quarter of fiscal year 2002, Palm announced its intention to
form an internal subsidiary to contain Palm's business relating to the Palm
platform by the end of calendar year 2001. Palm expects that it will need to
change Palm's business practices, financial and managerial controls, reporting
systems and procedures to implement the formation and operation of this
subsidiary. The planning and implementation of this subsidiary could result in
the diversion of capital and Palm's attention away from other business issues
or opportunities, which could adversely affect Palm's business. If Palm does
not successfully implement this subsidiary, Palm's licensing strategy, the Palm
platform share and Palm's competitiveness in the handheld solutions space could
be negatively impacted, which could adversely affect Palm's business, financial
position or results of operations.
Palm's flexibility to operate its business may be constrained by the
requirements of its credit facility.
In June 2001, Palm obtained a two-year asset-backed, borrowing-base credit
facility from a group of financial institutions for up to a maximum of $150
million with the actual amount available determined by eligible accounts
receivable and inventory as well as a real estate line of credit. This credit
facility requires Palm to obtain the prior consent of the lenders before Palm
engages in actions specified in the borrowing agreement such as incurring
certain indebtedness, making certain investments or distributions, making
certain acquisitions, making certain capital expenditures or causing a change
in control of Palm. If Palm is unable to obtain its lenders' consent, Palm will
be unable to take certain actions and its business may suffer. In addition, the
credit facility confers additional rights on Palm's lenders in the event of a
default which could cause Palm to suffer adverse financial and business
consequences. To date, Palm has not drawn on this credit facility.
Business interruptions could adversely affect Palm's business.
Palm's operations and those of Palm's suppliers and customers are vulnerable
to interruption by fire, earthquake, power loss, telecommunications failure,
terrorist attacks, wars and other events beyond Palm's control. Palm's
facilities and those of Palm's suppliers and customers in the State of
California may be subject to electrical blackouts as a consequence of a
shortage of available electrical power. Such electrical blackouts could disrupt
the operations of Palm's affected facilities and those of Palm's suppliers and
customers. In addition, the business interruption insurance Palm carries may
not be sufficient to compensate Palm fully for losses or damages that may occur
as a result of such events. Any such losses or damages incurred by Palm could
have a material adverse effect on Palm's business.
Impairment of Land Acquired Upon Termination of Lease Agreement
In the fourth quarter of fiscal year 2001, Palm incurred an impairment
charge of $59 million related to the land obtained upon the termination of a
lease agreement.
37
In the second quarter of fiscal year 2001, Palm entered into a seven-year
master lease agreement relating to Palm's future headquarters facility to be
constructed in San Jose, California. At the initiation of the agreement, the
lessor acquired the land for the future headquarters. Under the terms of the
lease agreement, Palm was required to place on deposit investment securities as
collateral over the term of the lease agreement.
As the result of the uncertain economic environment and changes to its
business, in the fourth quarter of fiscal year 2001, Palm decided not to go
forward with the lease commitment or construction of the future headquarters
facility. Pursuant to the terms of the master lease agreement, upon termination
of the lease arrangement Palm was required to exercise its option to purchase
the land for the full initial purchase price using the restricted investment
securities held as collateral for the lease. In addition, Palm decided to put
the land up for sale and not to hold the land for future use.
Recognizing that there had been a precipitous decline in the market value of
land in the Silicon Valley area due to the downturn in the economy, Palm
engaged a third party appraiser, Carneghi-Bautovich & Partners, Inc., to
provide an appraisal to estimate the "as is" market value of the land located
in San Jose, California as of Palm's acquisition date of May 31, 2001. The
recorded impairment charge is the difference in the value of the land at that
date and the value of the land at the initiation of the lease agreement.
Risks Related to Palm's Separation from 3Com
Palm's historical financial information may not be representative of Palm's
future results.
Through February 25, 2000, Palm's consolidated financial statements were
carved out from the consolidated financial statements of 3Com using the
historical results of operations and historical bases of the assets and
liabilities of the 3Com handheld computing business that Palm comprised.
Accordingly, the historical financial information does not necessarily reflect
what Palm's financial position, results of operations and cash flows would have
been had Palm been a separate, stand-alone entity during the periods presented.
Through February 2000, 3Com did not account for Palm and Palm was not operated
as a separate, stand-alone entity for the periods presented. From March 2000
through August 2001, Palm incurred various costs related to transitional
services procured from 3Com. These costs were decreasing during this time
period as Palm established its own infrastructure.
Palm's historical costs and expenses through February 2000 include
allocations from 3Com for centralized corporate services and infrastructure
costs, including legal, accounting, treasury, real estate, information
technology, distribution, customer service, sales, marketing and engineering.
These allocations were determined on bases that 3Com and Palm considered to be
reasonable reflections of the utilization of services provided to or the
benefit received by Palm. Beginning from March 2000, Palm's costs and expenses
included a variety of transitional services provided by 3Com to Palm while Palm
was developing its own infrastructure capabilities. The historical financial
information is not necessarily indicative of what Palm's results of operations,
financial position and cash flows will be in the future.
Palm may have potential business conflicts of interest with 3Com with respect
to Palm's past and ongoing relationships and may not resolve these conflicts on
the most favorable terms to Palm.
Conflicts of interest could arise between 3Com and Palm in a number of areas
relating to Palm's past relationships, including:
. tax and indemnification matters arising from Palm's separation from 3Com;
. intellectual property matters; and
. employee recruiting.
38
These relationships were formed in the context of a parent-subsidiary
relationship and negotiated in the overall context of Palm's separation from
3Com. Palm may not be able to resolve any potential conflicts on terms most
favorable to Palm. Nothing restricts 3Com from competing with Palm.
Risks Related to the Securities Markets and Ownership of Palm's Common Stock
Palm's common stock price may be subject to significant fluctuations and
volatility.
Palm's common stock has been publicly traded since March 2, 2000. The market
price of Palm's common stock has been subject to significant fluctuations since
the date of Palm's initial public offering. These fluctuations could continue.
Among the factors that could affect Palm's stock price are:
. quarterly variations in Palm's operating results;
. changes in revenues or earnings estimates or publication of research
reports by analysts;
. speculation in the press or investment community;
. strategic actions by Palm or Palm's competitors, such as new product
announcements, acquisitions or restructuring;
. actions by institutional stockholders;
. general market conditions; and
. domestic and international economic factors unrelated to Palm's
performance.
Be will receive a substantial number of shares of Palm's common stock
pursuant to the asset sale. Be intends to sell these shares in the public
market promptly following the closing of the asset sale, which could cause
Palm's stock price to fall. In addition, the stock markets in general, and the
markets for high technology stocks in particular, have experienced high
volatility that has often been unrelated to the operating performance of
particular companies. These broad market fluctuations may adversely affect the
trading price of Palm's common stock.
Provisions in Palm's charter documents and Delaware law and Palm's adoption of
a stockholder rights plan may delay or prevent acquisition of Palm, which could
decrease the value of Palm shares.
Palm's certificate of incorporation and bylaws and Delaware law contain
provisions that could make it harder for a third party to acquire Palm without
the consent of Palm's board of directors. These provisions include a classified
board of directors and limitations on actions by Palm's stockholders by written
consent. Delaware law also imposes some restrictions on mergers and other
business combinations between Palm and any holder of 15% or more of Palm's
outstanding common stock. In addition, Palm's board of directors has the right
to issue preferred stock without stockholder approval, which could be used to
dilute the stock ownership of a potential hostile acquirer. Although Palm
believes these provisions provide for an opportunity to receive a higher bid by
requiring potential acquirers to negotiate with Palm's board of directors,
these provisions apply even if the offer may be considered beneficial by some
stockholders.
Palm's board of directors adopted a stockholder rights plan, pursuant to
which Palm declared and paid a dividend of one right for each share of common
stock held by stockholders of record as of November 6, 2000. Unless redeemed by
Palm prior to the time the rights are exercised, upon the occurrence of certain
events, the rights will entitle the holders to receive upon exercise thereof
shares of Palm's preferred stock, or shares of an acquiring entity, having a
value equal to twice the then-current exercise price of the right. The issuance
of the rights could have the effect of delaying or preventing a change in
control of Palm.
39
FORWARD-LOOKING INFORMATION
This proxy statement/prospectus contains forward-looking statements within
the meaning of the federal securities laws. These forward-looking statements
include, among others, statements regarding Be's intentions to sell shares of
Palm's common stock it receives pursuant to the asset purchase agreement, the
timing, terms of and expected distributions to be made to stockholders in
connection with the dissolution, Palm's reasons for entering into the asset
purchase, including the potential benefits, the integration of Be's technology
into Palm's products, the opportunity to add members to Palm's engineering
team, potential enhancements to Palm's products and the effects of decreases in
the demand for Palm's products. These forward-looking statements are subject to
risks and uncertainties that could cause actual results and events to differ
materially. For a detailed discussion of these risks and uncertainties, see the
"Risk Factors" section of this proxy statement/prospectus. These and many other
factors could affect the future financial and operating results of Palm or Be.
Be stockholders should also be aware that the number of shares of Palm common
stock to be received by Be at the closing of the asset sale will be determined
by dividing $11,000,000 (subject to adjustment under certain circumstances) by
the opening price of Palm common stock as quoted on the Nasdaq National Market
on the closing date of the transaction, and that Be intends to sell for cash
the Palm shares received in the transaction promptly following the closing
date, with the result that such shares will not be distributed to the
stockholders of Be. In light of all of the foregoing, and notwithstanding the
discussions and information in this proxy statement/prospectus concerning Palm,
it is not anticipated that the results or performance of Palm prior to the
closing date, or following the closing date, will have any material impact on
the net proceeds to be received by Be from the asset sale, or the amount of
cash proceeds (if any) therefrom ultimately distributed to Be stockholders.
LEGAL PROCEEDINGS
Palm
On August 7, 2001, a purported consumer class action lawsuit was filed
against Palm and 3Com Corporation in California Superior Court, San Francisco
County. The case is captioned Connelly et al v. Palm, Inc., 3Com Corp et al
(Case No. 323587). An Amended Complaint was filed and served on Palm on August
15, 2001. The Amended Complaint, filed on behalf of purchasers of Palm III,
IIIc, V and Vx handhelds, alleges that certain Palm handhelds may cause damage
to PC motherboards by permitting an electrical charge, or "floating voltage"
from either the handheld or the cradle to be introduced into the PC via the
serial and/or the USB port on the PC. Plantiffs allege that this damage is the
result of a design defect in one or more of the following: HoySync software,
handheld, cradle and/or the connection cable. The complaint seeks restitution,
rescission, damages, an injunction mandating corrective measures to protect
against future damage as well as notifying users of potential harm. Palm's
answer was filed on October 1, 2001. No trial date has been set. In connection
with Palm's separation from 3Com, pursuant to the terms of the Indemnification
and Insurance Matters Agreement between 3Com and Palm, Palm will indemnify and
hold 3Com harmless for any damages or losses which may arise out of this
lawsuit.
In January 2001, a shareholder derivative and class action lawsuit,
captioned Shaev v. Benhamou, et al., No. CV795128, was filed in California
Superior Court. The complaint alleges that Palm's directors breached fiduciary
duties by not having Palm's public shareholders approve Palm's director stock
option plan. The director plan was approved prior to Palm's March 2000 initial
public offering by 3Com Corporation, Palm's sole shareholder at the time. The
complaint alleges that Palm was required to seek approval for the plan by
shareholders after the initial public offering. Plaintiff has not specified the
amount of damages he may seek. The case is in discovery. No trial date has been
set.
Starting on June 20, 2001, Palm and three of its officers were named as
defendants in purported securities class action lawsuits filed in United States
District Court, Southern District of New York. The first of these lawsuits is
captioned Weiner v. Palm, Inc., et al., No. 01 CV 5613. The complaints assert
that the prospectus from Palm's March 2, 2000 initial public offering failed to
disclose certain alleged actions by the underwriters
40
for the offering. The complaints allege claims against Palm and two or three of
its officers under Sections 11 and 15 of the Securities Act of 1933, as
amended. Certain of the complaints also allege claims under Section 10(b) and
Section 20(a) of the Securities Exchange Act of 1934, as amended. The
complaints also name as defendants the underwriters for Palm's initial public
offering. Neither Palm nor its officers have responded to these actions.
Other litigation matters and legal proceedings are set forth in the legal
proceedings sections of Palm's SEC filings, which are incorporated herein by
reference.
Be
As previously disclosed in filings with the Securities and Exchange
Commission, in November 2000, Be's stock transfer agent, Wells Fargo Bank
Minnesota, N.A., received a demand letter from Financial Square Partners, a Be
stockholder, alleging damages resulting from the transfer agent's failure to
timely issue its stock certificates. While Be was not a party named in such
demand letter, Be was named as a party on the stockholder's draft claim
attached to the demand letter. On May 9, 2001, the claim was in fact filed,
naming Be and Wells Fargo Bank Minnesota, N.A., as defendants, and is currently
active in the Superior Court of California. The stockholder is seeking damages
in the amount of approximately $2.4 million. Prior to this filing, Be had been
participating in communications with the parties in an effort to resolve the
matter prior to a lawsuit being filed.
Be management continues to believe that the allegations as they relate to Be
in the filed claim are without merit and intends to defend Be against this
legal action. However, there can be no assurance this claim will be resolved
without costly litigation, or require Be's participation in the settlement of
such claim, in a manner that is not adverse to Be's financial position, results
of operations or cash flows. No estimate can be made of the possible loss or
possible range of loss associated with the resolution of this contingency. If
Be were held liable, it is Be's intent to seek reimbursement under Be's D&O
insurance policy.
41
THE SPECIAL MEETING OF BE STOCKHOLDERS
When and Where the Special Meeting Will Be Held
This proxy statement/prospectus is being furnished to Be stockholders as
part of the solicitation of proxies by the Be board of directors for use at the
special meeting of Be stockholders to be held on Monday November 12, 2001, at
10:00 a.m. local time, or at any adjournment or postponement thereof, for the
purposes set forth in this proxy statement/prospectus and in the accompanying
notice of special meeting. The special meeting will be held at Holbrook Palmer
Park -- The Pavilion, 150 Watkins Avenue, Atherton, CA 94027. Be intends to
mail this proxy statement/prospectus and accompanying proxy card on or about
October 10, 2001, to all stockholders entitled to vote at the special meeting.
What Will Be Voted Upon
The purpose of the special meeting is to consider and vote upon the
following proposals:
. to approve the sale by Be of substantially all of Be's intellectual
property and other technology assets, including those related to the BeOS
and BeIA operating systems, to a Palm subsidiary pursuant to the asset
purchase agreement; and
. to approve the dissolution and the adoption of the plan of dissolution.
The Be board of directors does not presently intend to bring any business
before the Be meeting other than the specific proposals referred to above and
specified in the notice of the special meeting. The Be board of directors knows
of no other matters that are to be brought before the special meeting. If any
other business properly comes before the special meeting, including the
consideration of a motion to adjourn such meeting (including for purposes of
soliciting additional votes), it is the intention of the persons named in the
enclosed form of proxy to vote the shares they represent as the Be board of
directors may recommend.
The matters to be considered at the special meeting are of great importance
to the stockholders of Be. Accordingly, stockholders are urged to read and
carefully consider the information presented in this proxy
statement/prospectus, and to complete, date, sign and promptly return the
enclosed proxy in the enclosed postage-paid envelope.
Which Stockholders May Vote
Only holders of record of Be's common stock at the close of business on
October 4, 2001, the record date for the special meeting, will be entitled to
notice of and to vote at the special meeting. At the close of business on the
record date, Be had outstanding and entitled to vote 36,792,563 shares of
common stock. A majority, or 18,396,282, of these shares, present in person or
represented by proxy, will constitute a quorum for the transaction of business
at the special meeting.
Each holder of record of common stock on such date will be entitled to one
vote for each share held on all matters to be voted upon at the special
meeting.
Abstentions; Broker Non-Votes
All votes will be tabulated by the inspector of elections appointed for the
special meeting, who will separately tabulate affirmative and negative votes,
abstentions and broker non-votes. Abstentions will be counted towards the
tabulation of votes cast on proposals presented to the stockholders and will
have the same effect as negative votes. Broker non-votes are counted towards a
quorum, and will also have the same effect as negative votes, but are not
counted for any purpose in determining whether a matter has been approved.
42
Vote Required to Approve Each Proposal
Under Delaware law and the charter documents of Be, approval of the asset
sale pursuant to the asset purchase agreement, as well as the dissolution and
adoption of the plan of dissolution, requires the affirmative vote of a
majority of the outstanding shares of Be common stock. Each Be stockholder is
entitled to one vote for each share held on the close of business on the record
date, on each matter properly submitted for the vote of stockholders at the
special meeting. The right to vote is exercisable, in person or by properly
executed proxy.
Voting by Be's Executive Officers and Directors
Pursuant to stockholder support agreements and related irrevocable proxies
executed by all of Be's executive officers and directors, 4,961,070 outstanding
shares of Be common stock (which excludes shares subject to stock options)
beneficially owned by them and their affiliates on October 4, 2001
(representing approximately 14% of the total number of shares of Be common
stock outstanding at that date), will be voted for approval of the asset sale
and the dissolution.
Voting Via the Internet, by Fax or by Telephone
Stockholders may grant a proxy to vote their shares on the Internet by fax
or by telephone. The law of Delaware, under which Be is incorporated,
specifically permits electronically transmitted proxies, provided that each
such proxy contains or is submitted with information from which the inspectors
of election can determine that such proxy was authorized by the stockholder.
Votes submitted via the Internet, by fax, or by telephone must be received
by 11:59 p.m., California time on November 11, 2001. Submitting your proxy via
the Internet, by fax or by telephone will not affect your right to vote in
person should you decide to attend the special meeting.
The Internet, fax and telephone voting procedures below are designed to
authenticate stockholders' identities, to allow stockholders to grant a proxy
to vote their shares and to confirm that stockholders' instructions have been
recorded properly. Stockholders voting via the Internet should understand that
there may be costs associated with electronic access, such as usage charges
from Internet access providers and telephone companies, that must be borne by
the stockholder.
For Shares Registered in Your Name
Be stockholders of record may go to http://www.votefast.com to grant a proxy
to vote their shares by means of the Internet. They will be required to provide
their control number contained on their proxy card. The voter will then be
asked to complete an electronic proxy card. The votes represented by such proxy
will be generated on the computer screen and the voter will be prompted to
submit or revise them as desired. Be stockholders of record using a touch-tone
telephone may also grant a proxy to vote shares by calling 1-800-250-9081 and
following the recorded instructions, and may also vote by fax by marking,
signing and dating their proxy card and faxing it to 1-412-299-9191.
For Shares Registered in the Name of a Broker or Bank
A number of brokers and banks are participating in a program provided
through ADP Investor Communication Services that offers telephone and Internet
voting options. If your shares are held in an account with a broker or bank
participating in the ADP Investor Communication Services program, you may vote
those shares telephonically by calling the telephone number shown on the voting
form received from your broker or bank, or via the Internet at ADP Investor
Communication Services' voting Web site http://www.proxyvote.com.
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Revocability of Proxies
Any person giving a proxy pursuant to this solicitation has the power to
revoke it at any time before it is voted. It may be revoked by filing with the
Secretary of Be at Be's principal executive office, 800 El Camino Real, Suite
400, Menlo Park, CA 94025, a written notice of revocation or a duly executed
proxy bearing a later date, or it may be revoked by attending the special
meeting and voting in person. Attendance at the special meeting will not, by
itself, revoke a proxy.
Solicitation of Proxies and Expenses of Solicitation
Be will bear the cost of solicitation of proxies, including preparation,
assembly, printing and mailing of this proxy statement/prospectus, the proxy
card and any additional information furnished to stockholders. Copies of
solicitation materials will be furnished to banks, brokerage houses,
fiduciaries and custodians holding in their names shares of Be common stock
beneficially owned by others to forward to such beneficial owners. Be may
reimburse persons representing beneficial owners of Be common stock for their
costs of forwarding solicitation materials to such beneficial owners. Original
solicitation of proxies by mail may be supplemented by telephone, telegram or
personal solicitation by directors, officers or other regular employees of Be.
No additional compensation will be paid to directors, officers or other regular
employees for such services.
Be has retained N.S. Taylor & Associates, Inc. to assist in the solicitation
of proxies at a cost of approximately $6,500 plus reasonable expenses.
Deadline for Receipt of Stockholder Proposals at Annual Meeting
Pursuant to Rule 14a-8 under the Securities Exchange Act of 1934, as
amended, a stockholder intending to present a proposal to be included in Be's
proxy statement for its 2002 Annual Meeting of Stockholders, if an annual
meeting is held, must have delivered a proposal in writing to its executive
offices no later than December 25, 2001. If a stockholder does not seek to have
a proposal included in the proxy statement, but nevertheless wishes to present
a proposal or nomination at the annual meeting, written notice of the proposal
or nomination must be received by the secretary of Be at its principal
executive offices not later than the close of business on the 60th day nor
earlier than the close of business on the 90th day before that meeting and must
satisfy other detailed requirements specified in Be's bylaws. However, in the
event that fewer than 65 days prior notice of the 2002 Annual Meeting of
Stockholders is given to stockholders, notice of any stockholder proposals to
be presented at that meeting must be delivered to Be's secretary not later than
the close of business on the seventh day following the day on which the notice
to stockholders was mailed.
44
THE ASSET SALE AND DISSOLUTION OF BE
This section of the proxy statement/prospectus describes material aspects of
the asset sale and dissolution of Be. While Palm and Be believe that the
description covers the material terms of the asset sale and dissolution of Be,
this summary may not contain all of the information that is important to you.
You should carefully read this entire proxy statement/prospectus and the other
documents referred to in this proxy statement/prospectus for a more complete
understanding of the asset sale and dissolution of Be. Unless otherwise
indicated, references to Palm include Palm and its subsidiaries, including ECA
Subsidiary Acquisition Corporation.
General
The Be board of directors is proposing that the sale of assets of Be
pursuant to the terms of the Asset Purchase Agreement dated August 16, 2001, as
amended and restated as of September 10, 2001, by and among Be, Palm and ECA
Subsidiary Acquisition Corporation, an indirect wholly owned subsidiary of
Palm, be approved by its stockholders at the special meeting. The form of the
asset purchase agreement is attached as Annex A to this proxy
statement/prospectus.
On August 16, 2001, the Be board of directors authorized the execution of
the asset purchase agreement with Palm, a Delaware corporation headquartered in
Santa Clara, California, and ECA Subsidiary Acquisition Corporation. Under the
terms of the asset purchase agreement, Be will sell substantially all of its
intellectual property and other technology assets, including those related to
its BeOS and BeIA operating systems, to Palm and will receive an aggregate
number of shares of Palm common stock equal in value to $11,000,000, as
measured by the opening price of Palm common stock as quoted on the Nasdaq
National Market on the closing date of the transaction, subject to adjustment.
In addition, Palm will make employment offers to 50 Be engineers. Be intends to
sell for cash the Palm shares received in the transaction promptly following
the closing, and accordingly, such shares will not be distributed to the
stockholders of Be. There is no assurance that the asset sale will be
completed. Certain material terms of the asset purchase agreement and features
of the asset sale are summarized below. Stockholders should read the asset
purchase agreement in its entirety.
The Be board of directors also approved the dissolution of Be as described
in the plan of dissolution attached to this proxy statement/prospectus as Annex
B on August 16, 2001. The plan of dissolution will only be implemented if the
asset purchase is completed. If the dissolution and adoption of the plan of
dissolution are approved by the stockholders, the board of directors, without
further action by the stockholders (except those actions as may be required by
law or as the Be board of directors may deem appropriate), may elect at any
time to dissolve Be after payment of, or provision for the payment of, all
liabilities and obligations of Be in accordance with the plan of dissolution.
Any remaining assets would be available for distribution to Be stockholders.
Approval by the holders of a majority of the outstanding shares of common stock
is required to approve the dissolution and adopt the plan of dissolution of Be.
In the event that the stockholders of Be fail to approve both the asset sale
and the dissolution, Palm and Be would each have the option to terminate the
asset purchase agreement. Material features of the plan of dissolution are
summarized below. Stockholders should read the plan of dissolution in its
entirety.
Background of the Asset Sale and the Dissolution of Be
The terms and conditions of the asset purchase agreement and the asset sale
are the result of arm's length negotiations between the representatives of Palm
and the representatives of Be. Set forth below is a summary of the background
of the events that led to the decision of the Be board of directors to enter
into the asset sale and plan of dissolution and the negotiations between Be and
Palm.
Development of the Business
Prior to 1998, Be had no revenues and its operations consisted primarily of
research and development. In December 1998, Be shipped the first version of
BeOS, its desktop operating system targeted primarily to end
45
users. Prior releases of BeOS were targeted primarily to software developers.
Throughout 1999, Be focused on delivering BeOS as a desktop operating system to
end users, and while it was slowly gaining users and traction within the
desktop operating system market, Be determined the cost of competing in that
market was more than it could afford.
Having experienced losses and negative cash flow from operations since
inception, in the latter half of 1999 Be began a review of its BeOS desktop
operating system business model and its potential to create stockholder value.
The impetus for the review was market information obtained from institutional
investors and market analysts, and the realization that Be's desktop product
could only succeed by competing effectively against Microsoft Corporation, an
established and entrenched competitor in a rapidly maturing market. During this
same period, many potential large customers and industry analysts were
expressing significant interest in the Internet appliance version of Be's
operating system. At the time, most market analysts were predicting rapid
growth in the nascent Internet appliance market, and indicating it would
ultimately have significant upside potential. The strengths of Be's technology
appeared transferable to the needs of this market, which was not yet dominated
by any one player. In January 2000, Be announced its intention to shift its
primary focus from the marketing and distribution of BeOS, Be's desktop
operating system, to the development, marketing and deployment of BeIA, its
software solution intended for Internet appliances.
In contrast to its performance in the desktop market, Be was successful in
2000 in rapidly entering the developing Internet appliance market. Its efforts
culminated in the execution of a contract for an Internet appliance with Sony
in early 2001. Unfortunately,the Internet appliance market as a whole has
failed to materialize as anticipated. Consumer response to early Internet
appliances has been unenthusiastic, major manufacturers have not undertaken
significant development efforts, and the economic realities of the last four
quarters have made success even more difficult. Despite Be's efforts in the
Internet appliance market, its financial difficulties have continued, and Be
has been unable to generate revenues sufficient to meet operating expenses. At
the beginning of the second and third quarters of 2001, Be reduced its
workforce and announced the elimination of its sales and marketing departments
in order to conserve resources.
Review of Alternatives
Commencing in April 2000, the board of directors of Be took extensive
actions over a lengthy period of time in its efforts to evaluate and pursue
alternatives for the company that would maximize stockholder value and which
would otherwise be in the best interests of Be's stockholders. Among other
things, the board, both itself, through officers of Be and through third
parties, investigated private placements with institutions, funds and private
investors, equity lines of credit and private placements with strategic
investors, the possible sale of the company for stock or cash, and ultimately
asset sale transactions similar of the type ultimately entered into with Palm.
In early September 2000, at the direction of Be's board of directors, Be's
chief financial officer embarked upon a project whose purpose was to determine
the amount of additional capital Be would require before being profitable and
self-sufficient. As Be began to consider the best course of action to meet its
capital needs, it was focused on securing the capital required for the least
amount of dilution to existing stockholders. In late September and continuing
into early October, Be investigated private placements with high quality
institutions, funds and individuals. Unfortunately, at this time the capital
markets began to rapidly dry up, and Be was unsuccessful in securing capital
through private placements.
In mid-October 2000, Be began focusing on equity lines of credit as an
alternative source of capital. Be believed that obtaining such a line of credit
would allow it to raise the capital it needed as it needed it, including at
increasing share prices as Be's business improved. However, all of the
available lines of credit Be encountered proved to have highly dilutive
floating priced warrant structures, which were not perceived to be consistent
with the best interests of Be's stockholders, and ultimately no such
transactions were consummated.
46
In early November 2000, the board of directors decided to directly contact
over a dozen strategic partners to investigate their interest in investing
equity capital in Be. Be sent each such strategic partner a letter asking it to
express its interest by mid-November, few of which resulted in any meaningful
responses. By late November, in light of all of the foregoing, Be made the
decision to engage a professional advisor to help secure financing. Be
interviewed and investigated a number of investment professionals in this
regard, primarily during December 2000. In mid-January 2001, Be engaged Rochon
Capital for the purpose of securing capital for Be. Given the investment
climate and condition of the stock market at such time, however, the capital
markets for companies such as Be were very scarce. Rochon's efforts continued
throughout January and February 2001, but were ultimately unsuccessful, and
Rochon was unable to secure financing for Be on acceptable terms.
Following the conclusion of Rochon's efforts in February 2001, the board of
directors decided to hire an investment bank to seek to sell the company or
recapitalize it with new investors. In this regard, Be contacted over a dozen
investment banks during the first part of March 2001. Be decided to engage ING
Barings for several reasons, including the quality of their management team,
the dedication and expertise of their internet appliance analyst, and the
anticipation that a planned acquisition by ABN AMRO of ING Barings would
facilitate Be's access to international prospects. In the second half of March,
the ING Barings team commenced its work on behalf of Be. These efforts
continued through mid-April. In addition, during this time, Be independently
contacted numerous potential investors and acquirors and explored various
options to finance or sell Be. On or about April 20, 2001, however, ABN AMRO
terminated all but one member of Be's investment team at ING Barings, thereby
effectively terminating its relationship with Be. Consequently, Be recontacted
bankers which it had contacted in March, and settled upon Lehman Brothers Inc.
as an attractive replacement for ING Barings.
On May 7, 2001, Be engaged Lehman Brothers to assist Be with the exploration
of various strategic alternatives, including the sale of Be. Upon engagement,
Lehman Brothers conducted preliminary financial and business due diligence with
members of Be's management team, and assisted Be with the creation of
descriptive materials to provide to companies evaluating a potential
transaction with Be.
Between April 2000 and July 2001, Be through its board of directors,
officers and third party advisors took extensive actions over a lengthy period
of time in their efforts to evaluate and pursue alternatives for the company
that would maximize value for Be's stockholders and which would otherwise be in
the best interests of Be's stockholders. Be and Lehman Brothers, both together
and separately, contacted over thirty-five companies to determine their
interest in investing in or acquiring Be. Of the companies contacted, more than
twenty were provided with additional business information to assist them in
evaluating a potential transaction with Be. Approximately ten of these
companies indicated an interest in exploring a potential transaction with Be,
and Be and Lehman Brothers actively pursued further discussions with these
companies. Following these discussions, no companies determined to pursue a
strategic or financial transaction with Be.
The Asset Sale to Palm
On June 22, 2000, Palm and Be signed a mutual nondisclosure agreement in
connection with a potential licensing arrangement between the parties. At such
time, there were no discussions with respect to the type of transaction
ultimately embodied by the asset purchase agreement between the parties that is
the subject of this proxy statement/prospectus.
In May 2001, Palm began exploring opportunities to strengthen its Platform
Solutions Group, or PSG, by complementing and enhancing its technology
portfolio, engineering ranks and platform roadmap. At that time, Palm
established an internal project to explore viable alternatives to increase
PSG's strategic opportunities, which ultimately led to the approval of the
asset purchase by Palm's board of directors.
On May 16, 2001, Eric Benhamou, Palm's Chairman, and Jean-Louis Gassee, Be's
Chairman and Chief Executive Officer, met to explore the potential for PSG to
utilize Be's operating systems software components and technical resources to
increase PSG's strategic opportunity.
47
During the week of May 21, 2001, members of Palm's senior management,
including Carl Yankowski, Chief Executive Officer, Doug Solomon, Senior Vice
President and Chief Strategy Officer, and Robert Hayes, Director, Palm
Ventures, held several meetings with members of Be's senior management,
including Mr. Gassee and Steve Sakoman, Chief Operating Officer, to discuss
further the potential use of Be's operating system software components and
technical resources to increase PSG's strategic opportunity. In the course of
these discussions, the parties began to discuss the possibility of an
acquisition transaction involving Be and Palm.
On May 30, 2001, at a regularly scheduled meeting of the Be board of
directors, the Be board of directors met with representatives of Cooley Godward
LLP, outside legal counsel for Be, to discuss the fiduciary duties of the
directors to Be and its stockholders in the context of a merger involving Be or
acquisition of Be or its assets.
On June 6, 2001, Messrs. Benhamou, Gassee and Sakoman met at Be's offices to
discuss the potential transaction and the process for completing due diligence.
On June 21, 2001, a senior management team of Palm, including Mr. Benhamou,
David Nagel, a director, Mr. Solomon, Monty Boyer, Director, Advanced Platform
Development, Mr. Hayes, Ruth Hennigar, Vice President of Engineering, Platform
Solutions Group, met at Palm's offices with a senior management team of Be,
including Mr. Gassee, Mr. Sakoman, Pierre Raynaud-Richard, Vice President
Engineering, and Lee Williams, Vice President Product Development, to explore
each other's plans and capabilities and assess potential synergies. At this
meeting, an amendment to the mutual nondisclosure agreement was signed by Palm
and Be.
On July 5, 2001, Thomas Geisler, Controller, Platform Solutions Group, of
Palm met with P.C. Berndt, Chief Financial Officer, Dan Johnston, General
Counsel, and Mr. Sakoman of Be for a due diligence meeting concerning Be's
business and financial status.
On July 17, 2001, Mr. Boyer and Mr. Hayes of Palm, Doug Fults and Mike
Touloumtzis of Blue Mug, an external consulting firm hired by Palm to conduct
technology due diligence, met with a senior management and technical team from
Be, including Mr. Sakoman, Mr. Raynaud-Richard, Mr. Williams, George Hoffman,
Director, Engineering, Cyril Meurillon, Director, Engineering, and John Dance,
Director, Engineering, met at Be's offices for a due diligence meeting to
evaluate the BeOS operating system and the BeOS engineering team.
On July 19, 2001, Mr. Hayes and Philippe Morali, Vice President,
Affiliations and Mergers & Acquisitions, of Palm met with Mr. Sakoman, Mr.
Berndt and Andrei Manoliu, a director of Be, to discuss the general terms of a
potential acquisition transaction between the two companies.
Between July 19, 2001 and July 31, 2001, the parties, representatives of
Wilson Sonsini Goodrich & Rosati, outside legal counsel for Palm, and
representatives of Cooley Godward LLP, outside legal counsel for Be, negotiated
the general terms of the proposed asset sale, and Palm and its representatives
engaged in a due diligence investigation of Be.
On July 20, 2001, the Be board of directors met with selected members of Be
management to discuss the status of the proposed transaction with Palm. After
engaging in extensive discussion of the terms of the transaction proposed by
Palm and Be's alternatives, the Be board of directors authorized management to
proceed with negotiations related to the proposed asset sale.
On July 24, 2001, at a special teleconference meeting of the Be board of
directors, Be's board and management discussed certain aspects of the proposed
asset sale, including: (i) the likely time schedule for due diligence,
documentation and closing of the proposed transaction; (ii) regulatory
requirements and stockholder notice and vote requirements; (iii) the tax
consequences of the proposed transaction; and (iv) the terms of a "no shop"
agreement proposed by Palm. The board of directors of Be then authorized Be
management to proceed with the documentation of the asset sale and authorized
the management to enter into a "no shop" agreement with Palm.
48
On July 25, 2001, during a regularly scheduled Palm board meeting, the Palm
board of directors met with members of the Palm management and outside legal
counsel to review the proposed terms of the transaction. The Palm board of
directors unanimously approved the transaction, subject to satisfactory
completion of due diligence.
On July 31, 2001, Be entered into a "no shop" agreement with Palm, which
provided, among other things, that until August 14, 2001, Be would not, subject
to certain fiduciary obligations of the Be board, solicit, initiate, or engage
in discussions or negotiations with, any third party regarding a possible
acquisition transaction with Be.
On July 31, 2001, Palm and Be entered into an agreement whereby Palm agreed
to pay weekly consulting fees to Be to enable Be to continue to pay the
salaries of certain designated employees to continue to work on the BeOS and
BeIA operating systems and related technology. Pursuant to this agreement, Palm
agreed to pay Be an amount equal to $2,500 multiplied by the number of
designated employees employed by Be at the start of the applicable weekly
period. The agreement was mutually terminated on August 14, 2001.
Between August 5 and August 15, 2001, there were regular meetings and
discussions involving Mr. Gassee, Mr. Sakoman, Mr. Berndt and Mr. Johnston of
Be, Mr. Benhamou, Mr. Morali and Mr. Hayes of Palm and their respective legal
representatives in connection with the negotiation of the asset purchase
agreement and the related schedules and agreements. In addition, during that
period, Palm and its representatives continued to engage in a due diligence
investigation of Be.
On August 15 and 16, 2001, at a special teleconference meeting of the Be
board, management and Be's outside counsel reported on the terms of the asset
purchase agreement and related agreements. Lehman Brothers also reported on its
efforts to solicit indications of interest from third parties regarding a
potential purchase of or investment in Be. The members of the board of
directors of Be reviewed internal financial analyses with respect to the
proposed asset sale and determined that the consideration to be paid pursuant
to the asset purchase agreement was fair to Be's stockholders and creditors
from a financial point of view. The Be board determined that the sale of
substantially all of Be's intellectual property and other technology assets,
including those relating to the BeOS and BeIA operating systems, to Palm and
the subsequent winding-up of Be's business was the course of action that most
likely offered the highest return to the Be stockholders and creditors and that
to continue the operation of the business would reduce the assets and cash that
may ultimately be available for distribution to Be stockholders. At this
meeting, the Be board unanimously approved the asset sale and the dissolution
pursuant to the plan of dissolution, concluding that the asset sale was fair
to, and in the best interests of Be's stockholders and creditors. The Be board
also authorized management to conclude negotiation of and execute the asset
purchase agreement.
On August 16, 2001, Palm, ECA Subsidiary Acquisition Corporation and Be
executed the asset purchase agreement and issued press releases announcing the
proposed transaction.
On September 10, 2001, Palm, ECA Subsidiary Acquisition Corporation and Be
executed an amended and restated asset purchase agreement, amending and
clarifying the manner in which the Palm shares to be received by Be upon the
consummation of the asset sale were to be registered for sale. There were no
other material amendments to the form of asset purchase agreement entered into
by the parties on August 16, 2001.
Reasons for the Asset Sale and Dissolution of Be
The following discussion of the reasons for the asset sale and dissolution
of Be contains a number of forward-looking statements that reflect the current
views of Be or Palm with respect to future events that may have an effect on
their financial performance. There can be no assurance that the benefits of the
transaction considered by the boards will be achieved through completion of the
purchase. See ''Risk Factors." Forward-looking statements are subject to risks
and uncertainties. Actual results and outcomes may differ materially from
49
the results and outcomes discussed in the forward-looking statements.
Cautionary statements that identify important factors that could cause or
contribute to differences in results and outcomes include those discussed in
"Forward-Looking Information" and "Risk Factors."
Be's Reasons for the Asset Sale and Dissolution of Be and Recommendation of
the Be Board of Directors
The Be board of directors has unanimously determined that the terms of the
asset purchase agreement and plan of dissolution are fair to and in the best
interests of Be and its stockholders and creditors, and has unanimously
approved the asset purchase agreement and the plan of dissolution.
In reaching its determination, the Be board of directors considered a number
of positive factors, including the following:
. the present and anticipated business environment of the Internet appliance
and digital media application market, which has failed to develop as
rapidly as had been anticipated and which is expected to continue to
develop at an anemic rate, given the unenthusiastic response by consumers
to early Internet appliances;
. the conclusion of the Be board of directors that Be would not be able to
continue to operate effectively in light of the significant losses that it
was incurring and expected to continue to incur under its present business
model, nor would it be able to raise the capital necessary in a timely
manner to permit it to succeed in the Internet appliance and digital media
application market in light of Be's increasingly precarious cash flow
position;
. the terms and conditions of the asset purchase agreement, the value and
liquidity of the shares of Palm common stock to be received at closing,
and the financial ability of Palm to fund a portion of Be's operations
pursuant to the funding agreement described below and to issue the stock
consideration payable to Be at the closing of the asset sale, all of which
led Be's directors to conclude that it was reasonably likely that the
asset sale would be completed, that Be would be able to liquidate the
stock consideration promptly following the closing, and that as a result
Be would most likely be able to pay, or provide for the payment of, the
liabilities owed to its creditors and be in a position to maximize the
return of value to its stockholders;
. the results of efforts made by Be management and Lehman Brothers, both
together and separately, to solicit indications of interest from third
parties regarding a potential purchase of or investment in Be, which
resulted in no serious indications of interest except from Palm;
. an assessment that the likely net proceeds from the asset sale remaining
after the payment, or provision for payment, of all of the liabilities and
obligations owing to Be's creditors would be insufficient to permit Be to
continue in any viable operating business;
. the attractiveness of potentially being able to be in a position to make a
cash distribution to Be's stockholders from the net proceeds of the sale
of the Palm shares received in the asset sale, compared to the board of
directors' assessment of Be's expected future financial condition,
earnings, business opportunities and competitive position, which the board
felt would be unlikely to permit such distributions; and
. the fact that the plan of dissolution permits the board of directors of
Be, if it determines that it would be in the best interests of Be's
stockholders or creditors for Be not to dissolve, including in order to
permit Be to pursue (or more easily pursue) any retained claims or causes
of action, to abandon or delay the dissolution of Be until a future date
to be determined by the board of directors.
The Be board of directors also considered a number of potentially negative
factors in its deliberations concerning the overall transaction. The
potentially negative factors considered by the Be board included:
. the risk that the transaction might not be completed in a timely manner or
at all;
. the fact that Be could lose other transaction opportunities during the
period it is precluded under the terms of the asset purchase agreement
from soliciting other transaction proposals;
50
. the costs that Be would incur in liquidating the shares of Palm stock
received in the transaction, which would not be incurred if the assets
were sold to a buyer for cash, and the potential negative impact of any
potential delay in Be's ability to liquidate the Palm shares;
. the potential negative impact of any vendor or creditor confusion after
announcement of the proposed transaction;
. the possible negative impact that the dissolution of Be could have on its
ability to bring or otherwise pursue any claims or causes of action
retained by Be in connection with the asset sale;
. the potential negative reaction of the financial community after
announcement of the proposed transaction;
. the fact that the net value of the consideration payable by Palm, after
payment of or provision for Be's other liabilities and obligations, would
be substantially less than the market capitalization of Be on the trading
date immediately prior to the announcement of the asset purchase
agreement; and
. the other risks and uncertainties discussed above under ''Risk Factors.''
The foregoing positive and negative factors together comprise the Be board's
material considerations in entering into the asset sale.
Although the Be board of directors did retain Lehman Brothers to assist in
the exploration of various strategic alternatives, including the sale of Be, it
did not ask Lehman Brothers to deliver a "fairness opinion" confirming that the
consideration to be issued by Palm is fair from a financial point of view to
the Be stockholders. Be management and Lehman Brothers, both together and
separately, contacted thirty-five companies, of which only Palm decided to
pursue a strategic or financial transaction with Be. The Be board of directors
concluded that with the assistance of Lehman Brothers, they had thoroughly
examined Be's alternatives, and had determined that the only alternative
reasonably likely to enable Be to satisfy its obligations and to maximize any
potential distributions to Be stockholders was the asset sale transaction with
Palm. The Be board of directors reached such a conclusion independently and
determined that, under the circumstances, the asset sale and subsequent
dissolution were in the best interests of the Be stockholders. The Be board of
directors also determined that the costs of obtaining a ''fairness opinion,''
from Lehman Brothers or any other third party, would be disproportionately
higher than any corresponding benefit that would be realized by obtaining such
an opinion.
Based on the factors listed above, the Be board of directors determined that
a sale of assets and a subsequent dissolution of Be would likely return the
greatest value to Be stockholders as compared to other alternatives. The Be
board of directors further determined that a subsequent wind-up of Be's
operating business would prevent further erosion of stockholders' equity
through continuing net losses and market declines. There can be no assurance
that the net proceeds from the sale of the Palm shares received upon the
closing of the asset sale and the liquidation value per share of common stock
in the hands of the Be stockholders will equal or exceed the price or prices at
which the common stock has recently traded or may trade in the future, or that
the liquidation value will exceed zero. However, the Be board of directors
believes that it is in the best interests of Be and its stockholders and
creditors that Be pay or make adequate provision for its liabilities and
obligations and distribute to the stockholders any remaining proceeds from the
sale of Be's assets and the liquidation of its business. If the dissolution of
Be is not approved by the stockholders of Be, and the asset sale to Palm is not
completed, the Be board of directors will explore what, if any, alternatives
are available for the future of Be. The Be board of directors does not believe,
however, that there are viable alternatives to the asset purchase agreement and
the plan of dissolution, and even if there were, that any of its employees
would continue to be available to execute them.
The foregoing discussion of these factors is not meant to be exhaustive, but
includes all of the material factors considered by the Be board of directors.
The board of directors of Be did not quantify or attach any particular weight
to the various factors that they considered in reaching their determination
that the terms of the asset sale and dissolution of Be are fair to and in the
best interests of Be and its stockholders and creditors. Rather, the Be board
of directors viewed its recommendation as being based upon its business
judgment in light of Be's financial position and the totality of the
information presented and considered, and the overall effect of the asset sale
and the dissolution of Be on the creditors and stockholders of Be compared to
continuing the business of Be
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or seeking other potential parties to effect an investment in or other business
combination or acquisition transaction with Be.
Palm's Reasons for Entering Into the Asset Purchase Agreement
Palm's board of directors determined that the purchase of the assets from Be
is consistent with and in furtherance of the long-term business strategy of
Palm and fair to, and in the best interests of, Palm and its stockholders, and
has unanimously approved the asset purchase and asset purchase agreement.
In reaching its determination, the Palm board of directors considered the
following positive factors:
. the opportunity to add a substantial majority of Be's engineers, who have
worked together as a team for a significant period of time and have proven
skills and abilities in developing operating system technology, to Palm's
Platform Solution Group's engineering team, which Palm believes to be
critical to Palm's ability to fully exploit the intellectual property and
other assets to be acquired in the asset sale;
. the potential benefits of the operating system technology components
included in the asset purchase that could be integrated into the current
and future versions of the Palm OS and other Palm platform products to
enhance Palm's Internet, communications and multimedia offerings relative
to that of competitive offerings;
. the potential to provide Palm's Platform Solutions Group the ability to
enhance future versions of the Palm OS by converting the current operating
system into a more modular and flexible operating system, which Palm
believes will become increasingly important to serve market needs in the
future; and
. the terms and conditions of the asset purchase agreement.
In addition, Palm's board of directors considered a number of potentially
negative factors in its deliberations concerning the asset purchase and asset
purchase agreement, including, without limitation, the following:
. the use of Palm's capital stock for the asset purchase in light of the
current business and economic environment facing Palm and the markets in
which it operates;
. the possibility that Palm will not be able to successfully integrate the
operating system technology included in the asset purchase into its
current or future versions of the Palm OS and Palm platform products;
. the risk that Palm will not be able to retain the engineering team from Be
as employees following the closing of the asset purchase; and
. the other risks and uncertainties discussed above under "Risk Factors."
The foregoing discussion of these factors is not meant to be exhaustive, but
includes all of the material factors considered by Palm's board of directors.
The board of directors of Palm did not quantify or attach any particular weight
to the various factors that they considered in reaching their determination
that the asset purchase and asset purchase agreement are fair to and in the
best interests of Palm and its stockholders. Rather, Palm's board of directors
viewed its recommendation as being based upon its business judgment in light of
Palm's financial position and the totality of the information presented and
considered, and the overall effect of the asset purchase.
Interests of Some Be Officers and Directors in the Asset Sale and Dissolution
of Be
Several executive officers and directors of Be have personal interests in
the asset sale and dissolution that are different from, or in addition to, the
interests of most Be stockholders. As a result, these executive officers may
have conflicts of interest that influenced their support of the asset sale and
dissolution.
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As part of its employee recruiting and retention plan, Be has a policy of
entering into change of control agreements with employees considered to be
critical to effectuating a transaction such as an asset sale. Be is a party to
change of control agreements with each of the following senior executive
officers and key employees: P.C. Berndt, John Fursdon, Jean-Louis Gassee, Dan
Johnston, Albert Lombardo, Guillaume Perrotin, Lamar Potts, Pierre
Raynaud-Richard, Steve Sakoman and Lee Williams. Following a change of control,
which includes the closing of certain types of transactions such as the asset
sale, each of such agreements provides for a lump sum severance payment equal
to twelve-months' base salary and continued group health insurance benefits for
the executive and any eligible dependents under COBRA for a period of up to
twelve months.
Prior to the announcement of the proposed asset sale and dissolution of Be,
Be laid off a substantial portion of its workforce in order to conserve its
resources. In order to assure the dedication and continued efforts of Be's
employee through the critical transition period up to the closing of the asset
sale, the Be board of directors approved grants of shares of common stock of Be
in the form of stock bonuses to employees, including some executive officers,
still employed with Be at the closing or who may be terminated by Be without
cause after July 30, 2001. In addition to these stock bonuses, the board of
directors of Be approved an aggregate of $867,000 in incentive cash bonuses to
designated employees, including certain executive officers, for continuing to
provide services to Be through the transition period, and to assist Be in
fulfilling a condition to the closing of the asset sale that specified
employees of Be, and a specified percentage of Be's remaining employee
workforce, remain employees of Be and have accepted employment with Palm as of
the closing.
Pursuant to the asset purchase agreement, it is contemplated that designated
officers of Be, including Steve Sakoman, Pierre Raynaud-Richard and Lee
Williams, will become employees of Palm following the closing of the asset
sale. In addition, Jean-Louis Gassee, the Chairman of Be, has accepted an offer
to serve as an advisor to the Platform Solutions Group committee of Palm's
board of directors effective upon the closing of the asset sale. Pursuant to
this arrangement, it is contemplated that Palm will grant Mr. Gassee an option
to purchase 20,000 shares of Palm's common stock which will have an exercise
price equal to the fair market value on the closing date of the asset sale and
will vest monthly over the six months following the closing of the asset sale
(subject to his continued service).
It is not currently anticipated that liquidation of Be will result in any
material benefit to any of its directors who participated in the vote to
approve the asset sale and dissolution of Be, or any of Be's executive
officers. However, the Be board of directors has agreed to confer benefits or
bonuses to employees and officers of Be, including officers who are also
directors, in recognition of their services to Be based on the performance of
such employees and officers, including performance during Be's liquidation
process. The dissolution of Be will not result in any material increase in
value of the shares, options or warrants held by any directors who participated
in the vote on the dissolution beyond any increase that would generally be
available to all stockholders, optionholders and warrantholders.
Regulatory Matters
Be and Palm are not aware of any regulatory or governmental approvals
required to complete the asset sale or the dissolution of Be, other than the
requirements of Delaware law governing the dissolution of Delaware
corporations.
Material U.S. Federal Income Tax Consequences
The following discussion summarizes the material U.S. federal income tax
consequences that are expected to apply generally to Be stockholders in
connection with the sale of Be's assets and the dissolution of Be. This
discussion is based upon current provisions of the Internal Revenue Code of
1986, as amended, existing regulations under the Internal Revenue Code and
current administrative rulings and court decisions, all of which are subject to
change. Any such change, which may or may not be retroactive, could alter the
tax consequences
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that are described in this summary. No attempt has been made to comment on all
federal income tax consequences of the asset sale and the dissolution that may
be relevant to particular holders, including holders:
. who are subject to special tax rules, such as dealers in securities,
foreign persons, mutual funds, insurance companies or tax-exempt entities;
. who are subject to the alternative minimum tax provisions of the Internal
Revenue Code;
. whose Be shares are qualified small business stock for purposes of Section
1202 of the Internal Revenue Code or "Section 1244 Stock" for purposes of
Section 1244 of the Code;
. who acquired their Be shares in connection with stock option or stock
purchase plans or in other compensatory transactions;
. who hold their Be shares as a hedge or as part of an integrated investment
such as a hedge, straddle, constructive sale or other risk reduction
strategy or as part of a conversion transaction; or
. who do not hold their Be shares as capital assets.
In addition, the following discussion does not address the tax consequences
of the asset sale or the dissolution under state, local and foreign tax laws.
Accordingly, Be stockholders are advised and expected to consult their own tax
advisors regarding the federal income tax consequences of the asset sale and
the dissolution in light of their personal circumstances and the consequences
under state, local and foreign tax laws.
No ruling from the Internal Revenue Service or opinion of counsel has been,
or will be, requested in connection with the asset sale or the dissolution. No
assurance can be given that the Internal Revenue Service will not successfully
assert a position contrary to that described in this discussion.
Subject to the limitations discussed herein, it is expected that:
. The asset sale will be a taxable transaction to Be. As a result, Be will
recognize gain or loss on the sale of its assets to the Palm subsidiary in
an amount equal to the fair market value of the shares of Palm common
stock received in exchange for the assets, based upon such shares' value
on the closing date (which is expected to be $11,000,000), less Be's
adjusted tax basis in its assets sold to the Palm subsidiary in exchange
for such stock. Be's gain will be offset to the extent of available net
operating losses, subject to applicable limitations. Be's tax basis in the
Palm common stock received in exchange for the assets will equal the fair
market value used to calculate Be's gain or loss as described above. Be
may also recognize gain or loss upon both the sale of the Palm common
stock, and the distribution of assets (other than cash), if any, to Be
stockholders in connection with Be's dissolution, in an amount equal to
the difference between the fair market value of the Palm common stock and
distributed assets and Be's adjusted tax basis in the Palm common stock
and such assets.
. Upon the dissolution of Be, a holder of Be stock will recognize capital
gain or loss with respect to each share equal to the sum of the amount of
any cash and the fair market value of any assets distributed with respect
to such share (including any assets transferred to a liquidating trust, as
discussed below) less such stockholder's adjusted tax basis in such share.
That gain or loss will be long-term capital gain or loss for shares held
for more than one year as of the date of dissolution. The deductibility of
capital losses is subject to limitations. The maximum marginal federal
long-term capital gain rate for individuals with respect to property held
for more than one year is currently 20%, while the maximum marginal
federal short-term capital gain rate for individuals with respect to
property held for one year or less is currently 39.1%. Corporate taxpayers
are generally subject to a maximum marginal federal income tax rate of
35%.
. While Be does not currently intend to pay liquidating distributions to its
stockholders in installments, if it does so, each Be stockholder must
recover that stockholder's tax basis in each share of Be stock before
recognizing any gain or loss. Thus, each Be stockholder will recognize
gain on an installment only to the extent that the aggregate value of the
installment, and all prior installments the stockholder received with
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respect to any Be share, exceeds the tax basis in that share, and will
recognize a loss with respect to any Be share only when the stockholder
has received the final installment and the aggregate value of all
liquidating distributions from Be with respect to such share is less than
the stockholder's tax basis in such share.
. In the event that Be distributes contingent assets such as disputed claims
or contingent contract rights to Be stockholders in connection with the
dissolution, and the fair market value of such assets cannot be determined
at the time of the distribution, the amount received will not be
determined until such assets are sold, collected or otherwise become
susceptible to accurate valuation. This delay may affect the timing, and
possibly the characterization, of any gain or loss recognized by the Be
stockholders upon dissolution of Be. For example, the receipt of
contingent rights may preclude the recognition of a loss that might
otherwise be recognized upon dissolution.
. If Be transfers any assets to a liquidating trust, the Be stockholders
will be treated for tax purposes as having received their pro rata share
of those assets when the transfer occurs. The amount of the taxable
distribution to the Be stockholders on the transfer of Be's assets to a
liquidating trust will be reduced by the amount of Be's known liabilities
which the liquidating trust assumes or to which such transferred assets
are subject. A liquidating trust itself generally will not be subject to
tax, and, after the formation of a liquidating trust, each Be stockholder
will take into account for federal income tax purposes the stockholder's
allocable portion of any income, gain, deduction or loss which the
liquidating trust recognizes. Distributions by a liquidating trust to the
Be stockholders will not be taxable to them. Each Be stockholder may
become liable for tax on the income received by the liquidating trust,
even if the trust has not made any actual distributions to such
stockholders.
Unless a Be stockholder complies with certain reporting and/or certification
procedures or is an "exempt recipient," the stockholder may be subject to
backup withholding tax at a rate of 30.5% with respect to any liquidating
distributions.
THE FOREGOING DISCUSSION IS INCLUDED FOR GENERAL INFORMATION ONLY AND IS
BASED ON THE LAW AS CURRENTLY IN EFFECT. BECAUSE OF THE INDIVIDUAL NATURE OF
TAX CONSEQUENCES, HOLDERS OF BE STOCK ARE URGED TO CONSULT THEIR TAX ADVISORS
WITH RESPECT TO THE TAX CONSEQUENCES TO THEM OF THE ASSET SALE AND THE
DISSOLUTION, INCLUDING THE EFFECTS OF FEDERAL, STATE, LOCAL, FOREIGN AND OTHER
TAX LAWS AND OF CHANGES IN SUCH TAX LAWS.
Appraisal Rights
Under Delaware law, Be stockholders do not have appraisal rights as a result
of the asset sale or any dissolution of Be pursuant to the plan of dissolution.
Votes Required for the Asset Sale and the Dissolution
The affirmative votes of the holders of a majority of the outstanding shares
of Be common stock are required to approve the asset sale and the dissolution
and adoption of the plan of dissolution of Be. Pursuant to stockholder support
agreements and related irrevocable proxies executed by Be's executive officers
and directors, 4,961,070 outstanding shares of Be common stock (which excludes
shares subject to stock options) beneficially owned by them and their
affiliates on the record date (representing approximately 14% of the total
number of shares of Be common stock outstanding at that date), will be voted in
favor of the approval of the asset sale and the dissolution.
BE'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE ASSET
SALE AND "FOR" THE APPROVAL OF THE DISSOLUTION AND THE ADOPTION OF THE PLAN OF
DISSOLUTION OF BE.
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BE'S USE OF PROCEEDS FROM THE SALE OF PALM COMMON STOCK
Intention to Liquidate Stock Consideration. Promptly following the closing
of the asset sale, Be intends to sell for cash the shares of Palm common stock
it receives in the asset sale. Following the sale of the shares, Be intends to
pay, or provide for the payment of, all outstanding liabilities and obligations
in accordance with applicable law and the plan of dissolution. Any remaining
cash proceeds, subject to the payments or other provisions described in the
paragraph below, will be available for distribution to Be stockholders. Palm
will not receive any proceeds from the sale of these shares of Palm common
stock.
Reductions in the Net Consideration. As of the date of this proxy
statement/prospectus, it is anticipated that the net cash proceeds from the
sale by Be of the Palm shares received in the asset sale ultimately available
for distribution to Be stockholders will be reduced by the following:
. approximately $2,400,000 owed to third parties as a result of pre-existing
obligations;
. approximately $750,000 owed to Lehman Brothers as a result of the
completion of the asset sale;
. approximately $2,250,000 in connection with lump sum severance payments
and continued group health insurance benefits;
. approximately $580,000 in additional incentive bonuses to certain
designated employees, including certain executive officers, for continuing
to provide services to Be during the transition period between the
execution of the asset purchase agreement and the closing of the asset
sale; and
. approximately $1,200,000 for liability insurance after cessation of
operations.
Be believes that the proceeds stockholders could receive over time in
liquidation is up to $3.8 million in the aggregate (or $0.10 per share);
however, Be is unable at this time to predict the precise nature, amount and
timing of any distributions.
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PRINCIPAL PROVISIONS OF THE ASSET PURCHASE AGREEMENT
The following describes the principal provisions of the asset purchase
agreement. The full text of the asset purchase agreement, as amended, is
attached as Annex A to, and is incorporated by reference into, this proxy
statement/prospectus. You are encouraged to read the asset purchase agreement
in its entirety. Unless otherwise indicated, references to Palm include Palm
and its subsidiaries, including ECA Subsidiary Acquisition Corporation.
The Asset Purchase Agreement
The asset purchase agreement provides that a subsidiary of Palm will
purchase certain of the assets of Be, including the following assets:
. substantially all intellectual property of Be, including patents, patent
applications, trade secrets, copyrights and rights in databases, but
excluding selected trademarks of Be;
. all source code, software, materials and information that are used by Be
or are reasonably necessary to modify, debug and operate the current
release or version of the BeOS and BeIA operating systems;
. selected tangible assets of Be;
. all goodwill of Be appurtenant to the trademarks that are transferred to
Palm;
. all rights of Be under specified contracts, other than payment obligations
under such transferred contracts (including accounts receivable) earned by
Be as a result of performance by Be prior to the closing date; and
. all rights to recover past, present and future damages for the breach,
infringement or misappropriation, as the case may be, of any of the
transferred intellectual property rights and transferred contracts (other
than payment obligations under such transferred contracts).
Retained Assets
Pursuant to the terms of the asset purchase agreement, Be will be retaining
certain rights, assets and liabilities in connection with the transaction,
including its cash and cash equivalents, receivables, certain contractual
rights and rights to assert and bring certain claims and causes of action,
including under antitrust laws. If, notwithstanding the approval of the
dissolution of Be by the stockholders of Be, the board of directors of Be
determines that it would be in the best interests of Be's stockholders or
creditors for Be not to dissolve, in order to permit Be to pursue (or more
easily pursue) any retained claims or causes of action, the dissolution of Be
may be abandoned or delayed until a future date to be determined by the board
of directors.
Consideration to be Received by Be
Total Consideration. If the asset sale is completed, Be will receive total
consideration comprised of the following:
. that number of shares of Palm common stock equal to the quotient
determined by dividing $11,000,000 (subject to reduction in accordance
with the following paragraph) by the opening price of Palm common stock as
quoted on the Nasdaq National Market on the closing date of the
transaction; and
. the assumption by Palm of certain liabilities under certain of Be's
contracts that will be transferred to Palm on the closing date.
Adjustment of Consideration. To the extent Be has received prepaid service
payments under contracts that are to be transferred to Palm, the amount of Palm
stock to be delivered to Be will be reduced by the amount of such payment.
Based on the contracts that are currently expected to be transferred to Palm,
Be does not believe that there will be any material adjustment pursuant to this
provision.
Determination of Purchase Price. The purchase price paid by Palm for the
assets purchased from Be was arrived at through arm's length negotiations
between Be and Palm. The purchase price was not determined by or based on the
recommendation of any outside party. The purchase price of the assets acquired
by Palm significantly exceeds their tangible asset value, which reflects the
fact that the assets consist substantially of intellectual property and other
intangible technology assets.
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Transferred Contracts
Palm will assume specified liabilities and obligations of Be for continued
performance under any contracts transferred to, and assumed by, Palm solely to
the extent such obligations arise from and after the closing date. Prior to
closing, Palm may identify additional eligible contracts that it wishes to
assume. In that case, unless Be reasonably determines in good faith that it
cannot transfer the contracts to Palm, Palm will assume those contracts at
closing in addition to those specified in the asset purchase agreement.
Expected Timing of the Transaction
The parties expect that the asset sale will close as soon as possible after
the necessary stockholder approval has been obtained. The asset purchase
agreement provides that if the closing has not occurred December 31, 2001,
then, subject to certain conditions described more fully below, either party
may terminate the agreement.
Conditions to Closing
Be and Palm will complete the asset sale only if a number of conditions are
satisfied or waived, including the following:
. at least seven out of eight "key employees" of Be as set forth in the
asset purchase agreement, including two specified key employees, and at
least 33 out of 42 other "designated employees" of Be as set forth in the
asset purchase agreement, shall have entered into "at-will" employment
arrangements with Palm;
. the representations and warranties of Be and Palm contained in the asset
purchase agreement shall have been true and correct on the date when made,
and shall be true and correct as of the closing date, where the failure to
be true and correct would have or would reasonably be expected to have a
material adverse effect on the relevant party, except for those
representations and warranties addressing matters as of a particular date
or period which must have been true and correct at such date or as of such
period subject to the foregoing material adverse effect test);
. Be, ECA Subsidiary Acquisition Corporation and Palm shall have performed
or complied in all material respects with all obligations and covenants
required by the asset purchase agreement;
. there shall not have been commenced and be pending against Be or any of
its subsidiaries any action or legal proceeding with respect to the assets
to be transferred to Palm where such action or legal proceeding is
reasonably likely to have a material adverse effect on such assets or
Palm's ability to use such assets;
. no temporary restraining order, preliminary or permanent injunction or
other order issued by any court of competent jurisdiction preventing the
completion of the asset sale shall be in effect;
. any governmental or regulatory notices, approvals or other requirements
necessary to complete the asset sale shall have been given, obtained or
complied with, if applicable;
. Palm, at its own expense, shall have received an opinion of a financial
advisor or appraiser that Be is not insolvent as of the closing date of
the asset sale, and that the sale of the assets will not cause Be to be
insolvent immediately following the closing;
. the asset sale and the dissolution shall have been approved by the
requisite vote of the stockholders of Be.
Representations and Warranties
The asset purchase agreement contains various representations and warranties
made by each party thereto regarding aspects related to each party's assets,
business, financial condition, structure and other facts pertinent to the asset
sale and the dissolution. The representations and warranties made by Be will
survive until the earliest of:
. the first anniversary of the closing date of the asset sale;
. the date on which Be files its certificate of dissolution with the
Delaware Secretary of State; and
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. the date 15 days following the delivery of a "dissolution notice", except
that a termination pursuant to this clause shall be rescinded if Be does
not file a certificate of dissolution with the Delaware Secretary of State
within 30 days following the delivery of such notice. A "dissolution
notice" is defined to mean a notice delivered by Be to Palm indicating
Be's good faith intention to file a certificate of dissolution with the
Delaware Secretary of State within 30 days.
However, the representations and warranties of Be may survive beyond the
foregoing periods if a valid claim has been made against Be relating to a
possible breach of Be's representations and warranties prior to the date
through which the representations and warranties would otherwise survive. If
such a claim is made, then the representation or warranty that is the subject
of the claim will survive until there is a final resolution of the claim. Palm
and ECA Subsidiary Acquisition Corporation's representations and warranties
will expire upon the closing of the asset sale.
The representations and warranties made by Be cover the following topics,
among others:
. the due organization, authority, and power of Be and similar corporate
matters;
. the authorization, execution, delivery and enforceability of the asset
purchase agreement and the related agreements as against Be;
. the lack of conflicts with Be's certificate of incorporation or bylaws or
violations of agreements or laws applicable to Be;
. Be's filings and reports with the Securities and Exchange Commission, its
financial statements and the absence of undisclosed liabilities;
. the contracts to be transferred to Palm;
. consents that may be required in connection with the transaction;
. obligations under service contracts to be transferred to Palm;
. the absence of any insolvency or similar proceedings involving Be;
. compliance with laws and regulations, certain tax matters and other
matters related to Be's business;
. Be's title to assets being purchased by Palm and the lack of encumbrances
upon and the condition of such assets;
. the absence of litigation;
. employment matters;
. the absence of certain changes and events with respect to Be and its
business; and
. the intellectual property being transferred.
The asset purchase agreement also contains limited representations and
warranties made by Palm and ECA Subsidiary Acquisition Corporation. The
representations and warranties made by Palm and ECA Subsidiary Acquisition
Corporation cover the following topics, among others:
. the due organization, authority and power of Palm and ECA Subsidiary
Acquisition Corporation and similar corporate matters;
. the authorization, execution, delivery and enforceability of the asset
purchase agreement and the related agreements;
. the lack of conflicts with certificates of incorporation or bylaws or
violations of material agreements or laws applicable to Palm or ECA
Subsidiary Acquisition Corporation;
. Palm's filings and reports with the Securities and Exchange Commission;
and
. consents that may be required in connection with the transaction.
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Indemnification
Be is required to indemnify Palm and related parties for losses suffered by
them as a result of, among other things, inaccuracies and breaches of any
representation or warranty made by Be under the asset purchase agreement,
failure by Be to perform any agreement or covenant under the asset purchase
agreement, losses from liabilities Palm is not assuming and certain tax-related
items. The indemnification obligation of Be with respect to breaches of its
representations and warranties survives until the earliest of:
. 12 months following the closing date;
. the date on which Be files a certificate of dissolution with the Delaware
Secretary of State; and
. 15 days following the delivery by Be to Palm of a notice that Be intends
to file a certificate of dissolution with the Delaware Secretary of State,
provided such certificate of dissolution is actually filed within 30 days
of the date of such notice.
Except with respect to losses from liabilities Palm is not assuming, and
certain taxes that may be owed by Be or for which Be may be responsible, the
indemnity obligations of Be are limited to an aggregate of $3,300,000. Palm and
other indemnified parties may only seek and obtain indemnification from Be when
the aggregate amount of indemnifiable losses suffered by them exceeds $100,000;
thereafter, Palm will be able to recover on the full amount of such losses up
to the $3,300,000 limitation.
Indemnification under the asset purchase agreement is the exclusive remedy
of Palm and related parties for any claims against Be pursuant to the asset
purchase agreement, without limiting any indemnified party's right to specific
performance or injunctive relief, or any right or remedy they may otherwise
have against any person that has committed fraud with respect to the asset
purchase agreement. The parties have also agreed that the fact that Palm is not
obligated to indemnify Be under the asset purchase agreement is not to be
construed so as to limit the rights or remedies that Be may otherwise have
against Palm, whether under the asset purchase agreement or applicable law, in
the event of (a) any breach or inaccuracy of a representation or warranty of
Palm or ECA Subsidiary Acquisition Corporation contained in the asset purchase
agreement, (b) any failure by Palm or ECA Subsidiary Acquisition Corporation to
perform or comply with any covenant or agreement given or made by either of
them contained in the asset purchase agreement, or (c) any failure on the part
of ECA Subsidiary Acquisition Corporation to perform and discharge in full the
liabilities of Be assumed by it under the asset purchase agreement.
Conduct of Be's Business Prior to the Closing of the Asset Sale
During the period from August 16, 2001 until the closing of the asset sale,
Be has agreed to, among other things,
. conduct its business (as it relates to the assets being sold to Palm) in a
commercially reasonable manner;
. pay its debts and taxes when due, where failure to pay when due would be
reasonably likely to have a material adverse effect on the assets to be
transferred to Palm or on Palm's ability to use the assets to be
transferred;
. pay or perform other obligations related to the assets being sold to Palm,
where failure to pay or perform would be reasonably likely to have a
material adverse effect on the assets to be transferred to Palm or on
Palm's ability to use the assets to be transferred;
. use commercially reasonable, good faith efforts to maintain its relations
and goodwill with suppliers, customers, distributors, licensors,
licensees, landlords, trade creditors, employees, agents and others having
business relationships with Be relating to the assets being sold to Palm,
to the extent Be knows or has reason to believe that Palm intends to have
business relations with such parties with respect to such assets following
the closing of the asset sale;
. keep Palm reasonably informed concerning material business or operational
matters relating to the assets;
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. use commercially reasonable efforts to maintain the assets to be
transferred to Palm in their current condition;
. use commercially reasonable efforts to identify and notify Palm of any
third-party requirements to sublicense transferred intellectual property
to Palm;
. not take any action to materially impair, encumber, or create a lien
against the assets being acquired by Palm;
. except to comply with existing contractual obligations or commitments or
with respect to non-exclusive licenses entered into in the ordinary course
of business consistent with past practice, not buy, or enter into any
inbound license agreement with respect to, third party technology or the
intellectual property rights of any third party to be incorporated in or
used in connection with the products being acquired by Palm or sell, lease
or otherwise transfer or dispose of, or enter into any outbound license
agreement with respect to, any of the acquired assets with any third
party;
. except to comply with existing contractual obligations or commitments or
with respect to non-exclusive licenses entered into in the ordinary course
of business consistent with past practice, not enter into any contract
relating to (i) the sale or distribution of any product being acquired by
Palm or (ii) any of the acquired assets;
. not change pricing or royalties charged to customers or licensees of the
acquired assets;
. not enter into any strategic arrangement or relationship, development or
joint marketing arrangement or agreement relating to the acquired assets;
. not fire, or give notice of termination to, any designated employee,
except as permitted under the terms of the funding agreement between Palm
and Be;
. not amend or modify, except to the extent required by their terms, or
violate the terms of, any of the transferred contracts; and
. not adopt or change any accounting method in respect of taxes, enter into
any closing agreement, settle any claim or assessment in respect of taxes,
or consent to any extension or waiver of the limitation period applicable
to any claim or assessment in respect of taxes, in each case where such
action would reasonably have a material adverse effect on the assets to be
transferred to Palm or on Palm's ability to use the products to be
transferred.
In addition, beginning on August 16, 2001 and continuing until the earlier
of the closing date or termination of the asset purchase agreement, Be has
agreed to give Palm reasonable access to, among other things, Be's books,
records, and work papers related to the assets being transferred, and
reasonable access to Be's personnel and properties.
Limitation on Be's Ability to Consider Other Acquisition Proposals
From the date of the asset purchase agreement until the earlier of the
closing date or termination of the asset purchase agreement, Be has agreed that
it will not, nor will it authorize or permit any of its officers, directors or
affiliates to, nor will it authorize or knowingly permit any of its employees
or any investment banker, attorney or other advisor or representative retained
by it to, directly or indirectly, solicit, initiate, knowingly encourage,
engage in any discussions regarding, furnish non-public information with
respect to, endorse, recommend or enter into any agreement relating to:
. any purchase from Be of more than 15% of the outstanding voting securities
of Be;
. any merger, consolidation, business combination or similar transaction
involving Be; or
. any sale, lease, exchange, transfer, license, acquisition or disposition
of more than 15% of the assets of Be or any of the acquired assets with
the exception of immaterial portions of the acquired assets.
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However, this restriction shall not be deemed to prevent Be or its board of
directors from considering an unsolicited proposal that the board of directors
of Be in good faith determines may lead to a superior acquisition proposal
whereby the stockholders of Be immediately before the acquisition would
immediately after the acquisition hold less than 50% of the equity in Be (or
another surviving entity) or whereby Be would sell all or substantially all its
assets. If Be's board of directors determines in good faith that its fiduciary
obligations require it to do so, Be may furnish nonpublic information to the
party making such acquisition proposal and ask written questions regarding the
proposal. Be must concurrently furnish copies of such correspondence to Palm.
Be may also engage in negotiations with the party making the acquisition
proposal to the extent that the board of directors of Be determines in good
faith that its fiduciary obligations require it to do so, and provided that Be
(i) obtains a confidentiality agreement from the party making the acquisition
proposal and (ii) gives Palm written notice of its intention to enter into such
negotiations.
Be is still obligated to call a stockholder meeting with respect to the
asset sale and dissolution of Be that is the subject of this proxy
statement/prospectus even if it has received a superior offer, although in
certain circumstances the board of directors of Be may withdraw or modify its
board recommendation in favor of the approval of the asset sale and the
dissolution.
Agreement Not to Compete
Be has agreed that, for a period of two years following the closing, Be will
not directly or indirectly (other than on behalf of Palm), without the prior
written consent of Palm, engage in certain competitive business activities,
defined to mean:
. engaging in, managing or directing persons engaged in any business in
competition with Palm's operating system platform business;
. acquiring or having an ownership interest in any entity which derives
revenues from any business in competition with Palm's platform business
(with certain limited exceptions); or
. participating in the operation, management or control of any firm,
partnership, corporation, entity or business described in the second
clause.
Except in limited circumstances, Be has also agreed for such two-year period
not to solicit, encourage or take any other action that is intended to induce
or encourage a Palm employee to terminate his or her employment.
Other Covenants
The parties agreed to certain additional covenants in the asset purchase
agreement, including covenants regarding the treatment of continuing employees,
public disclosure regarding the subject matter of the asset purchase agreement,
consents to be obtained in order to transfer certain contracts, responsibility
for COBRA coverage after the closing date, preparation of this proxy
statement/prospectus and the registration statement of which it is a part,
post-closing tax covenants, and contracts required to be terminated by Be prior
to the closing date.
Termination of the Asset Purchase Agreement
Palm, Be and ECA Subsidiary Acquisition Corporation can agree by mutual
written consent to terminate the asset purchase agreement at any time prior to
or subsequent to the special meeting of Be stockholders. In addition, any party
may terminate the asset purchase agreement if:
. the asset sale has not been completed by December 31, 2001, unless any
action or failure to act by the party seeking to terminate the asset
purchase agreement (or any affiliate of such party) has been a principal
cause of or resulted in the failure of the closing date to occur on or
before such date and such action or failure to act constitutes a material
breach of the asset purchase agreement;
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. a court of competent jurisdiction or other governmental body issues a
final and nonappealable order, decree or ruling or shall have taken any
other action having the effect of permanently restraining, enjoining or
otherwise prohibiting the asset sale;
. the Be stockholders fail to approve both the asset sale and the
dissolution of Be, unless the failure to obtain the approval is
attributable to a failure on the part of the party seeking to terminate
the asset purchase agreement (or any affiliate of such party) to perform
any covenant required to be performed by such party at or prior to the
closing of the asset sale; or
. the representations and warranties of the other party in the asset
purchase agreement are or become inaccurate, or the other party breaches
its covenants, such that a condition to the obligation of the party to
which such representations and warranties or covenants are made would not
be satisfied and the inaccuracy or breach is not curable through the
exercise of commercially reasonable efforts or the other party is not
using commercially reasonable efforts to cure the breach.
In addition, Be may terminate the asset purchase agreement at any time prior
to the approval by the Be stockholders of the asset purchase agreement and the
approval of the plan of dissolution if Palm shall have breached (and failed to
cure within 10 days after notice of such breach is delivered by Be to Palm) any
of its obligations under the funding agreement.
In addition, Palm, at any time prior to the approval by the Be stockholders
of the asset sale and plan of dissolution, may terminate the asset purchase
agreement if any of the following events occur:
. the Be board of directors, or any committee of the Be board of directors,
withdraws or modifies in a manner adverse to Palm its recommendation in
favor of the adoption and approval of the asset purchase agreement or the
approval of the plan of dissolution;
. Be fails to include in this proxy statement/prospectus the recommendation
of the board of directors of Be in favor of the approval of the asset
purchase agreement and the dissolution;
. the Be board of directors fails to reaffirm the board of directors'
recommendation in favor of the approval of the asset purchase agreement
and the approval of the dissolution within 10 business days after Palm
requests in writing that such recommendation be reaffirmed following the
public announcement of an acquisition proposal by a third party;
. a tender or exchange offer relating to the securities of Be has commenced
and Be has not sent to its stockholders, within 10 business days after the
tender or exchange offer is first published, a statement disclosing that
Be recommends rejection of the tender or exchange offer; or
. the Be board of directors approves or recommends any acquisition proposal
(other than an offer or proposal by Palm) relating to an alternative
business transaction.
Expenses
The asset purchase agreement generally provides that Palm and Be will pay
their own respective costs and expenses incurred in connection with the asset
purchase agreement and the transactions contemplated by the asset purchase
agreement.
Amendment; Waiver
The asset purchase agreement may only be amended by a written instrument
signed on behalf of all parties to the asset purchase agreement.
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Accounting Treatment
The asset sale will be accounted for by Palm using the purchase method of
accounting. The purchase price will be allocated to the identifiable assets
acquired and will be recorded on Palm's books at their respective fair values
as determined on the closing date. A portion of the purchase price may be
identified as in-process research and development. This amount, if any, will be
charged to Palm's operations in the quarter in which the asset sale is
completed and the purchase accounting and valuation amounts are finalized. The
remaining purchase price will be recorded as goodwill.
BE'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE ASSET
SALE AND "FOR" THE APPROVAL OF THE DISSOLUTION AND THE ADOPTION OF THE PLAN OF
DISSOLUTION OF BE.
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PRINCIPAL PROVISIONS OF THE PLAN OF DISSOLUTION
This section of the proxy statement/prospectus describes the principal
provisions and implications of the possible dissolution of Be pursuant to the
plan of dissolution. While Be believes that the description covers the material
aspects of the possible dissolution of Be, this summary may not contain all of
the information that is important to you. This summary is qualified in its
entirety by the plan of dissolution and the more detailed information appearing
elsewhere in this document or that is incorporated by reference. You should
carefully read this entire proxy statement/prospectus and the plan of
dissolution for a more complete understanding of the proposed dissolution of
Be.
Pursuant to the terms of the asset purchase agreement, Be will be retaining
certain rights, assets and liabilities in connection with the asset sale
transaction, including its cash and cash equivalents, receivables, certain
contractual rights, and rights to assert and bring certain claims and causes of
action, including under antitrust laws. If, notwithstanding the approval of the
dissolution of Be by the stockholders of Be, the board of directors of Be
determines that it would be in the best interests of the Be stockholders or
creditors for Be not to dissolve, including in order to permit Be to pursue (or
more easily pursue) any retained claims or causes of action, the dissolution of
Be may be abandoned or delayed until a future date to be determined by the
board of directors. All descriptions of the proposed dissolution of Be in this
section, and throughout this proxy statement/prospectus, are qualified by
reference to the foregoing right of the board of directors of Be to abandon or
delay implementation of the plan of dissolution.
General Description
The Be board of directors unanimously adopted resolutions on August 16, 2001
by which they approved the asset sale and the plan of dissolution. The plan of
dissolution authorizes Be's officers to commence the sale of Be's remaining
assets in an orderly liquidation as soon as reasonably practicable following
the closing of the asset sale transaction with Palm. If and when a certificate
of dissolution is filed by Be with the Delaware Secretary of State, thereafter
Be will not be engaged in any business activities except for the purpose of
meeting its continuing obligations under the asset purchase agreement entered
into with Palm, preserving the value of its assets, prosecuting and defending
lawsuits by or against Be, winding-up its business and affairs, preparing for
the sale and liquidation of its remaining properties and assets, paying its
creditors and satisfying all of its outstanding liabilities and obligations,
terminating commercial agreements and relationships and preparing to make
distributions to stockholders, in accordance with the plan of dissolution.
Be intends to sell or otherwise dispose of all its remaining property and
assets following the asset sale to Palm, with the exception of any property and
assets that the board of directors of Be may deem necessary or desirable to
enable Be to pursue certain claims and causes of action, including under
antitrust laws. Be currently intends to commence the sale of these assets
promptly after the closing of the asset sale. Following the closing of the
asset sale and during and following the liquidation of Be's remaining assets,
Be intends to pay, or provide for the payment of, its remaining liabilities and
obligations to the extent possible. Immediately following the closing of the
asset sale, all but approximately seven employees will have been laid off or
will have accepted employment with Palm. Any sales of Be's assets have been and
will be made in private or public transactions and on such terms as are
approved by the Be board of directors. It is not anticipated that any further
votes of Be's stockholders will be solicited with respect to the approval of
the specific terms of any particular sales of assets approved by the Be board
of directors. See "Principal Provisions of the Plan of Dissolution -- Sale of
Be's Remaining Assets."
Subject to the payment or the provision for payment of Be's liabilities and
other obligations, Be's cash on hand, together with the net cash proceeds from
the sale of the Palm shares received in the asset sale, and any net cash
proceeds from any sales of Be's remaining assets following the asset sale, if
any, will be available for distribution from time to time pro rata to Be's
stockholders. Be intends to establish a reasonable contingency reserve, in an
amount determined by the Be board of directors to be sufficient to satisfy the
liabilities and obligations of Be not otherwise paid, provided for or
discharged. The net balance, if any, of any such contingency reserve remaining
after payment, provision or discharge of all such liabilities, expenses and
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obligations will also be available for distribution to Be's stockholders pro
rata. No assurances can be given that there will ultimately be sufficient cash
to provide for Be's liabilities and obligations and to make cash distributions
to Be stockholders. Be believes that the proceeds stockholders could receive
over time in liquidation is up to $3.8 million in the aggregate (or $0.10 per
share); however, Be is unable at this time to predict the precise nature,
amount and timing of any distributions. Be currently has no plans to repurchase
shares of capital stock from its stockholders. See "Principal Provisions of the
Plan of Dissolution -- Liquidating Distributions; Nature; Amount; Timing" and
"Principal Provisions of the Plan of Dissolution -- Contingent Liabilities;
Contingency Reserve; Liquidating Trust" below.
The Be board of directors may, at any time, turn management of Be over to a
third party to complete the liquidation of its remaining assets and distribute
proceeds from the sale of assets to its creditors and/or stockholders pursuant
to the plan of dissolution. This third-party management may be in the form of a
liquidating trust, which, if adopted, would succeed to all of the assets,
liabilities and obligations of Be. The Be board of directors may appoint one or
more of its members, an officer of Be or a third party to act as trustee or
trustees of such liquidating trust. The approval of the dissolution by Be
stockholders will also constitute their approval of any appointment and
compensation of such trustees.
During the liquidation of Be's assets, Be may pay to its officers,
directors, employees, and agents, or any of them, compensation for services
rendered in connection with the implementation of the plan of dissolution. The
approval of the dissolution by Be stockholders will constitute their approval
of the payment of any such compensation.
If deemed necessary by the Be board of directors for any reason, Be may,
from time to time, transfer any of its unsold assets to one or more trusts
established for the benefit of the stockholders of Be, which property would
thereafter be sold or distributed on terms approved by its trustees. The Be
board of directors may also elect in its discretion to transfer all or a
portion of the contingency reserve, if any, to such a trust. Any of such trusts
are referred to in this proxy statement/prospectus as "liquidating trusts."
Notwithstanding the foregoing, to the extent that a distribution or transfer
of any asset cannot be effected without the consent of a governmental
authority, no such distribution or transfer shall be effected without such
consent. In the event of a transfer of assets to a liquidating trust, Be would
distribute, pro rata to the holders of its capital stock, beneficial interests
in any such liquidating trust or trusts. It is anticipated that the interests
in any such trusts will not be transferable; therefore, although the recipients
of the interests would be treated for tax purposes as having received their pro
rata share of property transferred to the liquidating trust or trusts and will
thereafter take into account for tax purposes their allocable portion of any
income, gain or loss realized by such liquidating trust or trusts, the
recipients of the interests will not realize the value thereof unless and until
such liquidating trust or trusts distributes cash or other assets to them. The
plan of dissolution authorizes the Be board of directors to appoint one or more
individuals or entities to act as trustee or trustees of the liquidating trust
or trusts and to cause Be to enter into a liquidating trust agreement or
agreements with such trustee or trustees on such terms and conditions as may be
approved by the Be board of directors. Approval of the dissolution of Be also
will constitute the approval by Be's stockholders of any such appointment and
any liquidating trust agreement or agreements. For further information relating
to liquidating trusts, the appointment of trustees and the liquidating trust
agreements, reference is made to "Principal Provisions of the Plan of
Dissolution -- Contingent Liabilities; Contingency Reserve; Liquidating Trust."
66
If the board of directors of Be determines to proceed with the dissolution
of Be, Be will close its stock transfer books and discontinue recording
transfers of shares of common stock on the earliest to occur of (i) the close
of business on the record date fixed by the Be board of directors for the final
liquidating distribution, (ii) the close of business on the date on which the
remaining assets of Be are transferred to a liquidating trust, or (iii) such
other date on which the Be board of directors, in accordance with applicable
law, determines to close such stock transfer books, and, thereafter,
certificates representing shares of preferred and common stock will not be
assignable or transferable on the books of Be except by will, intestate
succession or operation of law. After the stock transfer books are closed, Be
will not issue any new stock certificates, other than replacement certificates.
Any person holding options, warrants or other rights to purchase preferred or
common stock must exercise such instruments or rights prior to the closure of
the stock transfer books. See "Principal Provisions of the Plan of Dissolution
-- Listing and Trading of the Common Stock and Interests in the Liquidating
Trust or Trusts" and "Principal Provisions of the Plan of Dissolution --
Closing of Stock Transfer Books" below.
Following approval of the dissolution of Be by the Be stockholders and the
closing of the asset sale transaction, and subject to the right of the board of
directors of Be to abandon or delay the dissolution of Be as described in the
plan of dissolution, a certificate of dissolution will be filed with the
Secretary of State of Delaware dissolving Be. The dissolution of Be will become
effective, in accordance with Delaware law, upon proper filing of the
certificate of dissolution with the Secretary of State or upon such later date
as may be specified in the certificate of dissolution. Pursuant to Delaware
law, Be will continue to exist for three years after the dissolution becomes
effective or for such longer period as the Delaware Court of Chancery shall
direct, for the purpose of prosecuting and defending suits, whether civil,
criminal or administrative, by or against it, and enabling Be to settle and
close its business, to dispose of and convey its property, to discharge its
liabilities and to distribute to its stockholders any remaining assets, if any,
but not for the purpose of continuing the business for which Be was organized.
Abandonment; Amendment
Under the terms of the plan of dissolution, the Be board of directors may
modify, amend or abandon (in whole or in part) the plan of dissolution,
notwithstanding stockholder approval, to the extent permitted by Delaware law.
Be will not amend or modify the plan of dissolution under circumstances that
would require additional stockholder solicitations under Delaware law or the
federal securities laws without complying with Delaware law and the federal
securities laws. Among other things, the Be board of directors may modify,
amend or abandon the plan of dissolution if it determines that it would be in
the best interests of the Be stockholders and creditors for Be not to dissolve,
including in order to permit Be to pursue (or more easily pursue) any retained
claims or causes of action. Such modification or amendment could include the
delay of the dissolution of Be until a future date to be determined by the Be
board of directors.
Liquidating Distributions; Nature; Amount; Timing
Although the Be board of directors has not established a firm timetable for
any possible distributions to its stockholders if the dissolution of Be is
approved by the stockholders and the asset sale is completed, the Be board of
directors intends, subject to contingencies inherent in winding-up Be's
business, to make any such distributions as promptly as practicable following
the closing of the asset sale. The Be board of directors is, however, currently
unable to predict the precise nature, amount or timing of this distribution or
any other distributions pursuant to the plan of dissolution. The actual nature,
amount and timing of all distributions will be determined by the Be board of
directors, in its sole discretion, and will depend in part upon Be's ability to
convert its remaining assets into cash and pay and settle its significant
remaining liabilities and obligations.
Uncertainties as to the precise net value of Be's non-cash assets and the
ultimate amount of its liabilities make it impracticable to predict the
aggregate amount, if any, ultimately available for distribution to
stockholders. Claims, liabilities and expenses from operations (including
operating costs, salaries, income taxes, payroll and local taxes, legal and
accounting fees and miscellaneous office expenses), although currently
67
declining, will continue to be incurred following the closing of the asset
sale. These expenses will reduce the amount of cash available for ultimate
distribution to stockholders, and, while Be does not believe that a precise
estimate of those expenses can currently be made, management and the Be board
of directors believe that available cash and the proceeds from the sale of the
Palm shares to be received at the closing of the asset sale should be adequate
to provide for Be's liabilities and obligations (including contingent
liabilities) and to make cash distributions to stockholders. However, no
assurances can be given that available cash and the proceeds from the sale of
the Palm shares to be received at the closing will be adequate to provide for
Be's liabilities and obligations or to make cash distributions to stockholders.
If such available cash and the proceeds from the sale of the Palm shares are
not adequate to provide for Be's liabilities and obligations, distributions to
Be's stockholders will be reduced or eliminated.
Sale of Be's Remaining Assets
The plan of dissolution contemplates the sale of all of the remaining assets
of Be following the closing of the asset sale transaction with Palm, with the
exception (in the discretion of the Be board of directors) of any assets that
the board of directors of Be may deem necessary or desirable to enable Be to
pursue certain claims and causes of action, including under antitrust laws.
Agreements for the sale of Be's remaining assets and actual sales may be
entered into prior to the special meeting and approved by the board of
directors and officers of Be. Approval of the dissolution of Be will constitute
approval of any such agreements and sales, whether or not required. Sales of
Be's assets have been and will be made on such terms as are approved by the Be
board of directors and may be conducted by either competitive bidding, public
sales or privately negotiated sales. It is not anticipated that any further
stockholder votes will be solicited with respect to the approval of the
specific terms of any particular sales of assets approved by the board of
directors or officers of Be. Be does not anticipate amending or supplementing
this proxy statement/prospectus to reflect any such agreement or sale, unless
required by applicable law. The prices at which Be has been and will be able to
sell its various assets depends largely on factors beyond Be's control,
including, without limitation, the condition of financial markets, the
availability of financing to prospective purchasers of the assets, United
States and foreign regulatory approvals, public market perceptions, and
limitations on transferability of certain assets. In addition, Be may not
obtain as high a price for a particular asset as it might secure if Be were not
in liquidation.
Future Conduct of Be
Following approval of the dissolution of Be pursuant to the plan of
dissolution by Be's stockholders, completion of the asset sale transaction and
the filing of its certificate of dissolution, establishing a contingency
reserve for payment of Be's expenses and liabilities, including liabilities
incurred but not paid or settled prior to approval of the dissolution, selling
any remaining assets of Be, terminating any remaining commercial agreements,
relationships or outstanding obligations of Be, Be's activities will be limited
to distributing its assets in accordance with the plan of dissolution.
Following the approval of the dissolution of Be pursuant to the plan of
dissolution by Be's stockholders, Be shall continue to indemnify its officers,
directors, employees and agents in accordance with its certificate of
incorporation, as amended, and bylaws, including for actions taken in
connection with the plan of dissolution and the winding-up of the affairs of
Be. Be's obligation to indemnify such persons may be satisfied out of the
assets of any liquidating trust. The Be board of directors and the trustees of
any liquidating trust may obtain and maintain such insurance as may be
necessary to cover Be's indemnification obligations under the plan of
dissolution.
Reporting Requirements
Whether or not the dissolution of Be pursuant to the plan of dissolution is
approved, Be has an obligation to continue to comply with the applicable
reporting requirements of the Securities Exchange Act of 1934, even though
compliance with such reporting requirements is economically burdensome. If the
dissolution of Be pursuant to the plan of dissolution is approved and, in order
to curtail expenses, Be may, after filing its certificate of dissolution, seek
relief from the SEC from the reporting requirements under the Exchange Act.
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Contingent Liabilities; Contingency Reserve; Liquidating Trust
Under Delaware law, Be is required, in connection with its dissolution, to
pay or provide for payment of all of its liabilities and obligations. Following
the approval of the plan of dissolution by Be's stockholders and the closing of
the asset sale, Be intends to pay all expenses and fixed and other known
liabilities, or set aside as a contingency reserve cash and other assets which
it believes to be adequate for payment thereof. Be is currently unable to
estimate with precision the amount of any contingency reserve which may be
required, but any such amount (in addition to any cash contributed to a
liquidating trust, if one or more are utilized) will be deducted before the
determination of amounts that might be available for distribution to
stockholders.
The actual amount of the contingency reserve will be based upon estimates
and opinions of management and the Be board of directors and derived from
consultations with outside experts and review of Be's estimated operating
expenses and future estimated liabilities, including, without limitation,
anticipated compensation payments, estimated legal and accounting fees,
operating lease expenses, payroll and other taxes payable, miscellaneous office
expenses, expenses accrued in Be's financial statements, and reserves for
litigation expenses. There can be no assurance that the contingency reserve in
fact will be sufficient. Be has not made any specific provision for an increase
in the amount of the contingency reserve. Subsequent to the establishment of
the contingency reserve, Be will distribute to its stockholders any portions of
the contingency reserve which it deems no longer to be required. After the
liabilities, expenses and obligations for which the contingency reserve has
been established have been satisfied in full, Be will distribute to its
stockholders any remaining portion of the contingency reserve.
If deemed necessary, appropriate or desirable by the Be board of directors
for any reason, Be may, from time to time, transfer any of its unsold assets to
one or more liquidating trusts, or other structure it deems appropriate,
established for the benefit of the stockholders of Be, which property would
thereafter be sold or distributed on terms approved by its trustees. The Be
board of directors and management may determine to transfer assets to a
liquidating trust in circumstances where the nature of an asset is not
susceptible to distribution (for example, interests in intangibles) or where
the Be board of directors determines that it would not be in the best interests
of Be and its stockholders who then hold interests in such trust for such
assets to be distributed directly to the stockholders at such time. The Be
board of directors may also elect in its discretion to transfer the contingency
reserve, if any, to such a liquidating trust. The purpose of a liquidating
trust would be to distribute such property or to sell such property on terms
satisfactory to the liquidating trustees, and distribute the proceeds of such
sale after paying those liabilities of Be, if any, assumed by the trust, to
Be's stockholders. Any liquidating trust acquiring all of the unsold assets of
Be will assume all of the liabilities and obligations of Be and will be
obligated to pay any expenses and liabilities of Be which remain unsatisfied.
If the contingency reserve transferred to the liquidating trust is exhausted,
such expenses and liabilities will be satisfied out of the liquidating trust's
other unsold assets.
The plan of dissolution authorizes the Be board of directors to appoint one
or more individuals or entities to act as trustee or trustees of the
liquidating trust or trusts and to cause Be to enter into a liquidating trust
agreement or agreements with such trustee or trustees on such terms and
conditions as may be approved by the Be board of directors. It is anticipated
that the Be board of directors will select such trustee or trustees on the
basis of the experience of such individual or entity in administering and
disposing of assets and discharging liabilities of the kind to be held by the
liquidating trust or trusts and the ability of such individual or entity to
serve the best interests of Be's stockholders or creditors. Approval of the
dissolution of Be by the stockholders will also constitute the approval by Be's
stockholders of any such appointment and any liquidating trust agreement or
agreements.
Be may decide to use a liquidating trust or trusts, and the Be board of
directors believes the flexibility provided by the plan of dissolution with
respect to the liquidating trusts to be advisable. The trust would be evidenced
by a trust agreement between Be and the trustees. The purpose of the trust
would be to serve as a temporary repository for the trust property prior to its
disposition or distribution to Be's stockholders to whom
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interests in the trust are distributed. The transfer to the trust and
distribution of interests therein to Be's stockholders would enable Be to
divest itself of the trust property and permit Be's stockholders to enjoy the
economic benefits of ownership thereof. Pursuant to the trust agreement, the
trust property would be transferred to the trustees immediately prior to the
distribution of interests in the trust to Be's stockholders, to be held in
trust for the benefit of the stockholder beneficiaries subject to the terms of
the trust agreement. It is anticipated that the interests would be evidenced
only by the records of the trust and there would be no certificates or other
tangible evidence of such interests and that no holder of common stock would be
required to pay any cash or other consideration for the interests to be
received in the distribution or to surrender or exchange shares of common stock
in order to receive the interests.
It is further anticipated that pursuant to the trust agreements: (i) a
majority of the trustees would be required to be independent of Be's
management; (ii) approval of a majority of the trustees would be required to
take any action; and (iii) the trust would be irrevocable and would terminate
after, the earliest of (a) the trust property having been fully distributed, or
(b) a majority in interest of the beneficiaries of the trust, or a majority of
the trustees, having approved of such termination, or (c) a specified number of
years having elapsed after the creation of the trust.
Under Delaware law, in the event Be fails to create an adequate contingency
reserve for payment of its expenses and liabilities, or should such contingency
reserve and the assets held by the liquidating trust or trusts be exceeded by
the amount ultimately found payable in respect of expenses and liabilities,
each stockholder could be held liable for the payment to creditors of such
stockholder's pro rata share of such excess, limited to the amounts previously
received by such stockholder from Be or from the liquidating trust or trusts.
If Be were held by a court to have failed to make adequate provision for its
expenses and liabilities or if the amount ultimately required to be paid in
respect of such liabilities exceeded the amount available from the contingency
reserve and the assets of the liquidating trust or trusts, a creditor of Be
could seek an injunction against the making of distributions under the plan of
dissolution on the ground that the amounts to be distributed were needed to
provide for the payment of Be's expenses and liabilities. Any such action could
delay, substantially diminish or eliminate any cash distributions to be made to
stockholders and/or interest holders under the plan of dissolution.
Closing of Be Stock Transfer Books
Be intends to close its stock transfer books and discontinue recording
transfers of shares of common stock on the earliest to occur of (i) the close
of business on the record date fixed by the Be board of directors for the final
liquidating distribution, (ii) the close of business on the date on which the
remaining assets of Be are transferred to a liquidating trust, or (iii) such
other date on which the Be board of directors, in accordance with applicable
law, determines to close such stock transfer books. After such date,
certificates representing shares of common stock will not be assignable or
transferable on the books of Be except by will, intestate succession or
operation of law. After the stock transfer books are closed, Be will not issue
any new stock certificates, other than replacement certificates. It is also
anticipated that no further trading of Be's shares will occur on or after such
date. See "Principal Provisions of the Plan of Dissolution -- Listing and
Trading of the Common Stock and Interests in the Liquidating Trust or Trusts"
below. All liquidating distributions from Be or a liquidating trust on or after
the date for filing the certificate of dissolution will be made to stockholders
according to their holdings of capital stock as of the date of filing of the
certificate of dissolution. Subsequent to the closing of the stock transfer
books, Be may at its election require stockholders to surrender certificates
representing their shares of the capital stock in order to receive subsequent
distributions. Stockholders should not forward their stock certificates before
receiving instructions to do so. If surrender of stock certificates should be
required, all distributions otherwise payable by Be or the liquidating trust,
if any, to stockholders who have not surrendered their stock certificates may
be held in trust for such stockholders, without interest, until the surrender
of their certificates (subject to escheat pursuant to the laws relating to
unclaimed property). If a stockholder's certificate evidencing the Be common
stock has been lost, stolen or destroyed, the stockholder may be required to
furnish
70
Be with satisfactory evidence of the loss, theft or destruction thereof,
together with a surety bond or other indemnity, as a condition to the receipt
of any distribution.
Listing and Trading of the Common Stock and Interests in the Liquidating Trust
or Trusts
Be currently expects that trading in the Be shares will cease on and after
the date on which its stock transfer books are closed.
The common stock is currently listed for trading on the Nasdaq National
Market. For continued listing, a company, among other things, must meet certain
minimum requirements with respect to net tangible assets, market value of its
securities held by non-affiliates, and minimum bid prices per share. Be expects
that, as a result of the cessation of its operations and the anticipated
decrease in its assets resulting from distributions to its stockholders, its
common stock will be delisted from the Nasdaq National Market not later than
shortly after the special meeting of Be stockholders. Trading, if any, in the
common stock would thereafter be conducted in the over-the-counter market in
the so-called "pink sheets" or the NASD's "Electronic Bulletin Board". As a
consequence of such delisting, an investor would likely find it more difficult
to dispose of, or to obtain quotations as to, the price of the common stock.
Delisting of the common stock may result in lower prices for the common stock
than would otherwise prevail.
After Be closes its stock transfer books, the stockholders will not be able
to transfer their shares. It is anticipated that the interests in a liquidating
trust or trusts will not be transferable, although no determination has yet
been made. Such determination will be made by the Be board of directors and
management prior to the transfer of unsold assets to the liquidating trust and
will be based on, among other things, the Be board of directors, and
management's estimate of the value of the assets being transferred to the
liquidating trust or trusts, tax matters and the impact of compliance with
applicable securities laws. Should the interests be transferable, Be plans to
distribute an information statement with respect to the liquidating trust or
trusts at the time of the transfer of assets and the liquidating trust or
trusts may be required to comply with the periodic reporting and proxy
requirements of the Exchange Act. The costs of compliance with such
requirements would reduce the amount which otherwise could be distributed to Be
stockholders. Even if transferable, the interests are not expected to be listed
on a national securities exchange or quoted through Nasdaq, and the extent of
any trading market therein cannot be predicted. Moreover, the interests may not
be accepted by commercial lenders as security for loans as readily as more
conventional securities with established trading markets.
BE'S BOARD OF DIRECTORS RECOMMENDS A VOTE "FOR" THE APPROVAL OF THE ASSET
SALE AND "FOR" THE APPROVAL OF THE DISSOLUTION AND THE ADOPTION OF THE PLAN OF
DISSOLUTION OF BE.
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RELATED AGREEMENTS
Funding Agreement
Contemporaneously with the execution and delivery of the asset purchase
agreement, Palm, ECA Subsidiary Acquisition Corporation and Be entered into a
funding agreement whereby Palm agreed to pay weekly consulting fees to Be to
enable Be to continue to pay the salaries of certain designated employees to
continue to develop and enhance the BeOS and BeIA operating systems and related
technology until the earlier of the completion of the asset sale or termination
of the asset purchase agreement. Pursuant to the funding agreement, Palm agreed
to pay Be an amount equal to $2,500 multiplied by the number of designated
employees employed by Be at the start of the applicable weekly period. This
payment is to be made at the end of the applicable weekly period. In the event
of termination of the funding agreement during a one-week period, Palm will be
required to pay the entire weekly sum for such one-week period. The funding
agreement will continue until the earliest to occur of:
. the completion of the asset sale;
. the termination of the asset purchase agreement; and
. termination of the funding agreement by mutual written consent of the
parties.
The form of the funding agreement is attached to this proxy
statement/prospectus as Annex C, and you are urged to read it in its entirety.
Be is not required to submit the funding agreement to its stockholders for
their approval under Delaware law. Under no circumstances will Be be required
to repay to Palm any of the amounts received by Be under the funding agreement.
Stockholder Support Agreements
All of the directors and executive officers of Be entered into stockholder
support agreements with Palm contemporaneously with the execution and delivery
of the asset purchase agreement. Pursuant to the agreements, each director and
executive officer agreed to vote, and granted Palm an irrevocable proxy to
vote, all shares of Be common stock beneficially owned by them as of the record
date in favor of the approval of the asset sale and the dissolution and against
the following actions:
. any proposal made in opposition to, or in competition with, completion of
the asset sale and the other actions contemplated by the asset purchase
agreement, including the wind-up of Be's operations; and
. any other action that is intended to, or would reasonably be expected to,
impede, interfere with, delay, postpone, discourage or adversely affect
the asset sale or any of the other actions contemplated by the asset
purchase agreement, including the wind-up of Be's operations.
As of the record date, these individuals collectively beneficially owned
4,961,070 shares of Be common stock, which represented approximately 14% of the
outstanding shares of Be common stock. None of the Be executive officers and
directors were paid additional consideration in connection with the stockholder
support agreements.
The Be executive officers and directors who signed the stockholder support
agreements have also agreed not to sell, pledge, encumber, grant an option with
respect to, transfer or otherwise dispose of any shares of Be common stock, or
any option or warrant to purchase shares of Be common stock, owned by them
unless each person to whom any shares, options or warrants are transferred
executes a stockholder support agreement and agrees to hold those shares,
options or warrants subject to all the terms and provisions of the stockholder
support agreement.
The stockholder support agreements will terminate upon the earlier to occur
of the termination of the asset purchase agreement and the completion of the
asset sale. The form of stockholder support agreement is attached to this proxy
statement/prospectus as Annex D, and you are urged to read it in its entirety.
72
Non-Competition Agreements
Contemporaneously with the execution and delivery of the asset purchase
agreement, certain key employees of Be entered into non-competition agreements
with Palm whereby the each such key employee agreed, subject to the closing of
the asset sale and for a period of two years thereafter, not to compete with
Palm in any business activity competitive with Palm's operating system platform
business without the prior written consent of Palm. The non-competition
agreements also provide that the key employee may not solicit, encourage or
take any other action which is intended to induce or encourage, or could
reasonably be expected to have the effect of inducing or encouraging, any
employee of Palm or any of its subsidiaries to terminate his or her employment
with Palm. The form of non-competition agreement is attached to this proxy
statement/prospectus as Annex E, and you are urged to read it in its entirety.
SELLING STOCKHOLDER
The registration statement of which this prospectus is a part covers any
offers or sales of the shares received by Be pursuant to the asset sale.
Therefore, the Palm common stock received by Be in the asset sale may be resold
by Be resale without any limitations on resale.
The following table, which sets forth information with respect to Be, gives
effect to the issuance of Palm common stock upon the closing of the asset sale:
Ownership Prior to the Ownership After the
Offering Number of Offering
--------------------- Shares ------------------
Name and Address Shares Percentage Offered Shares Percentage
---------------- --------- ---------- --------- ------ ----------
Be Incorporated........................ 7,534,247 1.3% 7,534,247 0 0%
800 El Camino Real, Suite 400
Menlo Park, CA 94025
--------
(1)The number of shares of Palm common stock to be issued by Palm to Be, and
the number of shares to be resold by Be to the public, is an estimate based
on the opening sales price per share of the Palm common stock on October 3,
2001. The actual number of shares that will be issued by Palm to Be upon the
closing of the asset sale will be determined by dividing $11,000,000
(subject to adjustment under certain circumstances) by the opening price of
Palm common stock as quoted on the Nasdaq National Market on the closing
date of the transaction.
73
PLAN OF DISTRIBUTION
Promptly after the consummation of the asset sale, Be intends to offer and
sell all of the shares of Palm common stock it receives in the asset sale. Be
will act independently of Palm in making decisions with respect to the timing,
manner of sale and size of each sale. Be may sell the shares being offered
hereby on the Nasdaq National Market, or otherwise, for cash consideration and
at prices and under terms then prevailing or at prices related to the then
current market price or at negotiated prices. Shares may be sold by one or more
of the following means of distribution:
. Block trades in which the broker-dealer so engaged will attempt to sell
such shares as agent, but may position and resell a portion of the block
as principal to facilitate the transaction;
. Purchase by a broker-dealer as principal and resale by such broker-dealer
for its own account pursuant to this prospectus;
. Over-the-counter distributions in accordance with the rules of the Nasdaq
National Market;
. Ordinary brokerage transactions and transactions in which the broker
solicits purchasers; and
. Privately negotiated transactions.
Be may use broker-dealers to sell its shares of Palm common stock. If this
happens, the broker-dealers may either receive discounts, concessions or
commissions from Be, or they may receive commissions from purchasers of shares
of Palm common stock for whom they acted as agents. In order to comply with the
securities laws of certain states, Be may only sell its shares of Palm common
stock through registered or licensed broker-dealers.
Be and any agents or broker-dealers that it uses to resell its shares of
Palm common stock after the consummation of the asset sale are "underwriters"
within the meaning of Section 2(11) of the Securities Act, and any discount,
concession or commission received by them and any profit on the resale of
shares as principal might be deemed to be underwriting discounts or commissions
under the Securities Act.
Be and any other person participating in the distribution of the offered
shares will be subject to applicable provisions of the Exchange Act and the
rules and regulations thereunder, including, without limitation, the
anti-manipulation provisions of Regulation M of the Exchange Act, which may
limit the timing of purchases and sales of any of the offered shares by the
selling stockholders or any other person. Furthermore, Regulation M may
restrict the ability of any person engaged in the distribution of the offered
shares to engage in market-making activities with respect to the particular
offered shares being distributed. All of the foregoing may affect the
marketability of the offered shares and the ability of any person or entity to
engage in market-making activities with respect to the offered shares.
The registration effected hereby is being effected in accordance with the
asset purchase agreement. Be will pay substantially all of the expenses
incident to the resale of the shares of Palm common stock.
74
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT OF BE
The following table sets forth certain information regarding the beneficial
ownership of the common stock of Be as of October 4, 2001 by:
. each stockholder who is known by Be to own beneficially 5% percent or more
of the common stock of Be;
. each of Be's directors;
. Be's chief executive officer;
. each of Be's executive officers; and
. all of Be's directors and executive officers as a group.
Except as otherwise noted, the address of each person listed in the table is
c/o Be Incorporated, 800 El Camino Real, Suite 400, Menlo Park, CA 94025.
Unless otherwise indicated, to Be's knowledge, all persons listed below have
sole voting and investment power with respect to their shares of Be's common
stock, except to the extent authority is shared by spouses under applicable
law. Beneficial ownership is determined in accordance with the rules of the
Securities and Exchange Commission and includes voting and investment power
with respect to shares. Applicable percentage ownership is based on 36,792,563
shares of common stock outstanding as of October 4, 2001 together with options
that are currently exercisable or exercisable within 60 days of October 4,
2001. In computing the number and percentage of shares beneficially owned by a
person, shares of common stock subject to options currently exercisable, or
exercisable within 60 days of October 4, 2001 are counted as outstanding, while
these shares are not counted as outstanding for computing the percentage
ownership of any other person.
Shares Beneficially Owned
Shares Issuable (Including the
pursuant to Number of Shares
Options Exercisable Shown in the First Column)
within 60 days of --------------------------
Name of Beneficial Owner October 4, 2001 Number Percent
------------------------ ------------------- --------- -------
Jean-Louis Gassee...................... 335,416 4,317,177 11.63%
Barry M. Weinman(1).................... 96,875 844,521 2.29%
Steve M. Sakoman....................... 630,622 790,733 2.11%
Garrett P. Gruener..................... 96,875 162,062 *
Stewart Alsop.......................... 96,875 96,875 *
P.C. Berndt............................ 107,499 107,499 *
William F. Zuendt...................... 50,000 50,000 *
Andrei M. Manoliu(2)................... 41,666 48,031 *
All officers and directors as a group
(8 persons).......................... 1,455,828 6,416,898 16.78%
--------
* Represents beneficial ownership of less than one percent of the common
stock.
(1) Consists of 703,848 shares held by AVl Capital, L.P., 2,000 shares held by
Virginia Weinman, the wife of Mr. Weinman, and 1,000 shares held by the
Weinman Family Trust. AVl Capital Management, L.P. is the general partner
of AVl Capital, L.P. Mr. Weinman is a general partner of AVl Capital
Management. Mr. Weinman disclaims beneficial ownership of these shares
except to the extent of his pecuniary interest therein.
(2) Shares are held by the Manoliu-Neimat Living Trust, of which Dr. Manoliu is
a trustee. Dr. Manoliu was formerly a partner in the law firm of Cooley
Godward LLP, Be's outside legal counsel.
Section 16(a) Beneficial Ownership Reporting Compliance
Section 16(a) of the Securities Exchange Act of 1934 requires Be's directors
and executive officers, and persons who own more than 10% of a registered class
of Be's equity securities, to file with the SEC initial reports of ownership
and reports of changes in ownership of common stock and other equity securities
of Be. Officers, directors and greater than 10% stockholders are required by
SEC regulation to furnish Be with copies of all Section 16(a) forms they file.
75
BUSINESS OF BE
Overview
Be was founded in 1990. Be offers software solutions designed for Internet
appliances and digital media applications. An Internet appliance is a dedicated
device designed specifically to access information from the Internet for a
given purpose. An Internet appliance's hardware and software are seamlessly
integrated together to provide users with a responsive and easy to use
interface. Be's software solutions are BeIA: the Complete Internet Appliance
Solution(TM) and BeOS, its operating system designed for digital media
applications. In early 2000, Be shifted the primary focus of its business from
the marketing and distribution of BeOS, its desktop operating system, to the
development, marketing and deployment of BeIA, its software solution intended
for Internet appliances. Be shifted its focus as a result of the intense
competition in the market for the BeOS operating system, the anticipated market
for the BeIA product and the limited resources available to Be for the
development and marketing of its products. BeIA gives customers the ability to
create customized Internet appliances that deliver unique services, information
and entertainment to their targeted end users. Unfortunately, the Internet
appliance market as a whole has failed to materialize as anticipated. Consumer
response to early Internet appliances has been unenthusiastic, major
manufacturers have either removed their products from the market or have not
undertaken significant development efforts, and the economic realities of the
last four quarters have made success even more difficult. Despite Be's efforts
in the Internet appliance market, its financial difficulties have continued,
and Be has been unable to generate revenues sufficient to meet operating
expenses.
Products and Technologies
BeIA
The BeIA solution is comprised of three components: BeIA Client Platform,
BeIA Management and Administration Platform (MAP) and BeIA Integration
Services.
. BeIA Client Platform, provides a high-performance, small-footprint
environment for special-purpose Internet enabled devices to deliver
information, communication and entertainment into the hands of end
users. One of the core strengths of the BeIA technology is its ability
to deliver, display and control multiple audio and video inputs and
applications with little performance degradation. BeIA Client Platform
has been designed and optimized to provide the high level of
responsiveness and stability users typically experience and associate wi
consumer electronics devices. The modular nature of BeIA Client Platform
allows device providers to incorporate only those features of the
software required for a particular device, to deliver specific content
and to meet the cost target for each particular device.
. BeIA Management and Administration Platform (MAP) allows service
providers to implement remote management features for the BeIA-based
client devices deployed to end users. A network of appliances connected
through BeIA MAP servers can be provided upgrades and updates to keep
them at an appropriate maintenance level, and can serve specific content
defined by the user or service provider, all in a secured manner. This
capability coupled with the technology built into the BeIA Client
Platform virtually eliminates the need for users to be responsible for
the maintenance of the device's operating environment and applications.
. BeIA Integration Services offers to device or service providers a
desired expertise that facilitates their quick and reliable delivery and
development of new devices. Services are available in two distinct
forms: (i) Professional Engineering Services that provide a wide range
of integration services to assist Be's customers in the design,
development, and implementation of new products; and (ii) Value Added
Reseller Services whereby Be intends to act as a VAR, bringing together
service providers, device manufacturers, hosting services, Web content,
and third-party applications.
76
BeOS
BeOS is Be's operating system designed for digital media applications and
serves as the development platform for BeIA. As a development platform, BeOS is
particularly well suited for development of code for BeIA because it has
complete Application Programming Interface (API) compatibility, and
approximately 90% binary compatibility with BeIA running on an Internet
appliance. The binary compatibility issues stem from the physical differences
between a development environment and the target device. Internet appliances
will typically have no hard disk drive, will have very limited capacity for
testing and debugging tools, and may have significant hardware capability
differences from the development machine. These differences prevent any serious
development from being done on BeIA-powered devices, although limited testing
and debugging can be done. BeOS provides a robust, reliable environment for
creating new code (applications, drivers, and system extensions), testing and
debugging of code in the BeOS environment, and remote testing and debugging of
the code on devices, with a set of tools that allow for high productivity and
maximum effectiveness.
BeOS, as a desktop operating environment, maximizes the performance of
digital audio and video applications that run on a range of desktop PCs and
high-performance multiprocessor workstations. BeOS offers several advantages
over traditional operating systems. It allows users to simultaneously operate
multiple audio, video, image processing and Internet-based software
applications while maintaining system stability, media quality and processor
performance. BeOS provides professional users with a high performance
environment to quickly and easily develop applications and create content. It
is designed to facilitate the integration of new technologies, and combines
fast performance and rich digital media applications for both
processor-intensive applications and lower-cost PC platforms. The Personal
Edition of BeOS is available at no charge as a single downloadable file from
Be's Web site.
Marketing, Sales and Customers
BeIA
Despite Be's efforts in the Internet appliance market, its financial
difficulties have continued. As a result, Be began reducing personnel in its
sales and marketing departments at the beginning of April 2001 and announced
the elimination of those departments in July 2001. As a result of the
elimination of its sales and marketing departments and the announcement of its
proposed transaction with Palm, Be does not expect to actively pursue future
relationships with potential customers or strategic partners nor derive any
material revenues in the near or extended future from any existing
collaboration, license or distribution agreements. Be's past marketing strategy
had focused on marketing and selling its BeIA solution by pursuing
relationships among six broad classifications of customers and strategic
partners: reference platform designers, original device manufacturers (ODMs),
original equipment manufacturers (OEMs), consumer electronic companies (CEs),
service providers and integrators.
In the past, Be established relationships with a number of prominent ODMs,
reference platform designers and system integrators in the technology industry.
However, Be does not have an agreement in place with any ODM or reference
platform designer to support its product at this time and is no longer working
with any of these strategic partners. In addition, Be does not currently expect
its support obligations to continue under existing agreements with system
integrators or anticipate that further revenues will be generated from
relationships with these parties.
Be remains a party to previously established relationships with OEM and CE
customers, although Be does not expect to receive material future revenues from
these relationships. These continuing arrangements include:
. Sony Electronics, Inc. In March 2001, Be signed an OEM license and
distribution agreement with Sony Electronics Inc. Under the agreement,
Sony was granted a license to include BeIA Client Platform in the Sony
eVilla(TM) Network Entertainment Center. While this agreement has not
been terminated, as of August 30, 2001 Sony has discontinued its eVilla
product and asked for the return of each distributed unit. As a result,
Be does not currently expect its support obligations to continue under
the agreement or that further revenues will be generated from its
relationship with Sony.
77
. TEAC Corp. In March 2000, Be entered into an OEM license and distribution
agreement with TEAC Corp. that allows TEAC, or its professional division,
TASCAM, to include its software with certain advanced audio products. In
July 2001, Be and TEAC executed an amendment to the agreement that grants
TEAC a non-exclusive license to distribute the Be software, but on an
"as-is," no-support basis from Be. While Be could derive royalties upon the
distribution of its licensed software under the terms of the agreement, Be
does not anticipate generating any material revenues from its relationship
with TEAC. Be does not currently have any ongoing, continuing support
obligations under this agreement.
. Compaq Computer Corporation. In November 1999, Be entered into an OEM
license and distribution agreement with Compaq Computer Corporation that
allows Compaq to pre-install and distribute BeIA on Compaq's iPaq Internet
appliances. The initial term of the agreement expires as of November 19,
2001 and on September 4, 2001, Be notified Compaq that it did not intend to
renew this agreement. As a result, Be does not currently expect its support
obligations to continue under the agreement or that further revenues will be
generated from its relationship with Compaq.
BeOS
Be previously decided to allow companies in the business of publishing and
distributing software to market the Professional Edition of BeOS. Be reasoned
that if the publishers were able to generate enough interest and revenue with
the Professional Edition of BeOS, the royalty revenues could be used to fund
further development of the desktop product. As a result of this decision, Be
has entered into separate agreements with four third-party software publishers
that provide for these publishers to focus on distribution and consumer
marketing for BeOS. While Be could derive royalties upon the sale of its
licensed software under the terms of these agreements, Be does not anticipate
any material revenues to be generated from its relationship with these
third-party publishers.
Product Development and Engineering
Be's product development and engineering efforts have historically focused
primarily on enhancing the functionality, flexibility, performance and
reliability of BeIA. Additionally, Be has continued to develop and innovate the
core technology and architecture of BeOS as the integration platform for BeIA
and as a software development environment for Internet appliances.
To enable BeIA to support popular industry standard formats and technologies
Be has established strategic technology and licensing arrangements with
technology providers to integrate their technologies with Be's products. These
arrangements are current and still effective, but they will not be transferred
to Palm as part of the asset sale as they are either unnecessary to Palm's
intended use of the acquired assets or Palm has available alternative
technology. These arrangements include:
. Opera Software A/S. In December 1999, Be entered into an agreement with
Opera to integrate their Web browser technology with Be's products, and
to distribute it as a component of Be's products.
. RealNetworks, Inc. In August 1999, Be signed a license agreement with
RealNetworks to enable its RealPlayer product to run on Be's products.
. Sun Microsystems, Inc. In September 1999, Be signed a license agreement
with Sun Microsystems for its PersonalJava technology which is
integrated into BeIA.
. Intel Corporation. In December 1998, Be entered into a software license
agreement with Intel where it provides Be with technical specifications
and software for Indeo, a technology that enables compression and
decompression of video data.
. Bitstream, Inc. In November 1999, Be entered into an agreement to
license Bitstream's FontFusion product, a unified font rendering engine,
as a key component of the BeIA Client Platform. Be has also licensed
Bitstream's unified, stroke-based CJK (Chinese, Japanese, Korean) font.
. Macromedia, Inc. In July 2000, Be entered into an agreement with
Macromedia to include its Macromedia Flash Player in BeIA Client
Platform.
. Beatnik, Inc. In September 1999, Be entered into an agreement with
Beatnik, Inc., a leader in interactive audio technologies and content
for the Web and digital devices, to include the Beatnik Audio Engine in
Be's BeIA Client Platform.
78
Be has invested considerable resources in the development of core
technologies and new capabilities. Additionally, Be has invested significant
resources to enhance BeIA Client Platform and BeIA MAP and to meet the needs of
customers/OEMs. Since the execution of the funding agreement with Palm, the
product development team has been working predominately to ready Be's products
for use with Palm's hardware.
Competition
The markets for Be's products are competitive and rapidly changing. Be
believes the principal competitive factors in these markets are:
. Partnerships with device providers and service providers;
. Key technological features and capabilities of the software platforms;
. Technical, financial and marketing resources; and
. Device providers clearly delivering targeted services that entice
consumers to regularly use the device.
In the market for Internet appliances, there is increased competition to
offer software to drive non-PC devices that provide access to the Internet and
enable digital media content on the Internet. For example, Microsoft
Corporation has traditionally been highly competitive in most computer software
markets, and if it chooses to fully enter the Internet appliance software
solutions market, it has the resources and expertise to be a competitive
factor. Other companies such as QNX Software Systems Ltd., Wind River Systems,
Inc., vendors of UNIX-based operating systems such as Linux, and vendors of
embedded operating systems have software that is being used for Internet
appliances. Improvements or modifications to other existing operating systems
such as Apple's Mac OS, Palm Inc.'s Palm OS or companies that market other
variations of Linux could also enable those companies to compete in the
Internet appliance market. Be also faces competition from vendors of embedded
browsers and manufacturers of set-top boxes and terminals such as WebTV, a
subsidiary of Microsoft. Be does not have the available resources to compete
effectively in the market for Internet appliances.
Employees
As of September 30, 2001, Be had 57 employees. Of these employees, 7 are in
general and administrative and 50 are in product development and engineering.
Facilities
Be leases approximately 23,963 square feet in Menlo Park, California.
Intellectual Property
Be relies on various intellectual property laws and contractual
restrictions, such as confidentiality and nondisclosure agreements and
licensing arrangements, to protect its proprietary rights in its products. Be
has one patent application filed in connection with its existing products.
79
BE INCORPORATED CONDENSED FINANCIAL INFORMATION
Be Incorporated Pro Forma Condensed Consolidated Balance Sheet (Unaudited)
The following unaudited pro forma condensed consolidated balance sheet of Be
as of June 30, 2001 presents the financial position of Be assuming the asset
sale and the approval of the plan of dissolution of Be had occurred on June 30,
2001. All material adjustments required to reflect the sale of assets and the
approval of the plan of dissolution are set forth in the columns labeled "Sale
Adjustments" and "Dissolution Adjustments." The data contained in the column
labeled "Historical Be" is derived from Be's historical unaudited consolidated
balance sheet as of June 30, 2001. The unaudited pro forma condensed
consolidated balance sheet should be read in conjunction with "Management's
Discussion and Analysis of Financial Condition and Results of Operations" and
the consolidated financial statements of Be, including the notes thereto,
appearing in Be's Annual Form 10-K for the year ended December 31, 2000 and on
interim report Form 10-Q for the quarter ended June 30, 2001. The pro forma
data is for informational purposes only and may not necessarily reflect Be's
financial position or what Be's financial position would have been had Be
consummated the asset sale and completed the dissolution on June 30, 2001.
There can be no assurance that the estimated net assets indicated below will be
realized if Be were liquidated, wound up and dissolved. Be believes that there
is a likelihood that certain risks related to the liquidation, winding-up and
dissolution of Be may result in holders of common stock realizing less than the
estimated net asset value shown in the pro forma condensed consolidated balance
sheet. These risks include, without limitation, the ultimate outcome of known
and unknown claims, litigation, debts and liabilities. The valuation of assets
and liabilities necessarily requires estimates and assumptions by management
and there are substantial uncertainties in carrying out any plan of
dissolution. The actual value of any liquidating distributions to Be's
stockholders will depend upon a variety of factors including, but not limited
to, the actual net proceeds from the sale of Be's assets (including those
subject to the asset sale), the ultimate settlement amounts of Be's liabilities
and obligations (including the settlement of known and unknown claims or
litigation), actual costs incurred in connection with carrying out the
liquidation, winding-up and dissolution of Be, including costs of liquidation
and establishing reserves, and the actual timing of the final dissolution of
Be. The asset values and liability settlements ultimately realized in the
liquidation, winding-up and dissolution of Be could materially differ from the
amounts shown in the pro forma condensed consolidated balance sheet below. No
assurance can be given that the amount of any liquidating distributions to Be
stockholders will equal the estimated amounts included in the pro forma
condensed consolidated balance sheet below.
Historical Sale Dissolution Pro
Be Adjustments Adjustments Forma
---------- ----------- ----------- ---------
ASSETS
Current assets:
Cash and cash equivalents........... $ 3,148 $ -- $ -- $ 3,148
Short-term investments.............. 1,754 11,000(A) -- 12,754
Accounts receivable................. 276 -- (56)(D) 220
Prepaid and other current assets.... 356 1,625(F) (220)(D) 1,761
--------- ------- ------- ---------
Total current assets.............. 5,534 12,625 (276)(D) 17,883
Property and equipment, net............ 311 -- (249)(D) 62
Other assets, net of accumulated
amortization.......................... 713 -- (689)(D) 24
--------- ------- ------- ---------
Total assets...................... $ 6,558 $12,625 $(1,214) $ 17,969
========= ======= ======= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable.................... $ 25 $ -- $ -- $ 25
Accrued expenses.................... 1,085 4,253(B) 3,930 (E) 9,268
Technology license obligations,
current portion.................... 425 -- -- 425
Deferred revenue.................... 64 -- (64)(D) --
--------- ------- ------- ---------
Total current liabilities......... 1,599 4,253 3,866 9,718
Technology license obligations, net of
current portion....................... 238 -- -- 238
--------- ------- ------- ---------
Total liabilities................. 1,837 4,253 3,866 9,956
--------- ------- ------- ---------
Stockholders' Equity:
Common stock........................ 36 2(C) -- 38
Additional paid-in capital.......... 109,062 271(C) -- 109,333
Accumulated other comprehensive
income............................. 2 -- -- 2
Deferred stock compensation......... (551) -- 551 (D) --
(Accumulated deficit)/Gain on the
asset sale......................... (103,828) 8,099(A)(B)(C)(F) (5,631)(D)(E) (101,360)
--------- ------- ------- ---------
Total stockholders' equity........ 4,721 8,372 (5,080) 8,013
--------- ------- ------- ---------
Total liabilities and
stockholders' equity............ $ 6,558 $12,625 $(1,214) $ 17,969
========= ======= ======= =========
80
Note 1. Unaudited Pro Forma Consolidated Balance Sheet
The unaudited pro forma condensed consolidated balance sheet gives effect to
the asset sale and dissolution of Be, as described below, as if these events
had occurred as of June 30, 2001.
Asset Sale
On August 16, 2001, following the approval of the Be board of directors Be
entered into an Asset Purchase Agreement with Palm, a Delaware corporation, and
ECA Subsidiary Acquisition Corporation, a Delaware corporation and an indirect
wholly owned subsidiary of Palm. The Asset Purchase Agreement contemplates
that, subject to the satisfaction of the conditions contained therein
(including obtaining the approval of the stockholders of Be), Palm would
acquire (through ECA Subsidiary Acquisition Corporation) substantially all of
Be's intellectual property and other technology assets (the "Asset Sale") for a
purchase price of $11 million, to be paid in shares of common stock of Palm. Be
currently intends to liquidate these shares by selling them for cash promptly
following the closing of the Asset Sale. There is no assurance that Be can
successfully consummate the sale of its assets, secure additional financing or
otherwise increase its liquidity.
Plan of Dissolution
On August 16, 2001, the board of directors of Be also approved the
dissolution of Be pursuant to the plan of dissolution and is recommending that
its stockholders approve the dissolution and adopt the plan of dissolution of
Be. Assuming Be's stockholders approve the dissolution and the asset sale, Be
intends to then close the asset sale and thereafter wind-up its affairs. The
proceeds from the asset sale and the sale of Be's remaining assets will be used
to pay or adequately provide for Be's debts and liabilities and obligations.
Any remaining assets will thereafter be available for distribution to Be's
stockholders in one or more distributions, pursuant to the plan of dissolution.
The following adjustments are reflected in the unaudited pro forma condensed
consolidated balance sheet:
(A) To record the total sale price of approximately $11 million to be
paid in shares of common stock of Palm. Be currently intends to liquidate
these shares by selling them for cash promptly following the closing of the
Asset Sale.
(B) To record accrual for estimated costs related to the sale, which
include net payments to employees of $3.1 million and other liabilities of
$1.1 million, including $750,000 owed to Lehman Brothers.
(C) To record the estimated non cash expense related to the stock bonuses
granted to employees.
(D) To record adjustments to state net assets at estimated liquidation
value.
(E) To record accrual for estimated costs of liquidation and dissolution,
which primarily related to existing insurance, lease and contract
obligations, including $1.2 million for liability insurance after cessation
of operations.
(F) To record the estimated amounts to be received under the funding
agreement signed between Palm and Be. Under the funding agreement, Be is to
have its engineers continue the development and enhancement of the
technology being purchased by Palm. Accordingly, the amounts received under
that agreement are recognized as revenue by Be. Be did not receive any
amounts under the funding agreement during any of the periods covered by
Be's consolidated financial statements included elsewhere in this proxy
statement/prospectus.
Gain on the Asset Sale
The estimated pro forma gain on the Asset Sale is in the amount of
approximately $8.1 million, as shown in the Sale Adjustments column.
Pro Forma Estimated Liquidation Value Per Share
Based on the above pro forma ending stockholders' equity of approximately
$8.0 million and the pro forma number of shares outstanding of approximately
38,400,000 shares, the approximate pro forma liquidation value per share
amounts to $0.21. This pro forma liquidation value assumes that the liquidation
of Be would occur as of June 30, 2001. The actual expected liquidation value of
$0.10, disclosed elsewhere in this proxy statement/prospectus, is lower since
it is based upon the August 31, 2001 balance sheet of Be (which has a lower net
book value due to July and August losses) and assumes that Be will complete an
orderly wind-down of operations through December 2001, and as such, is more
representative of the actual amount per share to be received assuming
successful completion of the transaction and sale of Palm shares. Actual
liquidation values to be received are dependent upon a number of factors, in
particular including orderly disposition of the Palm shares received. There can
be no assurance that the actual value received by Be stockholders will equal
the estimated values.
81
Be Incorporated Pro Forma Condensed Consolidated Statements of Operations
The following unaudited pro forma condensed consolidated statements of
operations for the year ended December 31, 2000 and the six months ended June
30, 2001 were prepared to illustrate the estimated effects of the asset sale to
Palm without taking into effect Be's proposed liquidation. The unaudited pro
forma condensed consolidated statements of operations assume that the sale
occurred as of January 1, 2000. The unaudited pro forma condensed consolidated
statements of operations exclude the effects of transactions that are not
reasonably expected to reoccur subsequent to the asset sale.
The data contained in the columns labeled "Historical Be" is derived from
Be's historical audited consolidated statement of operations for the year ended
December 31, 2000, and Be's historical unaudited consolidated statement of
operations for the six months ended June 30, 2001.
The unaudited pro forma condensed consolidated statements of operations
should be read in conjunction with "Management's Discussion and Analysis of
Financial Condition and Results of Operations" and the consolidated financial
statements of Be, including the notes thereto, appearing in Be's Annual Form
10-K for the year ended December 31, 2000 and on interim report Form 10-Q for
the quarter ended June 30, 2001. The unaudited pro forma condensed consolidated
statements of operations and related notes are provided for informational
purposes only and do not purport to be indicative of the results of operations
that would have been reported had the events assumed occurred on the dates
indicated, or purport to be indicative of results of operations that may be
achieved in the future.
Pro
Pro Historical Forma
Historical Forma Six Six
Year Year Months Months
Ended Pro Forma Ended Ended Pro Forma Ended
Be Incorporated 12/31/2000 Adjustments 12/31/2000 6/30/2001 Adjustments 6/30/2001
--------------- ---------- ----------- ---------- ---------- ----------- ---------
(in thousands, except per share data)
Net revenues........................... $ 480 $ (480)(i) $ -- $ 815 $ (815)(i) $ --
Cost of revenues....................... 1,097 (1,097)(i) -- 571 (571)(i) --
-------- ------- -------- ------- ------- -------
Gross profit (loss).................... (617) 617 -- 244 (244) --
Operating expenses:
Research and development............. 9,139 (5,018)(ii) 4,121 4,807 (2,201)(ii) 2,606
Sales and marketing.................. 7,812 (170)(ii) 7,642 2,074 (83)(ii) 1,991
General and administrative........... 4,740 (289)(ii) 4,451 2,596 (147)(ii) 2,449
Restructuring charge................. -- -- -- 450 -- 450
-------- ------- -------- ------- ------- -------
Total operating expenses............ 21,691 (5,477) 16,214 9,927 (2,431) 7,496
-------- ------- -------- ------- ------- -------
Loss from operations................... (22,308) 6,094 (16,214) (9,683) 2,187 (7,496)
Other income, net...................... 1,156 -- 1,156 230 -- 230
-------- ------- -------- ------- ------- -------
Net (loss) income...................... $(21,152) $ 6,094 $(15,058) $(9,453) $ 2,187 $(7,266)
======== ======= ======== ======= ======= =======
Net loss per share--basic and diluted.. $ (0.60) $ (0.42) $ (0.26) $ (0.20)
======== ======== ======= =======
Shares used in per common share
calculation--basic and diluted....... 35,533 35,533 36,330 36,330
======== ======== ======= =======
Note 1--Adjustments to Unaudited Pro Forma Condensed Consolidated Statements of
Operations
The following adjustments are to reflect the elimination of revenues
generated from substantially all of Be's intellectual property and other
technology assets sold to Palm, as well as expenses relating to continuing
employees assumed by Palm.
(i) To record the elimination of revenues, and associated costs, generated
from substantially all of Be's intellectual property and other
technology assets sold to Palm; and
(ii) To record the elimination of actual expenses incurred during the
respective period for the employees hired by Palm.
82
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS OF BE
Overview
Be was founded in 1990. Be offers software solutions designed for Internet
appliances and digital media applications.
Be's software solution products consist of (i) BeIA: the Complete Internet
Appliance Solution/TM/, comprised of three components; BeIA Client Platform,
BeIA Management and Administration Platform, and BeIA Integration Services, and
(ii) BeOS, its operating system designed for digital media applications and
which serves as the development platform for BeIA. Prior to 1998, Be had no
revenues and its operations consisted primarily of research and development. In
December 1998, Be shipped the first version of BeOS, its desktop operating
system targeted primarily to end users. Prior releases of BeOS were targeted
primarily to software developers. Having experienced losses and negative cash
flow from operations since inception, in the latter half of 1999 Be began a
review of its BeOS desktop operating system business model and its potential to
create stockholder value. The impetus for the review was market information
obtained from institutional investors and market analysts, and the realization
that the desktop product could only succeed by competing effectively against
Microsoft Corporation, which is a very large, established and entrenched
competitor in a rapidly maturing market. During this same period, many
potential large customers and industry analysts were expressing significant
interest in the Internet appliance version of Be's operating system. At the
time, most market analysts were predicting rapid growth in the nascent Internet
appliance market and indicating it would ultimately have significant upside
potential. The strengths of Be's technology appeared transferable to the needs
of this market, and the market was not yet dominated by any one player. As a
result of Be's business model review, in January 2000 Be announced its
intention to shift its primary focus from the marketing and distribution of
BeOS, its desktop operating system, to the development, marketing and
deployment of BeIA, its software solution intended for Internet appliances.
At the same time Be shifted its resource focus, it attempted to provide BeOS
with a final opportunity for success in the desktop market. First, Be made a
fully functioning Personal Edition of BeOS available on the Internet for free
download. The intent of the Personal Edition of BeOS was to seed the market and
to create interest in and exposure to Be's technology. Second, Be entered into
publishing relationships with several well-established software publishers to
distribute a royalty-bearing Professional Edition of BeOS. Ultimately, Be did
not have the resources, nor could it reasonably obtain the resources to
adequately pursue both the desktop and Internet appliance markets
simultaneously. Thus, Be decided to allow companies in the business of
publishing and distributing software to market the Professional Edition of
BeOS. Be reasoned that if the publishers were able to generate enough interest
and revenue with the Professional Edition of BeOS, the royalty revenues could
be used to fund further development of the desktop product. However, the
publishers were never able to generate any material revenues from the sale of
the Professional Edition of BeOS.
In contrast, Be was successful in 2000 in rapidly entering the developing
Internet appliance market. Be's efforts culminated in the execution of a
contract with Sony for its eVilla Network Entertainment Center in early 2001.
Unfortunately, the Internet appliance market as a whole has failed to
materialize as anticipated. Consumer response to early Internet appliances has
been unenthusiastic, major manufacturers have either removed their products
from the market or have not undertaken significant development efforts. The
economic realities of the last four quarters have made success even more
difficult, and on August 30, 2001 Sony discontinued the eVilla Network
Entertainment Center, its Internet appliance based on BeIA. Despite Be's
efforts in the Internet appliance market, Be's financial difficulties have
continued and it has been unable to generate revenues sufficient to meet
operating expenses. In April and July of 2001, Be substantially reduced its
workforce and announced the elimination of its sales and marketing departments
in order to conserve resources.
Be has undertaken extensive activities since early 2000 to evaluate and
pursue financing alternatives for the company to allow for its continuation and
the creation of value for Be stockholders. Be has endeavored to obtain
additional equity capital from numerous sources. Private placements with
institutions, funds and private
83
investors, equity lines of credit and private placements with strategic
investors have all been thoroughly investigated. By the end of March 2001, it
was clear no adequate source of capital was available on terms beneficial to Be
stockholders. Faced with this reality, Be's board of directors approved the
exploration of strategic and financial alternatives for maximizing stockholder
value. Alternatives considered included, but were not limited to, a merger or
similar business combination, an equity investment by a strategic investor, or
the sale of all or substantially all of the business or assets for stock or
cash in a transaction of the type ultimately entered into with Palm.
Since April 2001, Be has worked with professional financial advisors with
the intent of maximizing the return of value to stockholders under the
circumstances. Be conducted an extensive search for potential interested
parties, directly contacted a number of these parties and discussed with them a
variety of possible transactions. As part of this effort, Be held numerous
discussions and negotiations with third parties, including Palm, in an effort
to obtain financing necessary to the continuation or the potential sale of Be's
business. Except for the proposed transaction with Palm, these discussions have
not resulted in any acceptable offers and during this period, Be's financial
resources have continued to deteriorate.
Be's revenues in fiscal year 2000 were generated from the sale of BeOS to
licensed third party publishers, and other resellers and distributors, and
direct sales of BeOS to end users through the BeDepot.com Web site. Be also
generated revenue by collecting commissions from sales of third party software
through the BeDepot.com Web site.
To date, revenues in fiscal year 2001 have been generated through royalty
payments, maintenance and support fees, and professional services and
integration fees. These payments and fees were received from developers and
manufacturers of Internet appliances, as well as other systems and hardware
manufacturers incorporating BeIA into their products. The revenues from BeIA
have not offset the loss of revenues from sales of BeOS. As a result of Be's
announcements of the proposed Palm transaction and the elimination of its sales
and marketing departments, Be does not expect to generate any material revenues
in the near or extended future.
Be's research and development expenses consist of compensation and related
costs for research and development personnel. These expenses are currently
being funded by Palm as set forth in the form of funding agreement attached to
this proxy statement/prospectus as Annex C. Be also includes in research and
development expenses the costs relating to licensing of technologies and
amortization of costs of software tools used in the development of its
products. Costs incurred in the research and development of new releases and
enhancements are expensed as incurred. These costs include the cost of
licensing technology that is incorporated into a product or an enhancement,
which is still in preliminary development, and technological feasibility has
not been established. Once the product is further developed and technological
feasibility has been established, development costs are capitalized until the
product is available for general release. To date, products and enhancements
have generally reached technological feasibility and have been released for
sale at substantially the same time. Be expects research and development
expenses will remain stagnant and will be limited to compensation and related
costs of research and development personnel, which are currently being funded
by Palm, and the costs of technology license arrangements entered into prior to
Be's announcement of the proposed Palm transaction.
Prior to the elimination of its sales and marketing departments in July
2001, Be's sales and marketing expenses consisted of compensation and related
costs for sales and marketing personnel, marketing programs, public relations,
investor relations, promotional materials, travel, and related expenses for
attending trade shows. After the elimination of the sales and marketing
departments, Be has not incurred, and does not expect to incur in the future,
any material expenses related to sales and marketing functions.
General and administrative expenses consist of compensation and related
expenses for management, finance, and accounting personnel, professional
services and related fees, occupancy costs and other expenses. As a result of
the workforce reductions in April and July 2001 and the continued decline of
Be's business, general and administrative expenses have been greatly reduced
and Be does not expect such expenses to be increased in the future.
84
Be has historically marketed and sold its products in the United States and
internationally. International sales of products accounted for approximately
23%, 56% and 53% of Be's total revenues in 2000, 1999 and 1998, respectively.
International sales of products accounted for less than 1% of total revenues
for the three and six month periods ended June 30, 2001 and approximately 19%
and 9% for the three and six month periods ended June 30, 2000. Because of Be's
shift in focus away from BeOS, in the event that it generates future revenue,
Be expects that a higher percentage of such future total revenues, if any, will
be derived from North America. Be does not currently engage in currency hedging
activities.
From time to time in the past, Be has granted stock options to employees and
non-employee directors. As of June 30, 2001, Be had recorded deferred
compensation related to these options in the total amount of $15.7 million, net
of cancellations, representing the difference between the deemed fair value of
Be's common stock, as determined for accounting purposes, and the exercise
price of options at the date of grant. Of this amount, $5.7 million had been
amortized at December 31, 1998, with $6.2 million, $2.6 million and $331,000,
being amortized in 1999, 2000 and the six month period ended June 30, 2001,
respectively. Future amortization of expense arising out of options granted
through June 30, 2001 was estimated to be $320,000 for the remaining six months
of 2001, $226,000 in 2002 and $5,000 in 2003. Be amortizes the deferred
compensation charge monthly over the vesting period of the underlying option.
Results of Operations for the Years ended December 31, 1998, 1999 and 2000
Certain prior year costs have been reclassified to conform with the current
year presentation.
Year Ended December 31,
----------------------
1998 1999 2000
------ ------ ------
Net Revenue.................................... $1,199 $2,656 $ 480
Cost of Revenue................................ 2,161 1,436 1,097
------ ------ ------
Gross profit (loss)............................ (962) 1,220 (617)
------ ------ ------
Operating expenses include non-cash charges for stock compensation
amortization as follows:
Year Ended December 31,
-----------------------
1998 1999 2000
------ ------ ------
(in thousands)
Amortization of deferred compensation included
in:
Research and development....................... $1,747 $1,927 $ 794
Sales and marketing............................ 833 1,692 646
General and administrative..................... 1,301 2,614 1,173
------ ------ ------
Total amortization of deferred stock
compensation.............................. $3,881 $6,233 $2,613
------ ------ ------
Excluding the amortization of deferred compensation, operating expenses are
as follows:
Year Ended December 31,
-----------------------
1998 1999 2000
------- ------- -------
(in thousands)
Operating expenses:
Research and development....................... $ 6,386 $ 8,502 $ 8,345
Sales and marketing............................ 4,784 9,274 7,166
General and administrative..................... 1,428 2,506 3,567
Amortization of deferred stock compensation.... 3,881 6,233 2,613
------- ------- -------
Total operating expenses.................... $16,479 $26,515 $21,691
======= ======= =======
Comparison of the Year ended December 31, 2000 to the Year Ended December 31,
1999
Net Revenues. Net revenues decreased $2.2 million to $480,000 for the year
ended December 31, 2000 from $2.7 million for the year ended December 31, 1999.
This decrease is primarily attributable to lower shipments of BeOS, which Be
believes resulted from making a version of BeOS available for free download. To
date, all of Be's revenues have been derived from BeOS, with future revenues to
be dependent primarily on BeIA, Be's software solution for Internet appliances.
85
Cost of Revenues. Cost of revenues decreased $339,000, or 24%, to $1.1
million for the year ended December 31, 2000 from $1.4 million for the year
ended December 31, 1999. Gross margin is negative this year as a result of the
continuing amortization of technology license agreements.
Research and Development. Research and Development expenses were relatively
constant at $8.3 million for the year ended December 30, 2000 as compared with
$8.5 million for the year ended December 31, 1999. Lower outside consulting
expenses were partially offset by increases in payroll expenses due to
additional headcount.
Sales and Marketing. Sales and marketing decreased $2.1 million, or 23%, to
$7.2 million for the year ended December 31, 2000 from $9.3 million for the
year ended December 31, 1999. This decrease is primarily attributable to Be's
shift in resources to focus on the Internet appliances market, and resulting
shift in its potential customer base from end users to device and service
providers. Additionally, the Web site technology purchased in 1998 is now fully
amortized.
General and Administrative. General and administrative expenses increased
$1.1 million, or 42%, to $3.6 million for the year ended December 31, 2000 from
$2.5 million for the year ended December 31, 1999. This increase was primarily
attributable to the full year expenses associated with the activities of a
public company.
Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation decreased $3.6 million to $2.6 million for the year ended December
31, 2000, from $6.2 million for the year ended December 31, 1999. These amounts
represent the allocated portion of the difference between the deemed fair value
of Be's common stock and the exercise price of stock options granted by Be to
employees and non-employee directors.
Other Income (Expense), Net. Net other income increased $367,000, or 47%, to
$1.2 million for the year ended December 31, 2000, from $789,000 for the year
ended December 31, 1999. The increase is primarily attributable to the increase
in interest income due to the increased balances in Be's investment portfolio
following its initial public offering.
Comparison of the Year ended December 31, 1999 to the Year Ended December 31,
1998
Net Revenues. Net revenues increased $1.5 million to $2.7 million for the
year ended December 31, 1999 from $1.2 million for the year ended December 31,
1998. This increase was primarily attributable to higher shipments of BeOS as a
result of the release of version R4.5 in June of 1999 and of the development of
a reseller distribution channel in 1999, and to the recognition of
approximately $254,000 of revenue previously reserved under the R4.5 free
upgrade program which ended in November of 1999.
Cost of Revenues. Cost of revenues decreased $725,000, or 34%, to $1.4
million for the year ended December 31, 1999 from $2.2 million for the year
ended December 31, 1998. The cost of revenues for the year ended December 31,
1998 includes a charge of $1.2 million relating to technology which was used
with BeOS, the cost of which was no longer recoverable from forecasted
revenues.
Research and Development. Research and development increased $2.1 million,
or 33%, to $8.5 million for the year ended December 31, 1999 from $6.4 million
for the year ended December 31, 1998. The net increase was primarily
attributable to an increase in personnel costs and in licensing costs.
Personnel expenses increased by approximately $1.3 million and included a
one-time charge of approximately $145,000 related to the grant of immediately
vested stock options and the acceleration of vesting of stock options
previously issued to an employee.
Sales and Marketing. Sales and marketing increased $4.5 million, or 94%, to
$9.3 million for the year ended December 31, 1999 from $4.8 million for the
year ended December 31, 1998. This increase is primarily attributable to the
hiring of additional sales and marketing personnel and to the costs relating to
Be's third party developer programs including financial incentives in the form
of partial funding of developers' costs and technical support provided to
developers. Sales and marketing expenses also increased due to the amortization
of
86
purchased technology related to the acquisition in the second quarter 1998 of
StarCode, a software development company. In 1999, sales and marketing expenses
also increased due to the launch of new marketing programs including those
related to the release of version 4.5 of BeOS in June of 1999.
General and Administrative. General and administrative expenses increased
$1.1 million, or 75%, to $2.5 million for the year ended December 31, 1999 from
$1.4 million for the year ended December 31, 1998. This increase was primarily
attributable to increases in professional services and related fees, increased
personnel and related costs, to premiums related to insurance coverage obtained
concurrently with the initial public offering and expansion of leased
facilities.
Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation increased $2.4 million, or 61%, to $6.2 million for the year ended
December 31, 1999, from $3.9 million for the year ended December 31, 1998.
These amounts represent the allocated portion of the difference between the
deemed fair value of Be's common stock and the exercise price of stock options
granted by Be to employees and non-employee directors.
Other Income (Expense), Net. Net other income increased $209,000, or 36%, to
$789,000 for the year ended December 31, 1999, from $580,000 for the year ended
December 31, 1998. The increase is primarily attributable to the increase in
interest income due to the increased balances in Be's investment portfolio
following its initial public offering.
Results of Operations for the Three Months and Six Months Ended June 30, 2001
and 2000
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2001 2000 2001 2000
---- ---- ---- ----
Net revenue
Cost of revenue................................ $715 $142 $815 $396
Gross profit (loss)............................ 320 261 571 554
Operating expenses include non-cash charges for stock compensation
amortization as follows:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2001 2000 2001 2000
----- ---- ---- ------
(in thousands) (in thousands)
Amortization of deferred compensation included
in:
Research and development....................... $ 50 $196 $152 $ 509
Sales and marketing............................ (101) 189 (37) 426
General and administrative..................... 80 272 216 755
----- ---- ---- ------
Total amortization of deferred stock
compensation.............................. $ 29 $657 $331 $1,690
===== ==== ==== ======
Excluding the amortization of deferred compensation, operating expenses are
as follows:
Three Months Six Months
Ended June 30, Ended June 30,
-------------- --------------
2001 2000 2001 2000
------ ------ ------ -------
(in thousands) (in thousands)
Operating expenses:
Research and development....................... $2,276 $1,843 $4,655 $ 3,991
Sales and marketing............................ 557 1,883 2,111 3,974
General and administrative..................... 1,370 939 2,380 1,969
Amortization of deferred stock compensation.... 29 657 331 1,690
------ ------ ------ -------
Total operating expenses.................... $4,232 $5,322 $9,477 $11,624
====== ====== ====== =======
87
Comparison of the Three Month Period ended June 30, 2001 to the Three Month
Period
ended June 30, 2000
Net Revenues. Net revenues increased $573,000 to $715,000 for the three
month period ended June 30, 2001 from $142,000 for the three month period ended
June 30, 2000. Revenues are not directly comparable as they were mainly
attributable to shipments of BeOS in 2000 and to BeIA integration services in
2001.
Cost of Revenues. Cost of revenues increased $59,000, or 23%, to $320,000,
for the three month period ended June 30, 2001 from $261,000 for the three
month period ended June 30, 2000. A majority of such costs continue to result
from the continuing amortization of technology license agreements.
Research and Development. Research and development expenses, exclusive of
stock compensation, increased $433,000, or 23%, to $2.3 million for the three
month period ended June 30, 2001 from $1.8 million for the three month period
ended June 30, 2000. The increase results primarily from increases of
approximately $400,000 in personnel expenses, primarily attributable to the
hiring of additional research and development personnel.
Sales and Marketing. Sales and marketing expenses, exclusive of stock
compensation, decreased $1.3 million, or 70%, to $557,000 for the three month
period ended June 30, 2001 from $1.9 million for the three month period ended
June 30, 2000. This decrease is primarily attributable to the restructuring of
Be's operations, implemented early in the quarter to reflect current market and
financial conditions, following which Be closed its European office in Paris
and eliminated positions principally in the sales and marketing departments in
the United States.
General and Administrative. General and administrative expenses, exclusive
of stock compensation, increased $431,000, or 46%, to $1.4 million for the
three month period ended June 30, 2001 from $939,000 for the three month period
ended June 30, 2000. This increase is primarily attributable to the payment of
fees, on a retainer basis, to an investment banking firm, hired during the
second quarter of 2001, to assist Be in exploring various strategic and
financial alternatives for maximizing shareholder value on a near-term basis.
Restructuring Charge. On April 2, 2001, Be announced its decision, made at
the end of the first quarter, to restructure its operations to reflect current
market and financial conditions by closing its European office in Paris and
eliminating positions principally in Be's sales, marketing and general
administration departments in the United States. As a result, Be recorded a
restructuring charge of $307,000 in the first quarter for the closing of its
European office, which is comprised of $272,000 for involuntary termination
benefits and $35,000 for termination of operating contracts and professional
fees. As anticipated, Be recorded a restructuring charge of approximately
$143,000 in the second quarter for the involuntary termination benefits related
to the elimination of 22 positions in the U.S.
Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation decreased $628,000, or 96%, to $29,000 for the three month period
ended June 30, 2001, from $657,000 for the three month period ended June 30,
2000. The decrease is attributable to the cancellation of options and to the
use of an amortization methodology, which tends to record higher compensation
in the initial years of the vesting period. These amounts represent the
allocated portion of the difference between the deemed fair value of Be's
common stock and the exercise price of stock options granted by Be to employees
and non-employee directors.
Other Income (Expense), Net. Net other income decreased $238,000, or 74%, to
$84,000 for the three month period ended June 30, 2001 from $322,000 for the
three month period ended June 30, 2000. The decrease is primarily attributable
to the decrease in interest income due to the reduced balances in Be's
investment portfolio used to fund operations.
88
Comparison of the Six Month Period ended June 30, 2001 to the Six Month Period
Ended June 30, 2000
Net Revenues. Net revenues increased $419,000 to $815,000 for the six month
period ended June 30, 2001 from $396,000 for the six month period ended June
30, 2000. Revenues are not directly comparable as they were mainly attributable
to shipments of BeOS in 2000 and to BeIA royalties and integration services in
2001.
Cost of Revenues. Cost of revenues increased $17,000, or 3%, to $571,000 for
the six month period ended June 30, 2001 from $554,000 for the six month period
ended June 30, 2000. A majority of such costs continue to result from the
continuing amortization of technology license agreements.
Research and Development. Research and Development expenses, exclusive of
stock compensation, increased $664,000, or 17%, to $4.7 million for the six
month period ended June 30, 2001 from $4.0 million for the six month period
ended June 30, 2000. The increase results primarily from an increase of
approximately $700,000 in personnel expenses following the hiring of additional
staff, net of savings of approximately $80,000 on outside consulting expenses.
Sales and Marketing. Sales and Marketing expenses, exclusive of stock
compensation, decreased $1.9 million, or 47%, to $2.1 million for the six month
period ended June 30, 2001 from $4.0 million for the six month period ended
June 30, 2000. This decrease is primarily attributable to the impact of
refocusing of marketing activities initiated in the first quarter of 2000 and
to the restructuring of Be's operations, implemented early in the second
quarter of 2001. The refocusing of marketing activities in 2000 resulted in
decreased public relations activities, outside consulting and third party
developer programs for a net decrease of approximately $1.1 million. As part of
the restructuring of Be's operations in 2001 to reflect current market and
financial conditions, Be closed its European office in Paris and eliminated
positions principally in the sales and marketing departments in the United
States, for a net impact of approximately $800,000.
General and Administrative. General and administrative expenses, exclusive
of stock compensation, increased $411,000, or 21%, to $2.4 million for the six
month period ended June 30, 2001 from $2.0 million for the six month period
ended June 30, 2000. This increase is primarily attributable to the payment of
fees, on a retainer basis, to an investment banking firm, hired during the
second quarter of 2001, to assist Be in exploring various strategic and
financial alternatives for maximizing shareholder value on a near-term basis.
Amortization of Deferred Stock Compensation. Amortization of deferred stock
compensation decreased $1.4 million, or 80%, to $331,000 for the six month
period ended June 30, 2001, from $1.7 million for the six month period ended
June 30, 2000. The decrease is attributable to the cancellation of options and
to the use of an amortization methodology, which tends to record higher
compensation in the initial years of the vesting period. These amounts
represent the allocated portion of the difference between the deemed fair value
of Be's common stock and the exercise price of stock options granted by Be to
employees and non-employee directors.
Other Income (Expense), Net. Net other income decreased $433,000, or 65%, to
$230,000 for the six month period ended June 30, 2001 from $663,000 for the six
month period ended June 30, 2000. The decrease is primarily attributable to the
decrease in interest income due to the reduced balances in Be's investment
portfolio used to fund operations.
Taxes
Since inception, Be has generated net operating losses which aggregated
approximately $82.5 million as of June 30, 2001. Be has provided a full
valuation allowance against the losses since it believes that it is more likely
than not that such benefits will not be realized. The amount of available net
operating losses will be reduced in the case of a change in ownership as
defined in the Internal Revenue Code.
89
Liquidity and Capital Resources
Since its inception, Be has financed its operations primarily through the
sale of its equity securities and through borrowing arrangements. Cash and cash
equivalents and short-term investments decreased approximately $15.0 million to
$14.1 million at December 31, 2000, from $29.1 million at December 31, 1999.
Cash and cash equivalents and short-term investments decreased approximately
$9.2 million to $4.9 million at June 30, 2001 from $14.1 million at December
31, 2000. These decreases are primarily attributable to the amounts used to
fund operations, net of the proceeds of stock-option exercises.
Cash used in operating activities increased $1.5 million to $17.5 million
for the year ended December 31, 2000 as compared to $16.0 million for the year
ended December 31, 1999. This increase is primarily attributable to the
increase in the net loss, net of non-cash items, and to the decrease in
payables balances, during the year ended December 31, 2000. Cash used in
operating activities was level at $9.4 million for the six month periods ended
June 30, 2001 and June 30, 2000.
Cash provided by investing activities was approximately $17.1 million for
the year ended December 31, 2000 as compared with cash used in investing
activities of $16.9 million for the year ended December 31, 1999. This change
is primarily attributable to net sales of short-term investments in the year
ended December 31, 2000 and the net purchases of short-term investments
following Be's initial public offering in the year ended December 31, 1999.
Cash provided by investing activities decreased approximately $11.0 million to
$2.6 million for the six month period ended June 30, 2001 as compared to $13.6
million for the six month period ended June 30, 2000. This decrease is
primarily attributable to lower net sales of short-term investments in the six
month period ended June 30, 2001.
Cash provided by financing activities for the year ended December 31, 2000
was approximately $3.4 million as compared with $36.0 million in the year ended
December 31, 1999. This change is primarily attributable to the proceeds of
$35.3 million received from Be's initial public offering in the third quarter
of 1999. Cash provided by financing activities for the six month period ended
June 30, 2001 was approximately $518,000, which represents a $2.5 million
decrease from the six month period ended June 30, 2000 of $3.0 million. This
decrease is primarily attributable to the proceeds of $2.1 million received
from the exercise of stock options in the first quarter of 2000.
If the asset sale is not completed, it is likely that Be will file for or be
forced to resort to bankruptcy protection. If the asset sale is completed, Be
intends to wind up its business and pay, or provide for the payment of, all of
its outstanding liabilities and obligations in accordance with applicable law
and the plan of dissolution. Until it winds up its business, Be will continue
to experience losses from operations and negative cash flows and will continue
to require working capital to fund its remaining operations. Be believes that
existing cash and cash equivalents will not be sufficient to meet operating and
capital requirements at its currently anticipated level of operations beyond
the end of fiscal 2001.
90
SELECTED QUARTERLY RESULTS OF OPERATIONS
The following table sets forth certain unaudited statements of operations
data for the ten quarters ended June 30, 2001. This data has been derived from
unaudited financial statements that, in the opinion of our management, include
all adjustments consisting only of normal recurring adjustments that Be
considers necessary for a fair presentation of the information when read in
conjunction with Be's audited financial statement and the attached notes. The
operating results for any quarter are not necessarily indicative of the results
for any future period.
Quarter Ended
----------------------------------------------------------------
March 31, June 30, September 30, December 31, March 31, June 30,
1999 1999 1999 1999 2000 2000
--------- -------- ------------- ------------ --------- --------
Net revenues.................................................... $ 309 $ 537 $ 775 $ 1,035 $ 254 $ 142
Cost of revenues................................................ 85 239 372 740 293 261
------- ------- ------- ------- ------- -------
Gross profit (loss)............................................. 224 298 403 295 (39) (119)
Operating expenses:
Research and development..................................... 2,032 1,937 2,200 2,333 2,148 1,843
Sales and marketing............................................ 1,965 2,540 2,279 2,489 2,171 1,983
General and administrative................................... 508 587 665 747 950 839
Amortization of deferred stock compensation.................. 1,666 1,713 1,597 1,257 1,033 657
------- ------- ------- ------- ------- -------
Total operating expenses..................................... 6,171 6,777 6,741 6,826 6,302 5,322
------- ------- ------- ------- ------- -------
Loss from operations............................................ (5,947) (6,479) (6,338) (6,531) (6,341) (5,441)
Other income (net).............................................. 101 32 284 372 341 322
------- ------- ------- ------- ------- -------
Net loss........................................................ $(5,846) $(6,447) $(6,054) $(6,159) $(6,000) $(5,119)
======= ======= ======= ======= ======= =======
Net loss attributable to common stockholders.................... $(5,979) $(6,578) $(6,082) $(6,159) $(6,000) $(5,119)
======= ======= ======= ======= ======= =======
September 30, December 31, March 31, June 30,
2000 2000 2001 2001
------------- ------------ --------- --------
Net revenues.................................................... $ 68 $ 16 $ 100 $ 715
Cost of revenues................................................ 216 327 251 320
------- ------- ------- -------
Gross profit (loss)............................................. (148) (311) (151) (395)
Operating expenses:
Research and development..................................... 2,088 2,266 2,379 2,326
Sales and marketing............................................ 1,422 1,590 1,554 456
General and administrative................................... 880 898 1,317 1,450
Amortization of deferred stock compensation.................. 507 416 302 143
------- ------- ------- -------
Total operating expenses..................................... 4,897 5,170 5,552 4,375
------- ------- ------- -------
Loss from operations............................................ (5,045) (5,481) (5,703) (3,980)
Other income (net).............................................. 274 219 146 84
------- ------- ------- -------
Net loss........................................................ $(4,771) $(5,262) $(5,557) $(3,896)
======= ======= ======= =======
Net loss attributable to common stockholders.................... $(4,771) $(5,262) $(5,557) $(3,896)
======= ======= ======= =======
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS
ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Be considered the provision of Financial Reporting Release No. 48
"Disclosure of Accounting Policies for Derivative Financial Instruments and
Derivative Commodity Instruments, and Disclosure of Quantitative and
Qualitative Information about Market Risk Inherent in Derivative Financial
Instruments, Other Financial Instruments and Derivative Commodity Instruments."
Be had no holdings of derivative financial or commodity instruments at December
31, 2000. However, Be is exposed to financial market risks, including changes
in foreign currency exchange rates and interest rates. Much of Be's revenues
and capital spending is transacted in U.S. dollars. However, the expenses and
capital spending of Be's French subsidiary are transacted in French francs.
Results of operations from Be's French subsidiary are not material to the
results of Be's operations, therefore, Be believes that foreign currency
exchange rates should not materially adversely affect Be's overall financial
position, results of operations or cash flows. Be believes that the fair value
of Be's investment portfolio or related income would not be significantly
impacted by increases or decreases in interest rates due mainly to the
short-term nature of Be's investment portfolio. However, a sharp increase in
interest rates could have a material adverse effect on the fair value of Be's
investment portfolio. Conversely, sharp declines in interest rates could
seriously harm interest earnings of Be's investment portfolio.
91
LEGAL OPINION
The validity of the shares of Palm common stock to be issued to Be upon the
closing of the asset sale will be passed upon for Palm by Wilson Sonsini
Goodrich & Rosati, Professional Corporation, Palo Alto, California. Be is
represented in connection with the asset sale by Cooley Godward LLP, Palo Alto,
California.
EXPERTS
The consolidated financial statements and the related financial statement
schedule incorporated in this proxy statement/prospectus by reference from
Palm's Annual Report on Form 10-K for the year ended June 1, 2001, have been
audited by Deloitte & Touche LLP, independent auditors, as stated in their
report, which is incorporated herein by reference, and have been so
incorporated in reliance upon the report of such firm given upon their
authority as experts in accounting and auditing.
The consolidated financial statements of Be as of December 31, 2000 included
in this proxy statement/prospectus have been so included in reliance on the
report (which contains an explanatory paragraph relating to Be's ability to
continue as a going concern, as described in Note 2 to the Financial
Statements) of PricewaterhouseCoopers LLP, independent accountants, given on
the authority of said firm as experts in auditing and accounting.
The appraisal report dated June 2001 referred to in Palm's Annual Report on
Form 10-K for the year ended June 1, 2001, which is incorporated by reference
in this proxy statement/prospectus, has been prepared by Carneghi-Bautovich &
Partners, Inc., real estate appraisers and consultants in urban economics,
given on the authority of said firm as experts in real estate appraisals.
92
WHERE YOU CAN FIND MORE INFORMATION
THIS PROXY STATEMENT/PROSPECTUS INCORPORATES DOCUMENTS BY REFERENCE WHICH
ARE NOT PRESENTED IN OR DELIVERED WITH THIS PROXY STATEMENT/ PROSPECTUS.
All reports, proxy and information statements and other information filed by
Palm pursuant to Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange
Act of 1934, as amended, after the date of this proxy statement/prospectus and
before the date of the resale of all of the shares of Palm common stock by Be
are incorporated by reference into and to be a part of this proxy
statement/prospectus from the date of filing of those documents.
YOU SHOULD RELY ONLY ON THE INFORMATION CONTAINED IN THIS DOCUMENT OR THAT
WE HAVE REFERRED YOU TO. NO ONE HAS BEEN AUTHORIZED TO PROVIDE YOU WITH
INFORMATION THAT IS DIFFERENT.
The Securities and Exchange Commission allows the "incorporation by
reference" of information into this proxy statement/prospectus. This means that
important information can be disclosed to you by referring you to another
document filed separately with the Securities and Exchange Commission. The
information incorporated by reference is deemed to be part of this document,
except for any information superseded by information in this document. This
proxy statement/prospectus incorporates by reference the documents set forth
below that Palm has previously filed with the Securities and Exchange
Commission. These documents contain important information about Palm and its
financial performance.
Palm's Securities and Exchange Commission filings incorporated by reference
into this proxy statement/prospectus:
. Palm's annual report on Form 10-K for the fiscal year ended June 1, 2001;
. The description of Palm's common stock from Palm's registration statement
on Form 8-A filed with the Securities and Exchange Commission on February
18, 2000 and any amendment or report filed thereafter for the purpose of
updating such description; and
. The description of Palm's preferred share purchase rights from Palm's
registration statement on Form 8-A filed with the Securities and Exchange
Commission on October 23, 2000 and any amendment or report filed
thereafter for the purpose of updating such description.
Any statement contained herein or in a document incorporated or deemed to be
incorporated by reference into this proxy statement/prospectus will be deemed
to be modified or superceded for purposes of this proxy statement/prospectus to
the extent that a statement contained in this proxy statement/prospectus or any
other subsequently filed document that is deemed to be incorporated by
reference into this proxy statement/prospectus modifies or supercedes such
statement. Any statement so modified or superceded will not be deemed, except
as so modified or superceded, to constitute a part of this proxy
statement/prospectus.
The reports incorporated by reference into this document are available from
Palm upon request. Palm will provide a copy of any and all of the information
that is incorporated by reference in this proxy statement/prospectus (not
including exhibits to the information unless those exhibits are specifically
incorporated by reference into this proxy statement/prospectus) to any person,
without charge, upon written or oral request to the address and telephone
number listed below. ANY REQUEST FOR DOCUMENTS SHOULD BE MADE BY NOVEMBER 3,
2001 TO ENSURE TIMELY DELIVERY.
Palm, Inc.
5470 Great America Parkway
Santa Clara, CA 95052
(408) 878-9000
93
Palm and Be file reports, proxy and information statements and other
information with the Securities and Exchange Commission. Copies of such
reports, proxy statements and other information may be inspected and copied at
the public reference facilities maintained by the Securities and Exchange
Commission at:
Judiciary Plaza Citicorp Center
Room 1024 500 West Madison Street
450 Fifth Street, N.W. Suite 1400
Washington, D.C. 20549 Chicago, Illinois 60661
Copies of these materials can also be obtained by mail at prescribed rates
from the Public Reference Section of the Securities and Exchange Commission,
450 Fifth Street, N.W., Washington, D.C. 20549 or by calling the Securities and
Exchange Commission at 1-800-SEC-0330. The Securities and Exchange Commission
maintains an Internet site that contains reports, proxy statements and other
information regarding each of Palm and Be. The address of the Securities and
Exchange Commission Internet site is http://www.sec.gov.
Reports, proxy and information statements and other information concerning
Be and Palm may be inspected at:
The National Association of Securities Dealers
1735 K Street, N.W.
Washington, D.C. 20006
Palm has filed a registration statement on Form S-4 under the Securities Act
with the Securities and Exchange Commission with respect to Palm's common stock
to be issued to Be in the asset sale described in this proxy
statement/prospectus. This proxy statement/prospectus constitutes the
prospectus of Palm filed as part of the registration statement. This proxy
statement/prospectus does not contain all of the information set forth in the
registration statement because certain parts of the registration statement have
been omitted in accordance with the rules and regulations of the Securities and
Exchange Commission. The registration statement and its exhibits are available
for inspection and copying as set forth above.
Be stockholders should call the Corporate Secretary at Be at (650) 462-4100
with any questions about the asset sale or the dissolution.
THIS PROXY STATEMENT/PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL, OR A
SOLICITATION OF AN OFFER TO PURCHASE, THE SECURITIES OFFERED BY THIS PROXY
STATEMENT/PROSPECTUS, OR THE SOLICITATION OF A PROXY, IN ANY JURISDICTION TO OR
FROM ANY PERSON TO WHOM OR FROM WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER,
SOLICITATION OF AN OFFER OR PROXY SOLICITATION IN SUCH JURISDICTION. NEITHER
THE DELIVERY OF THIS PROXY STATEMENT/PROSPECTUS NOR ANY DISTRIBUTION OF
SECURITIES PURSUANT TO THIS PROXY STATEMENT/PROSPECTUS SHALL, UNDER ANY
CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH OR INCORPORATED INTO THIS PROXY STATEMENT/PROSPECTUS BY
REFERENCE OR IN PALM'S OR BE'S AFFAIRS SINCE THE DATE OF THIS PROXY STATEMENT/
PROSPECTUS. THE INFORMATION CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH
RESPECT TO BE AND ITS SUBSIDIARIES WAS PROVIDED BY BE AND THE INFORMATION
CONTAINED IN THIS PROXY STATEMENT/PROSPECTUS WITH RESPECT TO PALM WAS PROVIDED
BY PALM.
94
CONSOLIDATED FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
For the year ended December 31, 2000
1. Index to Consolidated Financial Statements
The following financial statements are filed as part of this Report:
Report of Independent Accountants............................... F-2
Consolidated Balance Sheets..................................... F-3
Consolidated Statements of Operations........................... F-4
Consolidated Statements of Stockholders' Equity (Deficit)....... F-5
Consolidated Statements of Cash Flows........................... F-6
Notes to Consolidated Financial Statements...................... F-7
2. Index to Financial Statement Schedules
The following financial statement schedule is filed as part of this report
and should be read in conjunction with the Consolidated Financial Statements:
Schedule
--------
II Valuation and Qualifying Accounts................... F-25
F-1
REPORT OF INDEPENDENT ACCOUNTANTS
To The Board of Directors and Stockholders of
Be Incorporated:
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Be Incorporated and its subsidiaries at December 31, 2000 and 1999,
and the results of their operations and their cash flows for each of the three
years in the period ended December 31, 2000 in conformity with accounting
principles generally accepted in the United States of America. In addition, in
our opinion, the financial statement schedule listed in the accompanying index
presents fairly, in all material respects, the information set forth therein
when read in conjunction with the related consolidated financial statements.
These financial statements and financial statement schedule are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements and financial statement schedule based on
our audits. We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
The accompanying consolidated financial statements have been prepared
assuming that the Company will continue as a going concern. As discussed in
Note 2 to the consolidated financial statements, the Company has suffered
recurring losses from operations and has an accumulated deficit. These
conditions raise substantial doubt about the Company's ability to continue as a
going concern. Management's plans in regard to these matters are also described
in Note 2. The consolidated financial statements do not include any adjustments
that might result from the outcome of this uncertainty.
/s/ PricewaterhouseCoopers LLP
San Jose, California
January 19, 2001, except for Note 11, as to which the date is August 20, 2001
F-2
BE INCORPORATED
CONSOLIDATED BALANCE SHEETS
December 31,
--------------------
2000 1999
-------- --------
(in thousands, excep
share and per share
amounts)
Assets
Current assets:
Cash and cash equivalents.......................................................... $ 9,463 $ 6,500
Short-term investments............................................................. 4,594 22,629
Accounts receivable................................................................ 26 167
Prepaid and other current assets................................................... 549 730
-------- --------
Total current assets........................................................... 14,632 30,026
Property and equipment, net........................................................... 391 562
Other assets, net of accumulated amortization......................................... 1,048 1,722
-------- --------
Total assets................................................................... $ 16,071 $ 32,310
======== ========
Liabilities and stockholders' equity
Current liabilities:
Accounts payable................................................................... $ 362 $ 860
Accrued expenses................................................................... 1,502 1,550
Technology license obligations, current portion.................................... 454 777
Deferred revenue................................................................... 109 99
-------- --------
Total current liabilities...................................................... 2,427 3,286
Technology license obligations, net of current portion................................ 320 597
-------- --------
Total liabilities.............................................................. 2,747 3,883
-------- --------
Commitments and Contingencies (Note 6)
Stockholders' Equity:
Preferred stock, $.001 par value:
Shares authorized: 2,000,000 in 2000 and 1999
Shares issued and outstanding: none
Common stock, $.001 par value:
Shares authorized: 78,000,000 shares in 2000 and 1999
Shares issued and outstanding: 36,202,899 in 2000 and 34,692,415 in 1999....... 36 35
Additional paid-in capital............................................................ 108,880 106,322
Deferred stock compensation........................................................... (1,218) (4,690)
Accumulated deficit................................................................... (94,375) (73,223)
Accumulated other comprehensive income (loss)......................................... 1 (17)
-------- --------
Total stockholders' equity..................................................... 13,324 28,427
-------- --------
Total liabilities and stockholders' equity..................................... $ 16,071 $ 32,310
======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-3
BE INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended December 31,
------------------------------
2000 1999 1998
-------- -------- --------
(in thousands, except per shar
amounts)
Net revenues............................................................ $ 480 $ 2,656 $ 1,199
Cost of revenues........................................................ 1,097 1,436 2,161
-------- -------- --------
Gross profit (loss)..................................................... (617) 1,220 (962)
Operating expenses:
Research and development, including amortization of deferred stock
compensation of $794 in 2000, $1,927 in 1999 and $1,747 in 1998.... 9,139 10,429 8,133
Sales and marketing, including amortization of deferred stock
compensation of $646 in 2000, $1,692 in 1999 and $833 in 1998...... 7,812 10,966 5,617
General and administrative, including amortization of deferred stock
compensation of $1,173 in 2000, $2,614 in 1999 and $1,301 in 1998.. 4,740 5,120 2,729
-------- -------- --------
Total operating expenses......................................... 21,691 26,515 16,479
-------- -------- --------
Loss from operations.................................................... (22,308) (25,295) (17,441)
Interest expense........................................................ (155) (138) (159)
Other income and expenses, net.......................................... 1,311 927 739
-------- -------- --------
Net loss................................................................ (21,152) (24,506) (16,861)
-------- -------- --------
Other comprehensive gain (loss)
Unrealized gains (losses) on investments............................. 18 (17) --
-------- -------- --------
Comprehensive loss...................................................... $(21,134) $(24,523) $(16,861)
======== ======== ========
Net loss................................................................ $(21,152) $(24,506) $(16,861)
Dividend related to beneficial conversion feature of preferred stock.... -- -- (1,204)
Accretion of mandatorily redeemable convertible preferred stock......... -- (292) (358)
-------- -------- --------
Net loss attributable to common stockholders............................ $(21,152) $(24,798) $(18,423)
======== ======== ========
Net loss per common share--basic and diluted............................ $ (0.60) $ (1.41) $ (5.80)
======== ======== ========
Shares used in per common share calculation--basic and diluted.......... 35,533 17,589 3,178
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-4
BE INCORPORATED
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (DEFICIT)
Accumulated
Common Stock Additional Deferred Other
------------------ Paid-in Stock Accumulated Comprehensive
Shares Amount Capital Compensation Deficit Gain (Loss) Total
---------- ------ ---------- ------------ ----------- ------------- --------
(in thousands, except share amounts)
Balance, January 1, 1998......................... 4,573,240 $ 5 $ 15,002 $(1,333) $(30,652) $ -- $(16,978)
Repurchase of common stock....................... (248,700) -- (25) -- -- -- (25)
Exercise of stock options........................ 770,217 206 -- -- -- 206
Sale of option to purchase preferred stock and
warrants to purchase common stock............... -- 1,322 -- -- -- 1,322
Exercise of option to purchase preferred stock
and warrants to purchase common stock........... -- (1,322) -- -- -- (1,322)
Issuance of warrants to purchase common stock.... -- -- 2,149 -- -- -- 2,149
Deferred stock compensation related to grants of
stock options................................... -- -- 7,472 (7,472) -- -- --
Cancellation of options.......................... -- -- (434) 434 -- -- --
Amortization of deferred stock compensation...... -- -- -- 3,881 -- -- 3,881
Net loss......................................... -- -- -- -- (16,861) -- (16,861)
Beneficial conversion feature related to issuance
of preferred stock.............................. -- -- 1,204 -- -- -- 1,204
Dividend related to beneficial conversion feature
of preferred stock.............................. -- -- -- -- (1,204) -- (1,204)
Accretion of mandatorily redeemable
convertible preferred stock..................... -- -- (358) -- -- -- (358)
Other............................................ -- -- 86 -- -- -- 86
---------- --- -------- ------- -------- ---- --------
Balance, December 31, 1998....................... 5,094,757 5 25,302 (4,490) (48,717) -- (27,900)
Repurchase of common stock....................... (39,640) -- (3) -- -- -- (3)
Exercise of stock options........................ 294,548 -- 65 -- -- -- 65
Exercise of common stock warrants................ 286,411 1 578 -- -- -- 579
Deferred stock compensation related to grants of
stock options................................... -- -- 7,457 (7,457) -- -- --
Cancellation of options.......................... (1,024) 1,024
Amortization of deferred stock compensation...... -- -- -- 6,233 -- -- 6,233
Compensation expense on grant of fully vested
options......................................... -- -- 662 -- -- -- 662
Issuance of common stock for cash, net of
issuance costs of $4,034........................ 6,557,465 6 35,303 -- -- -- 35,309
Conversion of Mandatorily Redeemable
Convertible Preferred Stock..................... 22,498,874 23 38,274 -- -- -- 38,297
Net loss......................................... -- -- -- -- (24,506) -- (24,506)
Accretion of mandatorily redeemable
convertible preferred stock..................... -- -- (292) -- -- -- (292)
Unrealized loss on investments................... -- -- -- -- -- (17) (17)
---------- --- -------- ------- -------- ---- --------
Balance, December 31, 1999....................... 34,692,415 35 106,322 (4,690) (73,223) (17) 28,427
Repurchase of common stock....................... (22,165) -- (2) -- -- -- (2)
Exercise of stock options........................ 911,110 1 2,225 -- -- -- 2,226
Exercise of common stock warrants................ 454,625 -- 454 -- -- -- 454
Compensation expense on grant of fully vested
options......................................... -- -- 38 -- -- -- 38
Cancellation of options.......................... -- -- (859) 859 -- -- --
Sale of shares under the Employee Stock
Purchase Plan................................... 166,914 -- 702 -- -- -- 702
Amortization of deferred stock compensation...... -- -- -- 2,613 -- -- 2,613
Net loss......................................... -- -- -- -- (21,152) -- (21,152)
Unrealized gain on investments................... -- -- -- -- -- 18 18
---------- --- -------- ------- -------- ---- --------
Balance, December 31, 2000....................... 36,202,899 $36 $108,880 $(1,218) $(94,375) $ 1 $ 13,324
========== === ======== ======= ======== ==== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-5
BE INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year Ended December 31,
----------------------------
2000 1999 1998
-------- -------- --------
(in thousands)
Cash flows from operating activities:
Net loss................................................................................. $(21,152) $(24,506) $(16,861)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization........................................................... 1,187 966 855
Loss on disposal of fixed assets........................................................ 5 69 --
Licensed technology used in research and development.................................... -- 320 1,852
Amortization of discount on technology license obligations.............................. 109 134 130
Increase in allowances for sales return................................................. -- -- 10
Compensation expense incurred on issuance of stock...................................... 38 662 --
Amortization of deferred stock compensation............................................. 2,613 6,233 3,881
Changes in assets and liabilities (in 1998, net of effects of acquisition):
Accounts receivable................................................................... 141 310 (450)
Prepaid and other current assets...................................................... 241 (525) (93)
Other accrued......................................................................... -- (91) (142)
Accounts payable...................................................................... (548) 284 5
Accrued expenses...................................................................... (169) 456 573
Deferred revenue...................................................................... 10 (293) 340
-------- -------- --------
Net cash used in operating activities................................................ (17,525) (15,981) (9,900)
-------- -------- --------
Cash flow provided by (used in) investing activities:
Acquisition of property and equipment.................................................... (182) (515) (323)
Acquisition of licensed technology....................................................... (746) (1,893) (1,373)
Purchases of short-term investments...................................................... (64,377) (81,749) (35,213)
Sales and maturities of short-term investments........................................... 82,412 67,357 27,159
Deposits and other....................................................................... -- (63) --
Acquisition of StarCode (net of cash acquired)........................................... -- -- (562)
-------- -------- --------
Net cash provided by (used in) investing activities.................................. 17,107 (16,863) (10,312)
-------- -------- --------
Cash flows provided by financing activities:
Proceeds from issuance of common stock pursuant to common stock options.................. 2,226 65 206
Proceeds from issuance of common stock pursuant to common stock warrants................. 455 579 --
Proceeds from issuance of common stock under the Employee Stock Purchase Plan............ 702 -- --
Proceeds from issuance of preferred stock, net........................................... -- -- 20,156
Proceeds from issuance of common stock warrants.......................................... -- -- 1,248
Proceeds from option to purchase Series 2 preferred stock and common stock warrants...... -- -- 1,322
Proceeds from issuance of common stock in initial public offering, net................... -- 35,309 --
Repurchase of common stock............................................................... (2) (3) (25)
-------- -------- --------
Net cash provided by financing activities............................................ 3,381 35,950 22,907
-------- -------- --------
Net increase in cash and cash equivalents................................................ 2,963 3,106 2,695
Cash and cash equivalents, beginning of year............................................. 6,500 3,394 699
-------- -------- --------
Cash and cash equivalents, end of year................................................... $ 9,463 $ 6,500 $ 3,394
======== ======== ========
Supplemental schedule of noncash financing activities:
Conversion of mandatorily redeemable convertible preferred stock to common stock......... $ -- $ 38,297 $ --
======== ======== ========
Conversion of notes payable and accrued interest to preferred stock...................... $ -- $ -- $ 3,094
======== ======== ========
Issuance of preferred stock to bankers................................................... $ -- $ -- $ 345
======== ======== ========
Allocation of proceeds from option to purchase preferred stock and warrants.............. $ -- $ -- $ 1,322
======== ======== ========
Dividend related to beneficial conversion feature of preferred stock..................... $ -- $ -- $ 1,204
======== ======== ========
Accretion of mandatorily redeemable preferred stock...................................... $ -- $ 292 $ 358
======== ======== ========
Future obligations under noncancelable technology licenses............................... $ -- $ 809 $ 696
======== ======== ========
Unearned stock based compensation related to stock option grants, net of cancellations... $ (859) $ 6,433 $ 7,038
======== ======== ========
The accompanying notes are an integral part of these consolidated financial
statements.
F-6
BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Note 1--Nature of Business:
Be Incorporated (the "Company") was founded in 1990 and offers software
platforms designed for Internet appliances and digital media applications. The
Company's software platforms (i) BeIA: consisting of three components; BeIA
Client Platform, BeIA Management and Administration Platform, and BeIA
Integrations Services, (ii) Home Audio Reference Platform (HARP), a BeIA-based
reference platform or prototype for Internet-enabled home stereo devices, and
(iii) BeOS, the Company's operating system designed for digital media
applications and serves as the development platform for BeIA.
The Company's revenues to date have been primarily generated from the
following sources: sale of BeOS to resellers and distributors, and direct sales
of BeOS to end users through its BeDepot.com Web site. The Company also
generated revenues by collecting commission from sales of third party software
through its BeDepot.com Web site. In 2000, the Company shifted its resources to
focus primarily on the market for Internet appliances and the further
development and marketing of BeIA, its software solution intended for Internet
appliances. At the same time it announced that it would be making available at
no charge a version of BeOS for personal use, and a more fully featured version
would be available for a charge through third party publishers. During 2000,
the Company discontinued sales of software through its BeDepot.com website.
Since inception, the Company has experienced losses and negative cash flow from
operations and expects to continue to experience significant negative cash flow
in the foreseeable future.
Note 2--Summary of Significant Accounting Policies:
Basis of presentation
These consolidated financial statements contemplate the realization of
assets and the satisfaction of liabilities in the normal course of business.
The Company has incurred losses since its inception and has an accumulated
deficit at December 31, 2000 of $94.4 million. These conditions raise
substantial doubt about the Company's ability to continue as a going concern
The Company believes that existing cash and cash equivalents will not be
sufficient to meet the Company's operating and capital requirements at its
currently anticipated level of operations beyond the end of the second quarter
of 2001. Additional capital will be necessary in order to fund the Company's
operations at the currently anticipated levels beyond the second quarter of
2001. While the Company is actively considering various funding alternatives,
the Company has not secured or entered into any arrangements to obtain
additional capital. There can be no assurance that the Company will be able to
obtain additional funds, on acceptable terms or at all. If the Company cannot
raise additional capital to continue its present level of operations, it will
have to scale back its business which could include among other things, a
reduction in its workforce. As a result, it may not be able to further develop
or enhance its product offering, take advantage of future opportunities or
respond to competitive pressures, any of which could have a material adverse
effect on its business and results of operations. The Company's liquidity may
also be adversely affected in the future by factors such as higher interest
rates, inability to borrow without collateral, availability of capital
financing and continued operating losses.
The consolidated financial statements do not include any adjustments that
might result from the outcome of this uncertainty.
Principles of consolidation
These consolidated financial statements include the accounts of the Company
and its wholly owned subsidiaries. All significant intercompany balances and
transactions have been eliminated.
F-7
BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Foreign currency translation
The functional currency of the Company's foreign subsidiary is the U.S.
Dollar. Nonmonetary assets and liabilities are remeasured into U.S. Dollars at
historical rates, monetary assets and liabilities are remeasured at exchange
rates in effect at the end of the year and income statement accounts are
remeasured at average rates for the period. Remeasurement gains and losses of
the Company's foreign subsidiary are included in the results of operations and
are not significant.
Use of estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amount of assets and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reported period.
Actual results could differ from those estimates.
Financial instruments
The Company considers all highly liquid investments with an original or
remaining maturities of three months or less at the date of purchase to be cash
equivalents. Cash and cash equivalents are deposited with two major banks in
the United States. Deposits in these banks may exceed the amount of insurance
provided on such deposits. The Company has not experienced any losses on its
deposits of its cash and cash equivalents.
Management has classified all of its short-term investments as available for
sale. Realized gains and losses are calculated using the specific
identification method. Realized gains and losses in 2000, 1999 and 1998 and
unrealized holding gains and losses at December 31, 1998 were not significant.
Unrealized gains and losses at December 31, 2000 and 1999 are shown in the
Consolidated Statements of Operations and Stockholders' Equity (Deficit).
The carrying amounts of certain of the Company's financial instruments,
including cash and cash equivalents, accounts receivable, accounts payable,
accrued expenses and notes payable approximate fair value due to their short
maturities. The fair value of short term investments is set forth in note 4 of
notes to the consolidated financial statements.
Certain risks and concentrations
To date, the Company's revenue has been derived entirely of sales of BeOS.
In the first quarter of 2000, the Company shifted its resources to focus
primarily on the market for Internet appliances and the further development and
marketing of BeIA, its software solution intended for Internet appliances. The
Company may be unsuccessful in its attempt to focus primarily on this market
and has not yet recognized revenues from its BeIA product.
The Company's success depends in large part on its ability to establish and
maintain strategic relationships with industry-leading computer and consumer
electronic companies, hardware and systems manufacturers, and Internet service
and content providers. If the Company is unable to develop or maintain
relationships with strategic partners and customers, it will have difficulty
selling and gaining market acceptance for its products and its business and
results of operations will be materially adversely affected.
The demand and acceptance of the Company's product is dependent upon its
ability to support a wide range of industry standards such as those used for
streaming media and Internet browsing and access to key enabling technologies.
These key technologies include a Web browser under license from one software
vendor. If the Company were to lose its rights to this Web browser or any other
key technology incorporated into its products, it may be required to devote
significant time and resources to replace such browser or other key
technologies.
F-8
BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
This could in turn be costly, result in the unavailability or delay the release
of its products, and would materially adversely affect its business and
operating results. The Company also licenses other enabling technologies for
inclusion in its product, such as third party compression and decompression
algorithms known as "codecs." The Company may be unable to license these
enabling technologies at favorable terms or at all which may result in lower
demand for our products.
The Company depends on development tools provided by a limited number of
third party vendors. Together with application developers, the Company relies
primarily upon software development tools provided by two companies. If one or
both of these companies fail to support or maintain these development tools,
the Company will have to support the tools itself or transition to another
vendor. Any maintenance or support of the tools by the Company or transition
could be time consuming, could delay product release and upgrade schedule and
could delay the development and availability of third party applications used
on the Company's products. Failure to procure the needed software development
tools or any delay in availability of third party applications could negatively
impact the Company's ability and the ability of third party application
developers to release and support its software solution and the applications
that run it. These factors could negatively and materially affect the
acceptance and demand for BeOS, our business and prospects.
Property and equipment
Property and equipment are stated at cost less accumulated depreciation.
Depreciation is provided using the straight-line method over the estimated
useful lives of the assets, generally three years. Upon disposal, the cost of
the asset and related accumulated depreciation are removed from the accounts
and any resulting gain or loss is included in the results of operations.
Depreciation expense for 2000, 1999, and 1998 was $347,000, $287,000 and
$202,000, respectively.
Accounting for Long-Lived Assets
The Company reviews its property and equipment for impairment whenever
events or changes in circumstances indicate that the carrying amount these
assets may not be recoverable. Recoverability is measured by comparison of its
carrying amount to future net cash flows the assets are expected to generate.
If such assets are considered to be impaired, the impairment to be recognized
is measured by the amount by which the carrying amount of the assets exceeds
the projected discounted future cash flows arising from the asset.
At each balance sheet date, the unamortized cost of purchased software is
compared to the net realizable value of the related software product. The
amount by which the unamortized cost exceeds the net realizable value of the
software is charged to operations. The net realizable value of the software
product is determined by estimating future gross revenues and reduced by the
estimated future costs of selling the product.
Income taxes
The Company accounts for its income taxes in accordance with the liability
method. Under this method, deferred tax assets and liabilities are determined
based on the difference between the financial statement and tax bases of assets
and liabilities using enacted tax rates in effect for the year in which the
differences are expected to affect taxable income. Valuation allowances are
established when necessary to reduce deferred tax assets to the amounts
expected to be realized.
Advertising costs
Advertising costs, included in sales and marketing expenses, are expensed as
incurred and were $73,000, $154,000 and $38,000 in 2000, 1999 and 1998,
respectively.
F-9
BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Research and development costs
Costs incurred in the research and development of new software products are
expensed as incurred, including minimum payments made and due to third parties
for technology incorporated into the Company's product, until technological
feasibility is established. Development costs are capitalized beginning when a
product's technological feasibility has been established and ending when the
product is available for general release to customers. To date, products and
enhancements have generally reached technological feasibility and have been
released for sale at substantially the same time.
Revenue recognition
In the second half of 2000, the Company's revenue was primarily derived from
royalties on sales of BeOS by third-party publishers. In prior periods, revenue
was generated from licensing fees on sales to end-users either by direct-order
on the Company's web site or sales by distributors.
The Company recognized product revenues from orders on the Company's web
site upon shipment, provided a credit card authorization was received, the fee
was fixed and determinable, collection of resulting receivables was probable
and product returns were reasonably estimable. The Company used a standard
shrink wrap license for all of its sales. Under the license, the Company was
obligated to provide limited telephone support to end users who purchase the
Company's product and provided a 5-day money back guarantee. The Company
accrued the costs of providing telephone support upon shipment of the product
based on the historical cost of providing such support to its customers. In
addition, upon shipment of its product, the Company recorded an allowance for
estimated sales returns.
Product revenues for sales to its distributors were recognized upon sell
through to an end user provided a signed contract existed, the fee was fixed
and determinable and collection was probable. The Company recognized revenue
from these distributors upon sale by the distributors to an end user because
the Company did not have sufficient experience with the distributors to
reasonably estimate returns.
During 1999 and 1998, under certain circumstances, the Company offered an
upgrade to its product in conjunction with product sales at no additional
charge. Generally, such rights were offered prior to new versions being
released and gave the customers who purchase products between established dates
the right to such an upgrade. Revenue was allocated to an upgrade right based
on the price for upgrades when sold separately. The Company recognized upgrade
revenue when the criteria for product revenue recognition from end users set
forth above are met.
At December 31, 2000, deferred revenues consisted primarily of prepaid
royalties for BeIA. At December 31, 1999, deferred revenues consisted of
revenue related to distributor sales not sold through to end users.
In December 1999, the Securities and Exchange Commission ("SEC") issued
Staff Accounting Bulletin No. 10, or SAB 101, "Revenue Recognition in Financial
Statements," which provides guidance on the recognition, presentation and
disclosure of revenue in financial statements filed with the SEC. SAB 101
outlines the basic criteria that must be met to recognize revenue and provides
guidance for disclosures related to revenue recognition policies. The Company
adopted SAB 101 in the fourth quarter of 2000. The adoption of SAB 101 did not
have a material impact on the Company's financial position or results of
operations in 2000.
Stock-based compensation
The Company accounts for stock based employee compensation arrangements in
accordance with the provisions of Accounting Principles Board Opinion No. 25,
or APB 25, "Accounting for Stock Issued to
F-10
BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Employees," and Financial Accounting Standards Board Interpretation ("FIN") No.
28, "Accounting for Stock Appreciation Rights and Other Variable Stock Option
or Award Plans," and complies with the disclosure provisions of Statement of
Financial Accounting Standards No. 123, or SFAS 123, "Accounting for
Stock-Based Compensation." Under APB 25, compensation expense is based on the
difference, if any, on the date of grant, between the estimated fair value of
the Company's common stock and the exercise price. SFAS 123 defines a "fair
value" based method of accounting for an employee stock option or similar
equity investment. The pro forma disclosures of the difference between the
compensation expense included in net loss and the related cost measured by the
fair value method are presented in Note 7. The Company accounts for equity
instruments issued to nonemployees in accordance with the provisions of SFAS
123 and Emerging Issues Task Force 96-18, "Accounting for Equity Instruments
That Are Issued to Other Than Employees for Acquiring, or in Conjunction with
Selling Goods or Services."
In March 2000, the Financial Accounting Standards Board issued
Interpretation No. 44, or FIN 44, "Accounting for Certain Transactions
involving Stock Compensation, an interpretation of APB Opinion No. 25." FIN 44
clarifies the application of Opinion No. 25 for (a) the definition of employee
for purposes of applying APB 25, (b) the criteria for determining whether a
plan qualifies as a noncompensatory plan, (c) the accounting consequences of
various modifications to the terms of a previously fixed stock option award,
and (d) the accounting for an exchange of stock compensation awards in a
business combination. FIN 44 was effective July 1, 2000, but certain
conclusions cover specific events that occurred either after December 15, 1998,
or January 12, 2000. The adoption of FIN 44 did not have a material impact on
the results of operations or financial position of the Company.
Comprehensive income
Comprehensive income is defined as the change in equity of a business
enterprise during a period from transactions and other events and circumstances
from non-owner sources. The differences between net loss and comprehensive loss
are shown in the Consolidated Statements of Operations.
F-11
BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Net loss per common share
Basic net loss per common share is computed by dividing net loss available
to common stockholders by the weighted average number of vested common shares
outstanding for the period. Diluted net loss per common share is computed
giving effect to all dilutive potential common shares, including options,
warrants and preferred stock. Options, warrants and preferred stock were not
included in the computation of diluted net loss per common share in 2000, 1999
and 1998 because the effect would be antidilutive. A reconciliation of the
numerator and denominator used in the calculation of basic and diluted net loss
per common share follows (in thousands, except per share data):
2000 1999 1998
-------- -------- --------
Net loss per common share, basic and diluted:
Net loss............................................................... $(21,152) $(24,506) $(16,861)
Dividend related to beneficial conversion feature of preferred stock... -- -- (1,204)
Accretion of mandatorily redeemable convertible preferred stock........ -- (292) (358)
-------- -------- --------
Numerator for net loss per common share, basic and diluted......... (21,152) (24,798) (18,423)
Denominator for basic and diluted loss per common share:
Weighted average common shares outstanding......................... 35,533 17,589 3,178
======== ======== ========
Net loss per common share basic and diluted............................ $ (0.60) $ (1.41) $ (5.80)
======== ======== ========
Antidilutive securities:
Options to purchase common stock................................... 5,911 6,010 2,205
Common stock subject to repurchase................................. 222 499 1,389
Preferred stock.................................................... -- -- 22,499
Warrants........................................................... 2,130 2,585 2,871
-------- -------- --------
8,263 9,094 28,964
======== ======== ========
Recent accounting pronouncements
In June 1998, the Financial Accounting Standards Board, ("FASB"), issued
Statement of Financial Accounting Standards No. 133, or SFAS 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS 133 requires that all derivatives be recognized at fair value
in the statement of financial position, and that the corresponding gains or
losses be reported either in the statement of operations or as a deferred item
depending on the type of hedge relationship that exists with respect of such
derivatives. In July 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137, or SFAS 137, "Accounting
for Derivative Instruments and Hedging Activities--Deferral of the Effective
Date of FASB Statement No. 133." SFAS 137 deferred the effective date until
fiscal years beginning after June 30, 2000. In June 2000, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 138, or SFAS 138, "Accounting for Derivative Instruments and Hedging
Activities--An Amendment of FASB Statement 133." SFAS 138 amends the accounting
and reporting standards for certain derivative activities such as net
settlement contracts, foreign currency transactions and intercompany
derivatives. The Company will adopt SFAS 133 effective January 1, 2001. To
date, the Company has not engaged in derivative or hedging activities and does
not expect the adoption of SFAS 133 and 138 to have a material impact on its
financial position or results of operations.
In various areas, including revenue recognition and stock-based compensation
accounting standards and practices continue to evolve. The SEC continues to
issue interpretative guidance relating to SAB 101, and the
F-12
BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
FASB and the Emerging Issues Task Force continue to address revenue and other
related accounting issues. The management of the Company believes it is
compliance with all of the rules and related guidance as they currently exist.
However, any changes to generally accepted accounting principles in these areas
could impact the Company's accounting for its operations.
Reclassifications
Certain prior year amounts have been reclassified for consistency with
current year financial statement presentation.
Note 3--Acquisition:
StarCode acquisition
On April 30, 1998, the Company acquired StarCode Software, Inc. ("StarCode")
for an aggregate purchase price of $567,000. StarCode owned and operated an
electronic commerce web site, which the Company and certain developers of
application software for use with BeOS used to sell their products. The Company
had previously contracted with StarCode to provide access to this web site and
paid a fee based on the level of revenue generated by orders therefrom. The
acquisition has been accounted for using the purchase method of accounting and
the results of operations of StarCode have been included with those of the
Company since the date of acquisition.
The fair value of the assets acquired from StarCode and a summary of the
consideration exchanged for these assets is as follows:
Total purchase price................................................. $567
====
Assets acquired: Tangible assets, including cash, accounts receivable
and property and equipment......................................... $ 22
Purchased web site technology........................................ 545
----
$567
====
The amount allocated to purchased Web Site technology, for which
technological feasibility had been established at the acquisition date, is
being amortized on a straight-line basis over eighteen months. Accumulated
amortization at December 31, 1999 and 1998 was $545,000 and $242,000,
respectively.
Summarized below are the unaudited pro forma results of operations of the
Company as though StarCode had been acquired at the beginning of the period
presented. Adjustments have been made for the estimated increases in
amortization related to purchased web site technology and other appropriate pro
forma adjustments.
1998
--------
Revenue.............................................................. $ 1,215
Net loss............................................................. $(17,064)
Net loss per common share, basic and diluted......................... $ (5.37)
The above amounts are based upon certain assumptions and estimates which the
Company believes are reasonable. The pro forma financial information presented
above is not necessarily indicative of either the results of operations that
would have occurred had the acquisition taken place at the beginning of each
period presented or of future results of operations of the combined companies.
F-13
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 4--Balance Sheet Accounts:
December 31,
-----------------------------
2000 1999
------------- ---------------
Fair Fair
Cost Value Cost Value
------ ------ ------- -------
Cash and cash equivalents
Cash.......................................... $ 426 $ 426 $ 1,935 $ 1,935
Money Market.................................. 8 8 -- --
Repurchase Agreements......................... 6,785 6,785 -- --
Corporate Obligations......................... 1,250 1,250 -- --
Commercial paper.............................. 994 994 4,565 4,565
------ ------ ------- -------
$9,463 $9,463 $ 6,500 $ 6,500
====== ====== ======= =======
December 31,
-----------------------------
2000 1999
------------- ---------------
Fair Fair
Cost Value Cost Value
------ ------ ------- -------
Short-term investments
Federal government obligations................ -- -- $ 4,443 $ 4,443
Corporate debt obligations.................... -- -- 18,203 18,186
Commercial paper.............................. $4,593 $4,594 -- --
------ ------ ------- -------
$4,593 $4,594 $22,646 $22,629
====== ====== ======= =======
All short-term investments mature within one year.
December 31,
----------------
2000 1999
------- -------
Property and equipment, net
Computer equipment...................................... $ 1,124 $ 900
Furniture and fixtures.................................. 390 458
------- -------
1,514 1,358
Less: accumulated depreciation............................. (1,123) (796)
------- -------
$ 391 $ 562
======= =======
Accrued expenses
License and royalty liabilities......................... $ 70 $ 174
Payroll and related..................................... 932 893
Other................................................... 500 483
------- -------
$ 1,502 $ 1,550
======= =======
Other assets, net
Technology licenses..................................... $ 3,520 $ 3,447
Deposits................................................ 24 91
------- -------
3,544 3,538
Less: accumulated amortization............................. (2,496) (1,816)
------- -------
$ 1,048 $ 1,722
======= =======
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BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
During 1998 the Company entered into a licensing agreement for the delivery
of a development tool which compiled software for use in versions of BeOS for
two microprocessor architectures. The present value of the non cancelable
payments due under this agreement of $1,406,000 were initially recorded as a
technology license asset and were amortized over an estimated useful life of
three years (see Note 6).
However, in June 1998, based on the performance characteristics of this tool
on one of the microprocessor architectures, management deemed that it did not
meet its requirements as a development tool for BeOS and made alternative
arrangements with another company to develop a suitable replacement for that
architecture. Also in June 1998, the manufacturer of systems based on the other
microprocessor architecture announced that they would not release details of
any of their future systems. As a result, the Company was unable to support any
of the future platforms. Since no estimated future cash flows were expected
from the licensed technology, a charge of $1,211,000 was recorded in June 1998.
This charge has been included in cost of sales in the statement of operations.
Beginning in 1998, the Company entered into other technology license
agreements including non cancelable minimum payments. The present value of
payments due under these agreements (see Note 6) is recorded as an asset and
amortized over the lesser of the term of the agreement or three years, if
technological feasibility was established at the date the agreement was signed
or as research and development costs if technological feasibility had not been
established and there was no alternative future use for the licensed
technology. During 2000, 1999 and 1998, costs capitalized under these
agreements were $100,000, $809,000 and $663,000, respectively. During 1998,
$641,000 was expensed as research and development under these agreements.
Note 5--Notes Payable:
During 1997, the Company issued notes payable to certain shareholders in
exchange for $3,000,000 of cash. These notes payable bore interest at an annual
rate of 10%, and were payable in February 1998. These notes payable and related
accrued interest were converted to Series 2 convertible preferred stock in
February 1998 (see Note 7).
Note 6--Commitments and Contingencies:
Lease Commitments
The Company leases its facilities under non cancelable operating leases
expiring at various dates through January, 2003. Future annual minimum lease
payments as of December 31, 2000 are as follows (in thousands):
2001............................................. $1,299
2002............................................. 270
2003............................................. 5
------
$1,574
======
Total rent expense was $1,308,000, $1,168,000 and $825,000 for 2000, 1999
and 1998, respectively.
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BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
In addition, the Company has entered into several technology licensing
agreements which include non cancelable payments. These payments have been
recorded at the net present value using a discount rate of 10% per annum. The
future minimum payments under these agreement are as follows:
2001............................................. $ 510
2002............................................. 345
-----
855
Less discount.................................... (81)
-----
774
Less current portion............................. (454)
-----
$ 320
=====
Contingencies
In November 2000, the Company's stock transfer agent, Wells Fargo Bank
Minnesota, N.A., received a demand letter from a stockholder alleging damages
resulting form the transfer agent's failure to timely issue its stock
certificates. While the Company was not a party named in such demand letter,
and no claim has yet been filed with any court of competent jurisdiction, it is
named as a party on the stockholder's draft claim attached to the demand
letter. The Company has been participating in communications with the parties
in an effort to resolve the matter prior to a lawsuit being filed. Be
management believes that the allegations as they relate to Be in the potential
and draft claim are without merit and intends to vigorously defend Be against
any potential future related legal action. However, there can be no assurance
this threatened claim will be resolved without costly litigation, or require
Be's participation in the settlement of such claim, in a manner that is not
adverse to its financial position, results of operations or cash flows. No
estimate can be made of the possible loss or possible range of loss associated
with the resolution of this contingency. If Be were held liable, it is the
Company's intent to seek reimbursement under its D&O insurance policy.
Note 7--Stockholders' Equity:
Initial Public Offering
In July 1999, the Company completed its initial public offering and sold
6,000,000 shares of its common stock at a price of $6.00 per share. The Company
received approximately $32.2 million in cash, net of underwriting discounts,
commissions and other offering expenses. Simultaneously with the closing of the
initial public offering, the Company's mandatorily redeemable convertible
preferred stock outstanding at December 31, 1998 automatically converted into
22,498,874 shares of common stock. The Company's shares are now traded on the
NASDAQ national market system under the symbol "BEOS".
In August 1999, the underwriters exercised their over-allotment option and
the Company sold an additional 557,465 shares of its common stock at a price of
$6.00 per share, thereby raising proceeds of approximately $3.1 million, net of
underwriting discounts.
Mandatorily Redeemable Convertible Preferred Stock
On closing of the Company's initial public offering in July 1999 the
mandatorily redeemable preferred stock automatically converted into 22,498,874
shares of common stock (see above).
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BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Changes in the mandatorily redeemable convertible preferred stock during
1998 and 1999 were as follows (in thousands):
Amount
--------
Balance, January 1, 1998.............................................................. $ 14,052
Issuance of Series 2:
February 1998, net of issuance costs of $1,432................................. 22,391
December 1998, net of issuance costs of $217 and allocation to warrants of
$2,001....................................................................... 1,204
Beneficial conversion feature...................................................... (1,204)
Dividend related to beneficial conversion feature of preferred stock............... 1,204
Accretion to redemption value...................................................... 358
--------
Balance, December 31, 1998............................................................ 38,005
Accretion to redemption value...................................................... 292
Conversion to common stock......................................................... (38,297)
--------
Balance, December 31, 1999......................................................... $ --
========
Issuance of Series 2 Mandatorily Redeemable Convertible Preferred Stock
In February 1998, the Company sold 6,706,318 shares of its Series 2
mandatorily redeemable convertible preferred stock to investors for total gross
proceeds of $21,795,000. In addition, the Company issued 923,077 shares if its
Series 2 mandatorily redeemable convertible preferred stock in exchange for the
$3,000,000 of notes payable outstanding at December 31, 1997, and an additional
31,950 shares were issued for forgiveness for interest related to the notes
payable.
In connection with the sale of Series 2 mandatorily redeemable convertible
preferred stock, the Company issued the lead investor an option to purchase an
additional 615,385 shares of Series 2 mandatorily redeemable convertible
preferred stock and other warrants to purchase up to 1,538,462 shares of common
stock, subject to certain terms and conditions. The right to purchase Series 2
mandatorily redeemable convertible preferred stock and the warrants to purchase
common stock were to expire on December 31, 1998. The lead investor exercised
this option in December 1998 and the additional shares were issued. In
addition, as the result of this exercise, the warrants issued to the lead
investor become exercisable (see "Warrants" below). The Company received total
cash consideration of $5 million from the lead investor of which $3 million was
received in February 1998 and $2 million in December 1998.
In February 1998, the net proceeds of $2.9 million ($3 million net of
issuance costs of $0.1 million) were allocated to preferred stock and the
option to purchase the additional shares of preferred stock and the warrant for
common stock (the "Option") based on the relative fair values of each of these
instruments. The fair value of the option was estimated at $2,584,000 using the
Black-Scholes model and the following assumptions; dividend yield of 0%,
volatility of 60%, risk free interest rate of 5.51% and a term of eight months.
The resulting allocation was as follows (in thousands):
Series 2 mandatorily redeemable convertible preferred stock.......... $1,535
Option............................................................... 1,322
------
$2,857
======
In December 1998, the proceeds from the issuance of preferred stock were
allocated to the preferred stock and warrants to purchase 1,538,462 shares of
common stock based on the relative fair values of each of these
F-17
BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
instruments. The fair value of the warrants was estimated at $6,202,000 using
the Black-Scholes model and the following assumptions; dividend yield of 0%,
volatility of 60%, risk free interest rate of 4.76% and a term of five years.
The proceeds comprised $1.9 million ($2 million net of issuance costs of $0.1
million) in cash consideration plus the fair value of the options to purchase
preferred stock and the common stock warrants discussed above and totaled
$3,205,000. The resulting allocation was as follows (in thousands):
Series 2 mandatorily redeemable convertible preferred stock.......... $1,204
Common stock warrants................................................ 2,001
------
$3,205
======
In connection with these issuances the Company issued 75,375 and 30,769
shares of Series 2 mandatorily redeemable convertible preferred stock in
February 1998 and December 1998 to the bankers in lieu of investment bankers
fees. The fair value of these shares has been recorded and included as issuance
costs of Series 2 mandatorily redeemable convertible preferred stock financing.
In May and December 1998, warrants were issued for investment banker fees
related to the issuance of the Series 2 preferred stock. The fair value of the
warrants of $148,000 was estimated using the Black-Scholes model and the
following assumptions; dividends yield of 0%, volatility of 60% risk free
interest rate of 4.76%-5.51% and a term of 5 years. The value of the warrant, a
stock issuance cost, was offset against the proceeds from the Series 2
preferred stock.
Warrants
The Company has issued fully exercisable warrants to purchase common stock.
None of these warrants were exercised prior to 1999. Warrant activity can be
analyzed as follows:
Number of Number of
Number Warrants Number Warrants
Exercise Number of of Outstanding of Outstanding
Price Shares Warrants at Warrants at
Expiration Per Under the Exercised December 31, Exercised December 31,
Issuance Date Date share Warrants in 1999 1999 in 2000 2000
------------- ------------- -------- --------- --------- ------------ --------- ------------
April 1996 March 2001 $1.00 1,219,648 173,546 1,046,102 454,625 591,477
December 1998 December 2003 $3.25 1,538,462 -- 1,538,462 -- 1,538,462
May and December 1998 June 17, 2000 $3.58 112,865 112,865 -- -- --
--------- ------- --------- ------- ---------
2,870,975 286,411 2,584,564 454,625 2,129,939
========= ======= ========= ======= =========
The December 1998 warrants were issued in connection with the issuance of
Series 2 preferred stock in December 1998 and valued as described above under
"Issuance of Series 2 mandatorily redeemable convertible preferred stock".
The May and December 1998 warrants were issued for investment banker fees
related to the issuance of the Series 2 preferred stock.
1992 Stock Option Plan
In 1992 the Company adopted a stock option plan (the "1992 Plan") under
which 5,000 shares of the Company's common stock had been reserved for issuance
of stock options to employees, directors, or consultants under terms and
provisions established by the board of directors. In 1997 and 1998, the Company
reserved an additional 5,995,000 shares and 2,000,000 shares, respectively, for
issuance under the 1992 Plan. Options granted under the 1992 Plan are
immediately exercisable; however, shares exercised under the 1992 Plan are
subject to the Company's right of repurchase at the end of the holder's
association with the Company. The Company's right
F-18
BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
of repurchase generally lapses as to 20% of the shares one year from the date
of grant and 1/60th each month thereafter or as to 25% of the shares one year
from the date of grant and 1/48th each month thereafter. The options expire
ten years from the date of grant.
On March 30, 1999, the board of directors terminated the 1992 Plan. No
further options will be granted under the 1992 plan.
1999 Equity Incentive Plan
On March 30, 1999 the Company adopted the Equity Incentive Plan (the "1999
Plan") under which a total of up to 8,000,000 shares of common stock were
initially reserved for issuance. This number of shares initially reserved was
reduced by the 1,943,347 shares reserved for issuance under options then
outstanding under the 1992 Plan. If any of these 1,943,437 options are
cancelled, the number of shares reserved under the 1999 Plan will be increased
by the number of such cancellations. In addition, at the end of each year an
additional number of shares will automatically be added to the number of shares
already reserved for issuance under the 1999 Plan. This additional number of
shares will be not more than the lesser of 5% of the number of shares of the
Company's issued and outstanding common stock as of year end or the number
equal to 8% of the number of shares of common stock issued and outstanding at
year end less the number of shares of common stock reserved for issuance under
the 1999 Plan but not subject to outstanding awards. The 1999 Plan provides for
the grant of incentive stock options, non-qualified stock options, restricted
stock purchase rights and stock bonuses to employees, consultants and
directors. Incentive stock options may be granted only to employees. The
exercise price of incentive stock options granted under the 1999 Plan must be
at least equal to the fair market value of the Company common stock on the date
of grant. The exercise price of non-qualified stock options is set by the
administrator of the 1999 Plan, but can be no less than 85% of the fair market
value. The maximum term of options granted under the 1999 Plan is ten years.
Options granted under the terms of the 1999 Plan become exercisable as to 25%
of the shares awarded after one year and 1/48 of the award monthly thereafter.
Activity under the Company's Plans is set forth below (in thousands, except
per share and share numbers):
Options Outstanding
----------------------------------------------------------
Average
Weighted
Available Exercise
for Grant Shares Price per Share Amount Price
---------- ---------- --------------- -------- --------
Balance, January 1, 1998....... 339,232 987,400 $0.10-$0.20 $ 104 $0.11
Options authorized.......... 2,000,000 -- -- -- --
Options granted............. (2,436,500) 2,436,500 0.20-0.35 840 0.34
Options exercised........... -- (770,217) 0.10-0.35 (205) 0.27
Options terminated.......... 448,756 (448,756) 0.10-0.35 (94) 0.21
---------- ---------- ------------ -------- -----
Balance, December 31, 1998..... 351,488 2,204,927 0.10-0.35 645 0.29
Options authorized March.... 5,524,813 -- -- -- --
Options authorized December. 298,435 -- -- -- --
Options granted............. (4,328,000) 4,328,000 0.35-14.38 22,726 5.25
Options exercised........... -- (294,548) 0.10-5.00 (64) 0.22
Options terminated.......... 928,657 (928,657) 0.10-6.25 (2,875) 3.10
---------- ---------- ------------ -------- -----
Balance, December 31, 1999..... 2,775,393 5,309,722 0.10-14.38 20,432 3.85
Options authorized.......... 1,810,145 -- -- -- --
Options granted............. (3,961,500) 3,961,500 1.00-17.88 32,112 8.11
Options exercised........... -- (911,110) 0.10-12.88 (2,226) 2.44
Options terminated.......... 1,870,409 (1,870,409) 0.10-14.44 (13,662) 7.30
---------- ---------- ------------ -------- -----
Balance, December 31, 2000..... 2,494,447 6,489,703 $0.10-$17.88 $ 36,656 $5.65
========== ========== ============ ======== =====
F-19
BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
At December 31, 2000, 1999 and 1998, 2,339,767, 2,435,895 and 2,204,927
outstanding options were exercisable at weighted average exercise prices of
$4.52, $2.01 and $0.29. Of these shares, 295,869 shares, 848,685 shares and
1,611,674 shares at weighted average exercise prices of $0.33, $0.33 and $0.32,
respectively, are subject to the Company's right of repurchase upon exercise.
In addition, 221,743, 499,069 and 1,339,302 shares of the Company's outstanding
common stock is subject to the Company's right of repurchase at weighted
average prices of $0.29, $0.24 and $0.17, respectively.
1999 Non-Employee Directors' Stock Option Plan
On March 30, 1999 the board of directors also adopted the Non-Employee
Directors' Stock Option Plan (the "Directors' Plan"), and have reserved a total
of 1,500,000 shares of common stock for issuance thereunder. The exercise price
of options under the Directors' Plan will be equal to the fair market value of
the common stock on the date of grant. The maximum term of the options granted
under the Directors' Plan is ten years. Each initial grant under the Directors'
Plan will vest at 1/4th of the shares subject to the option one year after the
date of grant and 1/48th of the shares each month thereafter. The rate of
vesting of each subsequent grant will be 1/48th of the shares on a monthly
schedule after the date of grant. The board may amend (subject to stockholder
approval as necessary) or terminate the Directors' Plan at any time.
Activity under the 1999 Non-Employee Director's Stock Option Plan is set
forth below (in thousands, except per share and share numbers):
Options Outstanding
----------------------------------------------------
Average
Weighted
Available Exercise
for Grant Shares Price per Share Amount Price
--------- ------- --------------- ------ --------
Options authorized..................... 1,500,000 -- $ -- $ -- $ --
Options granted........................ (700,000) 700,000 5.00-5.75 3,575 5.11
Balance, December 31, 1999............. 800,000 700,000 5.00-5.75 3,575 5.11
Options granted........................ (100,000) 100,000 16.13 1,612 16.13
Options terminated..................... 90,625 (90,625) 5.00 (453) 5.00
--------- ------- ----------- ------ ------
Balance, December 31, 2000............. 790,625 709,375 $5.00-16.13 $4,734 $ 6.67
========= ======= =========== ====== ======
At December 31, 2000 and 1999, 285,416 and nil options outstanding were
exercisable at weighted average exercise prices of $5.08 and nil, respectively.
Options Outstanding
The options outstanding and currently exercisable by exercise price at
December 31, 2000 are as follows:
Options Outstanding Options Exercisable
--------------------------------- --------------------
Weighted
Average Weighted Weighted
Remaining Average Average
Number Contractual Exercise Number Exercise
Exercise Prices Outstanding Life (years) Price Exercisable Price
--------------------------------------- ----------- ------------ -------- ----------- --------
$0.10-0.35............................. 824,296 7.21 $ 0.33 824,296 $ 0.33
$1.00-4.56............................. 1,446,000 9.83 2.40 33,444 $ 4.20
$5.00-5.75............................. 2,662,726 8.27 5.04 1,215,918 $ 5.02
$6.00-9.00............................. 991,683 9.04 7.28 268,464 $ 6.85
$12.88-17.88........................... 1,274,373 9.09 13.35 283,061 $12.98
--------- ---- ------ --------- ------
7,199,078 8.71 $ 5.75 2,625,183 $ 4.58
========= ==== ====== ========= ======
F-20
BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Deferred stock compensation
In accordance with the requirements of APB 25, the Company has recorded
deferred compensation for the difference between the exercise price of the
stock options granted before its initial public offering and the fair market
value of the Company's stock at the date of grant. This deferred compensation
is amortized to expense over the period during which the Company's right to
repurchase the stock lapses or the options become exercisable, generally four
or five years, using the multiple options method.
At December 31, 2000, the Company had recorded deferred compensation related
to these options in an amount of $15,767,000 (net of cancellations), of which
$2,613,000, $6,233,000 and $3,881,000 had been amortized to expense during
2000, 1999, and 1998.
During 1999 and 1998 options to purchase 4,173,000 and 2,436,500 shares of
the Company's common stock were granted with exercise prices below the
estimated market value at the date of grant; the weighted average exercise
prices were $4.98 and $0.34 per share and the deemed weighted average market
values of the common stock was $6.81 and $3.41 per share, respectively. During
2000, all options were granted with an exercise price equal to the fair market
value of the underlying common stock on the date of grant.
Value of Options Granted
The fair value of each option grant is estimated on the date of grant using
a type of Black-Scholes option pricing model with the following assumptions
used for grants:
2000 1999 1998
------- ---------- ----------
Expected volatility.............................. 142% 0% and 60% 0%
Weighted average risk-free interest rate......... 6.21% 4.80% 4.59-6.03%
Expected life.................................... 2 years 2 years 5 years
Expected dividends............................... 0% 0% 0%
For the period prior to the Company's Initial Public Offering, volatility
for the purposes of the SFAS No. 123 calculation was 0%.
Based on the above assumptions, the aggregate fair value and weighted
average fair value per share of options granted in 2000, 1999 and 1998 were
$29,359,000, $13,919,000 and $7,766,000, and $7.24, $2.77 and $3.19,
respectively.
Employee Stock Purchase Plan
On May 4, 1999 the Company adopted an Employee Stock Purchase Plan (the
"Purchase Plan"). The Company has reserved a total of 1,500,000 shares of
common stock for issuance under the Purchase Plan. Under the terms of the
Purchase Plan, employees who work at least 20 hours a week and have been
employed for at least five months in a calendar year may contribute, during an
offering period, a specified percentage, not to exceed 15%, of their
compensation to purchase shares of common stock of the Company. Each offering
period runs for a period of 24 months and will be divided into consecutive
purchase periods of approximately six months. New offering periods commence
every six months on August 1st and February 1st each year.
The price of the common stock purchased under the Purchase Plan is equal to
85% of the fair market value of the common stock on the first day of the
applicable offering period or the last day of the applicable purchase period
whichever is lower. No person may purchase shares under the Purchase Plan to
the extent that such person would own 5% or more of the total combined value or
voting power of all classes of the capital stock of the
F-21
BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Company or to the extent that such person's rights to purchase stock under
stock purchase plans would accrue at a rate in excess of $25,000 per year.
The first purchases under the Plan occurred in 2000, during which 166,914
shares were issued under the plan at a weighted average purchase price of
$4.21. At December 31, 2000, 1,333,086 shares were reserved for future issuance
under the plan.
Under SFAS No. 123, compensation cost is also recognized for the fair value
of employee's purchase rights under the Employee Stock Purchase Plan, which was
estimated using the following assumptions:
2000 1999
-------- --------
Expected volatility........................................ 142% 60%
Weighted average risk-free interest rate................... 6.18% 4.80%
Expected life.............................................. 6 months 6 months
Expected dividends......................................... 0% 0%
Based on the above assumptions, the aggregate fair value and weighted
average fair value per share of those purchase rights granted in 2000 and 1999
was $417,000 and $140,000, and $3.45 and $1.94, respectively.
Pro forma stock compensation
Had compensation cost been determined based on the fair value at the grant
date for the awards made in 1995 and thereafter under the Company's stock
option plans and employee stock purchase plan consistent with the provisions of
SFAS No. 123, the Company's net loss would have been as follows (in thousands,
except per share amounts):
2000 1999 1998
-------- -------- --------
Net loss attributable to common stockholders--as reported............ $(21,152) $(24,798) $(18,423)
Net loss attributable to common stockholders--pro forma.............. $(31,855) $(27,039) $(18,442)
Net loss per common share--basic and diluted as reported............. $ (0.60) $ (1.41) $ (5.80)
Net loss per common share--basic and diluted pro forma............... $ (0.90) $ (1.54) $ (5.80)
Such pro forma disclosures may not be representative of future compensation
cost because options vest over several years and additional grants are made
each year.
Note 8--Income Taxes:
The components of the net deferred tax asset are as follows (in thousands):
December 31,
------------------
2000 1999
-------- --------
Net operating loss carryforwards........................... $ 27,492 $ 17,466
Tax credit carryforwards................................... 1,770 1,648
Property and equipment and intangibles..................... 49 48
Other...................................................... 53 807
-------- --------
29,364 19,969
Less: valuation allowance.................................. (29,364) (19,969)
-------- --------
Net deferred tax asset..................................... $ -- $ --
======== ========
F-22
BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Due to uncertainty surrounding the realization of the favorable tax
attributes in future tax returns, the Company has placed a valuation allowance
against its net deferred tax assets. The valuation allowance increased $9.4
million in 2000, $7.9 million in 1999 and $6.0 million in 1998.
The principal items accounting for the difference between income taxes
benefit at the U.S. statutory rate and the benefit from income taxes reflected
in the statement of operations are as follows (in thousands):
2000 1999 1998
------- ------- -------
Federal benefit at statutory rate................ $ 7,192 $ 8,332 $ 5,901
Nondeductible expenses........................... (890) (2,242) (1,419)
Net operating losses and benefits................ (6,302) (6,090) (4,482)
------- ------- -------
$ -- $ -- $ --
======= ======= =======
At December 31, 2000, the Company had approximately $73,407,000 of net
operating loss carryforwards and $1,272,000 of research and development credits
to offset future federal income taxes. The Company also had $43,430,000 of net
operating loss carryforwards and $498,000 of research and development credits
to offset future state income taxes. In addition to the net operating loss
carryforwards referred to above, there are approximately $6,944,000 and
$3,473,000 of net operating loss carryforwards for federal and state purposes,
respectively, as of December 31, 2000, which relate to stock option deductions.
The tax benefit of these additional losses will be credited to additional paid
in capital if the Company's deferred tax asset is recognized. These
carryforwards expire in the years 2005 through 2020 if not utilized. Due to
changes in ownership, the Company's net operating loss and credit carryforwards
may become subject to certain annual limitations.
Note 9--401(k) Profit Sharing Plan:
The Company has a 401(k) Profit Sharing Plan which covers all employees.
Under the Plan, employees are permitted to contribute up to 15% of gross
compensation not to exceed the annual limitation for any plan year ($10,500 in
2000). Discretionary contributions may be made by the Company. No contributions
were made by the Company during 2000, 1999 and 1998.
F-23
BE INCORPORATED
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS--(Continued)
Note 10--Geographic Information:
Management uses one measurement of profitability for its business. The
Company markets its products and related services to customers in the United
States, Europe and Asia.
All long lived assets are maintained in the United States. Revenue
information by geographic area is as follows (in thousands):
Net
Revenues
--------
2000.......................................................
Americas................................................ $ 370
Europe.................................................. 36
Asia.................................................... 74
------
Total............................................... $ 480
======
1999.......................................................
Americas................................................ $1,156
Europe.................................................. 755
Asia.................................................... 745
------
Total............................................... $2,656
======
1998.......................................................
Americas................................................ $ 565
Europe.................................................. 194
Asia.................................................... 440
------
Total............................................... $1,199
======
Note 11--Subsequent Events
On August 16, 2001, the Company entered into a definitive agreement with
Palm, Inc. for the sale of substantially all of its intellectual property and
other technology assets for a purchase price of $11 million, to be paid in
common stock of Palm, Inc. Closing of the transaction is subject to the
satisfaction of certain conditions, including obtaining approval of the
stockholders of the Company.
F-24
SCHEDULE II
BE INCORPORATED
VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Additions
Balance Charged Balance
at to Costs at
Beginning and Ending
of Period Expenses Deductions of Period
--------- --------- ---------- ---------
Year Ended December 31, 1998
Allowance for sales return............... $ -- $ 17 $ 7 $ 10
Deferred tax asset valuation allowance... $ 6,098 $5,982 $ -- $12,080
Year Ended December 31, 1999
Allowance for sales returns.............. $ 10 $ -- $ -- $ 10
Deferred tax asset valuation allowance... $12,080 $7,889 $ -- $19,969
Year Ended December 31, 2000
Allowance for sales returns.............. $ 10 $ -- $ -- $ 10
Deferred tax asset valuation allowance... $19,969 $9,395 $ -- $29,364
F-25
For the six month period ended June 30, 2001
Page
----
Condensed Financial Statements:
Consolidated Balance Sheets at June 30, 2001 and December 31, 2000............................... F-27
Consolidated Statements of Operations for the three and six month periods ended June 30, 2001 and
June 30, 2000.................................................................................. F-28
Consolidated Statements of Cash Flows for the six months ended June 30, 2001 and June 30, 2000... F-29
Notes to Condensed Consolidated Financial Statements............................................. F-30
F-26
CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
BE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands; unaudited)
June 30, December
2001 31, 2000
--------- --------
ASSETS
Current assets:
Cash and cash equivalents................................ $ 3,148 $ 9,463
Short-term investments................................... 1,754 4,594
Accounts receivable...................................... 276 26
Prepaid and other current assets......................... 356 549
--------- --------
Total current assets................................. 5,534 14,632
Property and equipment, net................................. 311 391
Other assets, net of accumulated amortization............... 713 1,048
--------- --------
Total assets...................................... $ 6,558 $ 16,071
========= ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable......................................... $ 25 $ 362
Accrued expenses......................................... 1,085 1,502
Technology license obligations, current portion.......... 425 454
Deferred revenue......................................... 64 109
--------- --------
Total current liabilities............................ 1,599 2,427
Technology license obligations, net of current portion...... 238 320
--------- --------
Total liabilities.................................... 1,837 2,747
--------- --------
Stockholders' Equity:
Common stock............................................. 36 36
Additional paid-in capital............................... 109,062 108,880
Accumulated other comprehensive income................... 2 1
Deferred stock compensation.............................. (551) (1,218)
Accumulated deficit...................................... (103,828) (94,375)
--------- --------
Total stockholders' equity........................... 4,721 13,324
--------- --------
Total liabilities and stockholders' equity........ $ 6,558 $ 16,071
========= ========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
F-27
BE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share amounts; unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
2001 2000 2001 2000
------- ------- ------- --------
Net revenues...................................................... $ 715 $ 142 $ 815 $ 396
Cost of revenues.................................................. 320 261 571 554
------- ------- ------- --------
Gross profit (loss)............................................... 395 (119) 244 (158)
Operating expenses:
Research and development, including amortization of deferred
stock compensation of $50, $196, $152 and $509............... 2,326 2,039 4,807 4,500
Sales and marketing, including amortization of deferred stock
compensation of $(101), $189, $(37) and $426................. 456 2,072 2,074 4,400
General and administrative, including amortization of deferred
stock compensation of $80, $272, $216 and $755............... 1,450 1,211 2,596 2,724
Restructuring charge........................................... 143 -- 450 --
------- ------- ------- --------
Total operating expenses................................... 4,375 5,322 9,927 11,624
------- ------- ------- --------
Loss from operations.............................................. $(3,980) $(5,441) $(9,683) $(11,782)
Interest expense.................................................. (13) (29) (28) (63)
Other income and expenses, net.................................... 97 351 258 726
------- ------- ------- --------
Net loss.......................................................... $(3,896) $(5,119) $(9,453) $(11,119)
------- ------- ------- --------
Net loss per common share--basic and diluted...................... $ (.11) $ (.14) $ (.26) $ (.32)
======= ======= ======= ========
Shares used in per common share calculation--basic and diluted.... $36,466 $35,496 $36,330 $ 35,247
======= ======= ======= ========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
F-28
BE INCORPORATED AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands; unaudited)
Six Months Ended
June 30,
-----------------
2001 2000
------- --------
Cash flows from operating activities:
Net loss.................................................................... $(9,453) $(11,119)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization........................................... 516 580
Amortization of discount on technology license obligations.............. 29 63
Loss on disposal of fixed assets........................................ 6 --
Compensation expense incurred on issuance of stock...................... -- 33
Amortization of deferred stock compensation............................. 331 1,690
Changes in assets and liabilities:
Account receivable................................................... (250) 38
Prepaid and other current assets..................................... 193 174
Other assets......................................................... -- --
Accounts payable..................................................... (337) (621)
Accrued expenses..................................................... (417) (167)
Deferred revenue..................................................... (45) (19)
------- --------
Net cash used in operating activities............................ (9,427) (9,348)
------- --------
Cash flows provided by investing activities:
Acquisition of property and equipment....................................... (72) (89)
Acquisition of licensed technology.......................................... (175) (389)
Purchases of short-term investments......................................... (1,728) (37,546)
Sales of short-term investments............................................. 4,569 51,588
------- --------
Net cash provided by investing activities........................ 2,594 13,564
------- --------
Cash flows provided by financing activities:
Proceeds from issuance of common stock:
pursuant to common stock options........................................ 14 2,181
pursuant to common stock warrants....................................... 180 455
under Employee Stock Purchase Plan...................................... 324 368
Repurchase of common stock.................................................. -- (3)
------- --------
Net cash provided by financing activities:....................... 518 3,001
------- --------
Net increase (decrease in cash and cash equivalents............................ (6,315) 7,217
Cash and cash equivalents, beginning of period................................. 9,463 6,500
------- --------
Cash and cash equivalents, end of period....................................... $ 3,148 $ 13,717
======= ========
The accompanying notes are an integral part of these unaudited condensed
consolidated financial statements.
F-29
BE INCORPORATED AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Organization and Business
Be Incorporated (the "Company" or "Be") was founded in 1990 and offers
software platforms designed for Internet appliances and digital media
applications. The Company's software platforms are (i) BeIA: consisting of
three components; BeIA Client Platform, BeIA Management and Administration
Platform, and BeIA Integrations Services; (ii) Home Audio Reference Platform
(HARP), a BeIA-based reference platform or prototype for Internet-enabled home
stereo devices; and (iii) BeOS, the Company's operating system designed for
digital media applications and which serves as the development platform for
BeIA.
The Company's revenues to date have been primarily generated from the
following sources: sale of BeOS to resellers and distributors, direct sales of
BeOS to end users through its BeDepot.com Web site and royalties received for
the BeIA Client Platform starting in the first quarter of 2001. In 2000, the
Company shifted its resources to focus primarily on the market for Internet
appliances and the further development and marketing of BeIA, its software
platform intended for Internet appliances. At the same time it announced that
it would be making available at no charge a version of BeOS for personal use,
and a more fully featured version would be available for a charge through third
party publishers. During 2000, the Company discontinued sales of software
through its BeDepot.com website. Since inception, the Company has experienced
losses and negative cash flow from operations and expects to continue to
experience significant negative cash flow in the foreseeable future.
On July 31, 2001, the Company announced the elimination of its sales and
marketing departments in order to conserve resources. The Company expects sales
and marketing functions to be greatly limited in the future.
The Company operates in one business segment, software platforms designed
for Internet appliances and digital media applications.
2. Basis of Presentation
The condensed consolidated financial statements include the accounts of the
Company and its wholly owned subsidiaries. All significant intercompany
balances and transactions have been eliminated.
The condensed consolidated financial statements have been prepared in
accordance with the rules and regulations of the Securities and Exchange
Commission ("SEC") applicable to interim financial information. Certain
information and footnote disclosures included in financial statements prepared
in accordance with generally accepted accounting principles have been omitted
in these interim statements pursuant to such SEC rules and regulations.
Management recommends that these interim financial statements be read in
conjunction with the audited financial statements of the Company for the year
ended December 31, 2000 and the notes thereto contained in the Company's Annual
Report on Form 10-K. The December 31, 2000 balance sheet was derived from
audited financial statements, but does not include all disclosures required by
generally accepted accounting principles.
In management's opinion, the condensed consolidated financial statements
include all adjustments necessary to present fairly the financial position and
results of operations for each interim period shown. Interim results are not
necessarily indicative of results to be expected for a full fiscal year.
At the end of the first quarter of 2001, the Company stated in its Annual
Report on Form 10-K that it believed existing cash and cash equivalents would
not be sufficient to meet its operating and capital requirements at its
anticipated level of operations beyond the end of the second quarter of 2001.
Following the reduction in workforce carried out at the beginning of the second
quarter, and the further reduction in workforce and
F-30
elimination of the Company's sales and marketing departments at the beginning
of the third quarter, the Company anticipates that existing capital will be
insufficient to fund its operations at the currently anticipated levels beyond
the third quarter of 2001. The Company has engaged an investment banking firm
to assist in securing various strategic and funding alternatives, including the
sale of the Company or portions of its business or assets. The Company has also
engaged in discussions and negotiations with third parties involving the
potential sale of the Company's business or assets. However, the Company has
not secured or entered into any agreements to obtain additional capital or to
sell the Company's business or assets. There can be no assurance the Company
will be able to obtain additional funds, on acceptable terms or at all, or that
any strategic alternatives including the sale of the Company or portions of its
business or assets will materialize. Without additional capital prior to the
end of the third quarter of 2001, the Company will most likely cease its
operations and will commence a plan of liquidation. In anticipation of these
events, the Company has scaled back its operations including recent layoffs of
significant portions of its workforce and elimination of the sales and
marketing functions. The Company believes the cash proceeds from the sale of
its business or assets and any subsequent liquidation following such sale may
be insignificant due to, among other things, the current market value of the
Company's assets and payments to be made to creditors and to employees pursuant
to change in control or severance arrangements. The Company cannot assure its
stockholders that they will receive any consideration or value following
liquidation or the sale of the business or assets of the Company or that the
per share value of common stock as a result of liquidation or the proceeds per
share from a sale of the Company's assets will equal or exceed the price or
prices at which the common stock traded prior to effecting any liquidation,
dissolution or sale of the Company.
The consolidated financial statements do not include any adjustments that
might result from the outcome of these uncertainties.
3. Recent Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board, ("FASB"), issued
Statement of Financial Accounting Standards No. 133, or SFAS 133, "Accounting
for Derivative Instruments and Hedging Activities." SFAS 133 establishes new
standards of accounting and reporting for derivative instruments and hedging
activities. SFAS 133 requires that all derivatives be recognized at fair value
in the statement of financial position, and that the corresponding gains or
losses be reported either in the statement of operations or as a deferred item
depending on the type of hedge relationship that exists with respect of such
derivatives. In July 1999, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 137, or SFAS 137, "Accounting
for Derivative Instruments and Hedging Activities - Deferral of the Effective
Date of FASB Statement No. 133." SFAS 137 deferred the effective date until
fiscal years beginning after June 30, 2000. In June 2000, the Financial
Accounting Standards Board issued Statement of Financial Accounting Standards
No. 138, or SFAS 138, "Accounting for Derivative Instruments and Hedging
Activities - An Amendment of FASB Statement 133." SFAS 138 amends the
accounting and reporting standards for certain derivative activities such as
net settlement contracts, foreign currency transactions and intercompany
derivatives. The Company's implementation of SFAS 133 since January 1, 2001 has
not had a material impact on its financial position or results of operations.
In June 2001, the FASB unanimously approved the issuance of two statements,
Statement of Financial Accounting Standards No. 141, or SFAS 141, "Business
Combinations," and Statement of Financial Accounting Standards No. 142, or SFAS
142, "Goodwill and Other Intangible Assets." SFAS 141 addresses financial
accounting and reporting for business combinations and amends APB No.16
"Business Combinations." It requires the purchase method of accounting for
business combinations initiated after June 30, 2001. SFAS 142 addresses
financial accounting and reporting for acquired goodwill and other intangible
assets and supersedes APB No.17, "Intangible Assets." It changes the accounting
for goodwill from an amortization method to an impairment only approach. It is
effective for fiscal year beginning after March 15, 2001. The adoption of these
statements is not expected to have a significant impact on the Company's
financial position and results of operations.
F-31
4. Net Loss Per Share
Basic net loss per common share is computed by dividing net loss available
to common stockholders by the weighted average number of vested common shares
outstanding for the period. Diluted net loss per common share is computed
giving effect to all dilutive potential common shares, including options and
warrants. Options and warrants were not included in the computation of diluted
net loss per common share because the effect would be antidilutive. A
reconciliation of the numerator and denominator used in the calculation of
basic and diluted net loss per common share follows (in thousands, except per
share data):
Three Months Ended Six Months Ended
June 30, June 30,
----------------- -----------------
2001 2000 2001 2000
------- ------- ------- --------
(unaudited) (unaudited)
Historical net loss per common share, basic and diluted:
Numerator for net loss, basic and diluted................ $(3,896) $(5,119) (9,453) (11,119)
Denominator for basic and diluted loss per common share:
Weighted average common shares outstanding........... 36,466 35,496 36,330 35,247
------- ------- ------- --------
Net loss per common share basic and diluted.............. $ (0.11) $ (0.14) $ (0.26) $ (0.32)
======= ======= ======= ========
Antidilutive securities:
Options to purchase common stock..................... 6,114 6,672 6,114 6,672
Common stock not yet vested.......................... 129 332 129 332
Warrants............................................. -- 2,130 -- 2,130
------- ------- ------- --------
6,243 9,134 6,243 9,134
======= ======= ======= ========
5. Comprehensive Income (loss)
Statement of Financial Accounting Standard No. 130 (SFAS 130), "Reporting
Comprehensive Income" establishes rules for reporting and display of
comprehensive income (loss) and its components. The following are the
components of comprehensive income (loss) (in thousands):
Three Months Six Month Ended
Ended June 30, June 30,
---------------- -----------------
2001 2000 2001 2000
------- ------- ------- --------
Net loss................................................... $(3,896) $(5,119) $(9,453) $(11,119)
Unrealized gain (loss) on marketable securities............ (6) 5 1 13
------- ------- ------- --------
Comprehensive loss......................................... $(3,902) $(5,114) $(9,452) $(11,106)
======= ======= ======= ========
The components of accumulated other comprehensive income, net of related tax
are as follows (in thousands):
June 30, December 31,
2001 2000
-------- ------------
Unrealized gain on marketable securities......... $2 $1
-- --
2 1
-- --
6. Restructuring Charge
On April 2, 2001, the Company announced its decision, made at the end of the
first quarter, to restructure its operations to reflect current market and
financial conditions by closing its European office in Paris and eliminating
positions principally in the Company's sales, marketing and general
administration departments in the United States. As a result, the Company
recorded a restructuring charge of $307,000 in the first quarter for the
closing of its European office, which is comprised of $272,000 for involuntary
termination benefits and
F-32
$35,000 for termination of operating contracts and professional fees. The
Company recorded a restructuring charge of approximately $143,000 in the second
quarter for the involuntary termination benefits related to the elimination of
22 positions in the U.S.
At June 30, 2001, this restructuring plan was substantially completed with a
remaining $22,000 accrual for social charges due in Europe on termination
benefits.
7. Legal Proceedings
As previously disclosed in the Company's filings with the Securities and
Exchange Commission, in November 2000, the Company's stock transfer agent,
Wells Fargo Bank Minnesota, N.A., received a demand letter from Financial
Square Partners, a Be stockholder, alleging damages resulting from the transfer
agent's failure to timely issue its stock certificates. While Be was not a
party named in such demand letter, Be was named as a party on the stockholder's
draft claim attached to the demand letter. On May 9, 2001, the claim was in
fact filed, naming Be and Wells Fargo Bank Minnesota, N.A. as defendants, and
is currently active in the Superior Court of California. The stockholder is
seeking damages in the amount of approximately $2.4 million. Prior to this
filing, the Company had been participating in communications with the parties
in an effort to resolve the matter prior to a lawsuit being filed.
Be management continues to believe that the allegations as they relate to Be
in the filed claim are without merit and intends to defend Be against this
legal action. However, there can be no assurance this claim will be resolved
without costly litigation, or require Be's participation in the settlement of
such claim, in a manner that is not adverse to its financial position, results
of operations or cash flows. No estimate can be made of the possible loss or
possible range of loss associated with the resolution of this contingency. If
Be were held liable, it is its intent to seek reimbursement under its D&O
insurance policy.
8. Subsequent Events
Subsequent to June 30, 2001, the Company announced the elimination of 28
positions. In addition to the elimination of the sales and marketing
departments, positions in administration and engineering were also affected.
The eliminated positions represent approximately 33% of the Company's existing
workforce. The Company's remaining positions are primarily engaged in product
development. The Company does not expect to record any associated restructuring
charge.
On August 16, 2001, the Company entered into a definitive agreement with
Palm, Inc. for the sale of substantially all of its intellectual property and
other technology assets for a purchase price of $11 million, to be paid in
common stock of Palm, Inc. Closing of the transaction is subject to the
satisfaction of certain conditions, including obtaining approval of the
stockholders of the Company.
F-33
ANNEX A
AMENDED AND RESTATED
ASSET PURCHASE AGREEMENT
THIS AMENDED AND RESTATED ASSET PURCHASE AGREEMENT (the "Agreement"), is
made and entered into as of September 10, 2001, by and among Palm, Inc., a
Delaware corporation ("Parent"), ECA Subsidiary Acquisition Corporation, a
Delaware corporation and an indirect wholly owned Subsidiary of Parent
("Buyer"), and Be Incorporated, a Delaware corporation ("Seller").
RECITALS
A. Parent, Buyer and Seller are parties to that certain Asset Purchase
Agreement dated as of August 16, 2001 (the "Existing Agreement Date"), which
provides for the purchase by Buyer from Seller, and the sale by Seller to
Buyer, of substantially all of the assets relating to, required for, used in or
otherwise constituting the Products (as defined therein), in exchange for
shares of common stock of Parent, the assumption of certain liabilities
relating to the Products and the other consideration set forth therein (the
"Existing Agreement").
B. Concurrently with the execution and delivery of the Existing Agreement,
as a material inducement to Parent and Buyer to enter into the Existing
Agreement, selected Key Employees (as defined below) of Seller entered into
non-competition agreements, substantially in the form attached thereto as
Exhibit A (the "Non-Competition Agreements"), with Parent, each of which shall
become effective as of the Closing Date (as defined therein).
C. Concurrently with the execution and delivery of the Existing Agreement,
as a material inducement to Parent and Buyer to enter into the Existing
Agreement, certain stockholders of Seller executed and delivered stockholder
support agreements, substantially in the form attached thereto as Exhibit B
(the "Support Agreements"), to Buyer.
D. It is contemplated that, subject to approval by Seller's stockholders, as
soon as reasonably practicable following the Closing (as defined in the
Existing Agreement) Seller shall wind-up its business operations in accordance
with applicable law.
E. Parent, Buyer and Seller now desire to amend and restate in its entirety
the Existing Agreement, on the terms and conditions set forth in this
Agreement, in order to reflect certain understandings reached by the parties
subsequent to the execution and delivery of the Existing Agreement.
NOW, THEREFORE, in consideration of the covenants, representations,
warranties and mutual agreements set forth herein, and for other good and
valuable consideration, intending to be legally bound hereby, the parties
hereto agree as follows:
ARTICLE 1
DEFINITIONS
1.1 Capitalized Terms. The following capitalized terms shall have the
meanings set forth below:
(a) "Acquired Assets" shall have the meaning set forth in Section 2.1.
(b) "Adjustment Amount" means the aggregate amount of all Prepaid Service
Payments (as defined in Section 5.7) reflected on the Prepaid Service
Payment Update as of the Closing Date.
(c) "Agreement" means this Asset Purchase Agreement together with all
exhibits and schedules hereto.
A-1
(d) "Allocation" shall have the meaning set forth in Section 3.3.
(e) "Assumed Liabilities" shall have the the meaning set forth in Section
2.9.
(f) "Benefits Liabilities" means any and all claims, debts, liabilities,
commitments and obligations, whether fixed, contingent or absolute, matured
or unmatured, liquidated or unliquidated, accrued or unaccrued, known or
unknown, whenever or however arising, including all costs and expenses
relating thereto arising under law, rule, regulation, permits, action or
proceeding before any Governmental Entity, order or consent decree or any
award of any arbitrator of any kind relating to any Employee Plan,
Employment Agreement, International Employee Plan or otherwise to an
Employee.
(g) "Books and Records" means all papers and records (in paper or
electronic format) in the care, custody, or control of Seller or any of its
Subsidiaries relating to the Acquired Assets including, without limitation,
all purchasing and sales records, customer and vendor lists, accounting and
financial records, product documentation, product specifications, marketing
requirement documents and software release orders.
(h) "Closing" shall have the meaning set forth in Section 3.1.
(i) "Closing Date" shall have the meaning set forth in Section 3.1.
(j) "Collateral Agreements" shall have the meaning set forth in Section
2.4.
(k) "Code" means the Internal Revenue Code of 1986, as amended.
(l) "Continuing Employees" shall have the meaning set forth in Section
7.10.
(m) "Contract" means any mortgage, indenture, lease, contract, covenant
or other agreement, instrument or commitment, permit, concession, franchise
or license.
(n) "Derivative Work" has the meaning ascribed to it under the United
States Copyright Law, Title 17 U.S.C. Sec. 101 et. seq., as the same may be
amended from time to time.
(o) "Designated Employees" means those employees of Seller listed on
Schedule 1.1(o) hereto.
(p) "DOL" shall mean the Department of Labor.
(q) "Effectively Transferred Contract" means a Transferred Contract as to
which no consent to assignment is required or as to which a consent to
assignment is required and has been obtained prior to the Closing.
(r) "Eligible Contracts" means (i) the Internet Appliance OEM License and
Distribution Agreement between Be Incorporated and Sony Electronics Inc.
dated March 13, 2001 (the "Sony Agreement"), (ii) all Contracts of Seller
that contain license grants to Seller that are not Transferred Contracts on
the Existing Agreement Date and (iii) all nondisclosure agreements,
confidentiality agreements or similar Contracts of Seller.
(s) "Employee" shall mean any current or former or retired employee,
consultant or director of Seller or any Subsidiary of Seller in his or her
capacity as such.
(t) "Employee Plan" means any plan, program, policy, practice, contract,
agreement or other material arrangement providing for compensation,
severance, termination pay, deferred compensation, performance awards, stock
or stock-related awards, fringe benefits or other employee benefits or
remuneration of any kind, whether written, unwritten or otherwise, funded or
unfunded, including, without limitation, each "employee benefit plan,"
within the meaning of Section 3(3) of ERISA, which is or has been
maintained, contributed to, or required to be contributed to, by Seller for
the benefit of any Designated Employee, or with respect to which Seller has
or may have any liability or obligation to any Designated Employee.
(u) "Employment Agreement" means each management, employment, severance,
consulting, relocation, repatriation, expatriation, visas, work permit or
other agreement, contract or understanding between Seller or any Subsidiary
of Seller and any Designated Employee.
A-2
(v) "ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
(w) "Excluded Assets" shall have the meaning set forth in Section 2.2.
(x) "Excluded Contracts" shall mean the Contracts listed on Schedule
1.1(x).
(y) "Excluded Liabilities" shall have the meaning set forth in Section
2.10.
(z) "GAAP" means United States generally accepted accounting principles,
as of the Existing Agreement Date.
(aa) "General Assignment" shall have the meaning set forth in Section
2.4.
(bb) "Governmental Entity" means any court, administrative agency or
commission or other federal, state, county, local or foreign governmental
authority, instrumentality, agency or commission.
(cc) "Indemnified Parties" shall have the meaning set forth in Section
9.2.
(dd) "Intellectual Property Rights" means any or all of the following and
all statutory or common law rights throughout the world in, arising out of,
or associated with: (i) all patents and applications (including provisional
applications) therefor and all reissues, divisions, renewals, extensions,
continuations and continuations-in-part thereof (collectively, "Patents");
(ii) all trade secrets that (A) derive independent economic value, actual or
potential, from not being generally known to, and not being readily
ascertainable by proper means by, other persons who can obtain economic
value from its disclosure or use, and (B) are the subject of efforts that
are reasonable under the circumstances to maintain its secrecy, and all
other inventions (whether patentable or not, but which are not the subject
of issued or published Patents), proprietary information, and know how
(collectively, "Trade Secrets"); (iii) all works of authorship, copyrights,
mask works, copyright and mask work registrations and applications
(collectively, "Copyrights"); (iv) all trade names, trademarks and service
marks and all trademark and service mark registrations and applications
(collectively, "Trademarks"); (v) all rights in and to databases and data
collections (including knowledge databases, customer lists and customer
databases); and (vi) any similar, corresponding or equivalent rights to any
of the foregoing types of intellectual property.
(ee) "International Employee Plan" means each Employee Plan that has been
adopted or maintained by Seller or any ERISA Affiliate, whether informally
or formally, or with respect to which Seller or any ERISA Affiliate will or
may have any liability, for the benefit of Employees who perform services
outside the United States.
(ff) "IRS" shall mean the Internal Revenue Service.
(gg) "Kernel" means the level of an operating system that contains system
level services, including thread and team management, virtual and protected
memory management, thread scheduling, interprocess communication (including
semaphores, ports and thread messages), input/output management and node
abstraction layer, kernel module management, ELF executable binary loader,
device driver management, power management and CPU-dependent layer. It also
includes built-in components that could otherwise be loaded, including
platform-dependent modules, generic virtual drivers (null and zero drivers),
generic virtual file-systems (root, pipe and device file systems) and the
kernel debugger module.
(hh) "Key Employee" shall have the meaning set forth in Schedule 1.1(hh).
(ii) "Licensed Intellectual Property" means all Intellectual Property
Rights that, immediately after the sale and assignment of the Transferred
Intellectual Property Rights and other Acquired Assets from Seller to Buyer
occurs, Seller or any of its Subsidiaries has the right to license to the
extent provided in Section 4.1, without breaching any Contract, without
infringing any other Person's Intellectual Property Rights, and without
payment of any royalty, fee or other amount as a result of such license to
Buyer (unless Buyer assumes the obligation to pay such royalty, fee or other
amount).
(jj) "Lien" means, with respect to any asset or right, any mortgage,
lien, pledge, charge, security interest, claim, equity encumbrance,
restriction on transfer, conditional sale or other title retention device or
A-3
arrangement (including, without limitation, a capital lease), transfer for
the purpose of subjection to the payment of any indebtedness, restriction on
the creation of any of the foregoing, or encumbrance of any kind whatsoever;
provided, however, that the term "Lien" shall not include: (i) statutory
liens for Taxes that are not yet due and payable or are being contested in
good faith by appropriate proceedings and are disclosed in the Seller
Disclosure Schedule or that are otherwise not material; (ii) statutory or
common law liens to secure obligations to landlords, lessors or renters
under leases or rental agreements confined to the premises rented; (iii)
deposits or pledges made in connection with, or to secure payment of,
workers' compensation, unemployment insurance, old age pension or other
social security programs mandated by applicable law; (iv) statutory or
common law liens in favor of carriers, warehousemen, mechanics and
materialmen, to secure claims for labor, materials or supplies and other
like liens; (v) restrictions on transfer of securities imposed by applicable
state and federal securities laws; and (vi) contractual restrictions on
transfer of contractual rights.
(kk) "Loss" and "Losses" shall have the meanings set forth in Section
9.2.
(ll) "Material Adverse Effect" means any (i) change in or effect on the
Acquired Assets, taken as a whole, that is materially adverse to the
Acquired Assets, taken as a whole, or (ii) circumstance, change or event
that materially impairs Buyer's ability to make, use, sell, license,
distribute, market, build, modify, debug and operate the current version or
release of the Products in substantially the same manner as Seller prior to
the Existing Agreement Date (excluding any effect on Buyer's ability to do
the foregoing caused by the absence of the items licensed under the Excluded
Contracts or Non-Transferred Licenses or any facts and circumstances unique
to Buyer).
(mm) "Non-Transferred Licenses" shall mean license agreements granting
licenses to Seller that are Transferred Contracts but which do not become
Effectively Transferred Contracts.
(nn) "Offer Letter" shall have the meaning set forth in Section 7.10.
(oo) "Object Code" means computer software, substantially or entirely in
binary form, which is intended to be directly executable by a computer after
suitable processing and linking but without the intervening steps of
compilation or assembly.
(pp) "Pension Plan" means each Seller Employee Plan which is an "employee
pension benefit plan," within the meaning of Section 3(2) of ERISA.
(qq) "Person" means any individual, partnership, firm, corporation,
association, trust, unincorporated organization or other entity, as well as
any syndicate or group of any of the foregoing.
(rr) "Prepaid Service Payment Update" shall have the meaning set forth in
Section 7.14.
(ss) "Platform Business" means the business of developing, marketing,
licensing or distributing operating systems software and associated software
components and software development tools for portable, handheld and
wireless solutions, and personal information management (PIM) applications
designed to run on such operating systems.
(tt) "Products" means any products of Seller or any of its Subsidiaries
(including products under development) listed on Schedule 1.1(tt).
(uu) "PTO" means the United States Patent and Trademark Office.
(vv) "Registered Intellectual Property" means all United States,
international and foreign: (i) Patents; (ii) registered Trademarks and
applications for Trademarks, including intent-to-use applications; (iii)
registered Copyrights and applications for Copyrights; and (iv) any other
Intellectual Property Rights that are the subject of an application,
certificate, filing, registration or other document issued, filed with or
recorded by any Governmental Entity.
(ww) "Software" means computer software and code, including assemblers,
applets, compilers, Source Code, Object Code, data (including image and
sound data), development tools, design tools and user interfaces, in any
form or format, however fixed, including Source Code listings and related
documentation.
A-4
(xx) "Source Code" means computer software code which may be printed out
or displayed in human readable form, including related programmer comments
and annotations, help text, data and data structures, instructions, and
procedural, object-oriented and other code which may be printed out or
displayed in human readable form.
(yy) "Stock Consideration" means that number of shares of Parent's common
stock, rounded to the nearest number of whole shares (with 0.5 being rounded
up), equal to the quotient determined by dividing (A) $11,000,000 minus the
Adjustment Amount by (B) the opening price of Parent's common stock as
quoted on the Nasdaq National Market on the Closing Date; provided, however,
that the number of shares of Parent's common stock comprising the Stock
Consideration shall be increased above such number or decreased below such
number to the extent provided in Section 7.15.
(zz) "Subsidiary" means, with respect to any Person, any entity of which
securities or other ownership interests having ordinary voting power to
elect a majority of the board of directors or other persons performing
similar functions are at any time directly or indirectly owned by such
Person.
(aaa) "Supplemental Transferred Contracts" means any Eligible Contract of
Seller which becomes a Transferred Contract in accordance with Section 7.26,
in addition to the Transferred Contracts listed on Schedule 1.1(eee).
(bbb) "Tangible Assets" means the tangible assets listed on Schedule
1.1(bbb); provided, however, that Tangible Assets shall not include any
tangible manifestation of Software that is delivered pursuant to a written
agreement or protocol agreed to by Buyer and Seller providing for the remote
electronic transmission of such Software, except for documentation and
manuals.
(ccc) "Tax" and "Taxes" shall mean any and all federal, state, local and
foreign taxes, assessments and other governmental charges, duties,
impositions and liabilities, including taxes based upon or measured by gross
receipts, income, profits, sales, use and occupation, and value added, ad
valorem, transfer, franchise, withholding, payroll, recapture, employment,
excise and property taxes as well as public imposts, fees and social
security charges (including but not limited to health, unemployment and
pension insurance), together with all interest, penalties and additions
imposed with respect to such amounts and any obligation under any agreement
or arrangement with any other person with respect to such amounts and
including any liability for taxes of a predecessor entity.
(ddd) "Third Party Software" means any Software owned by a third party or
in the public domain, including open source Software, public source
Software, or freeware, or any modification or Derivative Work thereof, and
also including any version of any Software licensed pursuant to any GNU
general public license or limited general public license, in each case that
is used in, incorporated into, or integrated or bundled with the current
released version of the Products and any more recent versions thereof
(whether or not released or completed) or Transferred Technology.
(eee) "Transferred Contracts" means those Contracts listed on Schedule
1.1(eee) as of the Existing Agreement Date, and shall also include, from and
after the date Eligible Contracts become Supplemental Transferred Contracts
in accordance with Section 7.26, any such Supplemental Transferred
Contracts.
(fff) "Transferred Intellectual Property Rights" means (i) all
Intellectual Property Rights (other than Trademarks) owned by Seller or any
of its Subsidiaries; and (ii) the Transferred Trademarks.
(ggg) "Transferred Technology" means
(i) the items listed on Schedule 1.1(ggg); and
(ii) any other Source Code and other Software, materials and
information (including development software, development documentation,
compilers, interpreters, system build software, build scripts, test
suites, testing tools and documentation, test scripts, bug databases,
support tools, revision control systems and environments) that are used
by Seller or any of its Subsidiaries to, or that Seller or any of its
Subsidiaries has and are reasonably necessary to, build, modify, debug
and operate the current
A-5
release or version of the Products, and any more recent versions thereof
(whether or not released or completed), which Seller has the right to
deliver and disclose to Buyer without breaching any Contract or
infringing any other Person's Intellectual Property Rights;
provided, however, that Transferred Technology shall not include any
tangible manifestation of Software that is delivered pursuant to a written
agreement or protocol agreed to by Buyer and Seller providing for the remote
electronic transmission of such Software, except for documentation and
manuals.
(hhh) "Transferred Trademarks" means the Product names and other
Trademarks, if any, listed on Schedule 1.1(hhh).
1.2 Construction.
(a) For purposes of this Agreement, whenever the context requires: the
singular number will include the plural, and vice versa; the masculine
gender will include the feminine and neuter genders; the feminine gender
will include the masculine and neuter genders; and the neuter gender will
include the masculine and feminine genders.
(b) Any rule of construction to the effect that ambiguities are to be
resolved against the drafting party will not be applied in the construction
or interpretation of this Agreement.
(c) As used in this Agreement, the words "include" and "including" and
variations thereof will not be deemed to be terms of limitation, but rather
will be deemed to be followed by the words "without limitation."
(d) Except as otherwise indicated, all references in this Agreement to
"Articles," "Schedules," "Sections" and "Exhibits" are intended to refer to
Articles, Schedules, Sections and Exhibits to this Agreement.
(e) The headings in this Agreement are for convenience of reference only,
will not be deemed to be a part of this Agreement, and will not be referred
to in connection with the construction or interpretation of this Agreement.
ARTICLE 2
PURCHASE AND SALE
2.1 Purchase and Sale of Assets. On the Closing Date, and subject to the
terms and conditions set forth in this Agreement, but subject to Section 2.2,
Seller will sell, convey, transfer and assign to Buyer, and Buyer will purchase
from Seller, all of Seller's right, title and interest in and to all of the
following assets, free and clear of any and all Liens (collectively, the
"Acquired Assets"):
(a) the Tangible Assets;
(b) the Transferred Intellectual Property Rights;
(c) all goodwill of Seller or any of its Subsidiaries appurtenant to the
Transferred Trademarks;
(d) the Transferred Technology (for avoidance of doubt, with respect to
portions of the Transferred Technology that are owned by Persons other than
Seller or its Subsidiaries, the rights in such portions of the Transferred
Technology to be transferred and assigned to Buyer are the rights of Seller
and its Subsidiaries under the Effectively Transferred Contracts as
described in clause (e) below);
(e) all rights of Seller or any of its Subsidiaries under the Effectively
Transferred Contracts, other than payment obligations under such Transferred
Contracts (including accounts receivable) earned by Seller or any of its
Subsidiaries as a result of performance by Seller or any of its Subsidiaries
prior to the Closing Date; and
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(f) all rights to recover past, present and future damages for the
breach, infringement or misappropriation, as the case may be, of any of the
Transferred Intellectual Property Rights and Effectively Transferred
Contracts (other than payment obligations under such Transferred Contracts).
2.2 Excluded Assets. The parties expressly acknowledge and agree that
notwithstanding anything to the contrary in this Agreement, the Acquired Assets
and Transferred Contracts do not include, and Seller does not have and shall be
under no obligation to sell, assign or otherwise transfer to Buyer any of
Seller's fixed assets (other than Tangible Assets), cash and cash equivalents
or receivables, the Sony Agreement, the Excluded Contracts, or any other
assets, claims, causes of action, contracts, licenses or agreements set forth
on Schedule 2.2 hereto, or any other assets, claims, causes of action,
contracts, licenses or agreements not included within the Acquired Assets and
Transferred Contracts as defined herein (collectively, the "Excluded Assets"),
which Excluded Assets shall remain for all purposes the properties and assets
of Seller.
2.3 Delivery of Acquired Assets. At the Closing, Seller shall deliver to
Buyer all of the Tangible Assets and Transferred Technology. Without limiting
the foregoing, all Software included in the Transferred Technology shall, at
Buyer's request, be delivered to Buyer by electronic means.
2.4 Assignments. At the Closing, Seller shall deliver to Buyer, duly
executed by Seller, and Seller shall deliver to Buyer, duly executed by Buyer:
(i) an Assignment and Assumption Agreement and Bill of Sale substantially in
the form of Exhibit C hereto (the "General Assignment"); (ii) the copyright
registrations and assignments required pursuant to Section 2.5, the patent
assignments required pursuant to Section 2.6 and the trademark assignments
required pursuant to Section 2.7; and (iii) such other instruments of
conveyance, assignment and transfer as Buyer may reasonably request in order to
vest in Buyer good and valid title in and to the Acquired Assets (the General
Assignment and the other instruments referred to in clauses (i), (ii) and (iii)
being collectively referred to herein as the "Collateral Agreements").
2.5 Transfer of Product Software Copyrights. For each Copyright included in
the Transferred Intellectual Property Rights for which Seller has filed a
copyright registration with the United States Copyright Office, Seller shall
deliver to Buyer at Closing an assignment, on a form reasonably acceptable to
Buyer, to record the transfer of such copyright to Buyer in the United States
Copyright Office. If Seller has not registered the copyright in a Product prior
to the Closing Date, Seller shall deliver to Buyer at the Closing an
application, on the applicable form, to register such copyright in each Product
with the United States Copyright Office.
2.6 Transfer of Patent Rights. For each of Seller's Patents included in the
Transferred Intellectual Property Rights, Seller shall deliver to Buyer at
Closing an assignment in form reasonably acceptable to Buyer to evidence the
transfer of such Patents to Buyer. Such assignment shall specify Buyer as the
owner by assignment of such Patents.
2.7 Transfer of Trademarks. For each of the Transferred Trademarks, Seller
shall deliver to Buyer at Closing an assignment in form reasonably acceptable
to Buyer to evidence the transfer of such Trademarks to Buyer. Such assignment
shall specify Buyer as the owner by assignment of such Trademarks.
2.8 Transferred Contracts. At the Closing, Seller shall deliver to Buyer all
of the Transferred Contracts to the extent not previously delivered to Buyer.
2.9 Assumed Liabilities. As of the Closing, Buyer hereby agrees to assume
the following, and only the following (collectively, the "Assumed
Liabilities"): the obligations of Seller or any of its Subsidiaries under the
Transferred Contracts, in each case solely to the extent such obligations arise
from and after the Closing Date; provided, however, that notwithstanding the
foregoing, Buyer shall be responsible for liabilities that arise solely out of
its ownership or operation of the Acquired Assets or its performance of the
Transferred Contracts on or subsequent to the Closing Date. As of the Closing,
Parent shall be deemed to guarantee the obligations of Buyer under the Assumed
Liabilities.
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2.10 Excluded Liabilities. Except for the Assumed Liabilities, Buyer is not
assuming any other debt, liability, duty or obligation, whether known or
unknown, fixed or contingent, of Seller or any of its Subsidiaries (the
"Excluded Liabilities"). Without limiting the foregoing, all liabilities of
Seller and its Subsidiaries, including any liabilities for Taxes, arising from
or related to: (i) Seller's operations or the operation of any of its
Subsidiaries, whenever arising or incurred, including Seller's or any of its
Subsidiaries' sale or ownership of the Products and Acquired Assets through the
Closing Date; (ii) Seller's or any of its Subsidiaries' termination of any
Contracts that are not Transferred Contracts; (iii) the Sony Agreement, (iv)
the employment or engagement by Seller of employees, agents, consultants or
independent contractors through the Closing Date; or (v) any Benefit
Liabilities, shall be Excluded Liabilities and shall remain the responsibility
of Seller, unless any such liabilities described in this sentence are otherwise
included within the Assumed Liabilities.
ARTICLE 3
CLOSING AND CONSIDERATION
3.1 Closing. The closing of the transactions contemplated by this Agreement
(the "Closing") will take place at the offices of Wilson Sonsini Goodrich &
Rosati, Professional Corporation, in Palo Alto, California at 6:30 a.m., local
time, two (2) business days following the satisfaction or written waiver of the
last of the conditions of Closing as set forth in ARTICLE 8 hereof, or on such
other date as the parties may mutually determine (the "Closing Date").
3.2 Stock Consideration. At the Closing, Parent and Buyer shall cause to be
issued to Seller a duly authorized and issued stock certificate representing
the Stock Consideration, and following the Closing, to the extent that the
Resale Registration Statement is filed with the SEC and the provisions of
Section 7.15 apply, (i) in the case where the number of shares issuable upon
the effectiveness of the Resale Registration Statement is increased pursuant to
Section 7.15(b), Parent and Buyer shall cause to be issued to Seller
immediately upon the effectiveness of the Resale Registration Statement an
additional stock certificate representing the number of any such whole shares
of Parent's common stock required to be issued to Seller in accordance with
such Section, and (ii) in the case where the number of shares issuable upon the
effectiveness of the Resale Registration Statement is decreased pursuant to
Section 7.15(b), Parent and Buyer shall, upon delivery by Seller for
cancellation to Buyer of the original stock certificate issued to Seller, cause
to be issued to Seller immediately upon the effectiveness of the Resale
Registration Statement a replacement stock certificate representing the total
number of shares of Parent's common stock representing the Stock Consideration,
as adjusted in accordance with such Section. In addition, whether at the
Closing (in the event the Form S-4 Registration Statement has been declared
effective under the Securities Act prior to the Closing) or upon the
effectiveness of the Resale Registration Statement (in the event the Form S-4
Registration Statement has not been declared effective under the Securities Act
prior to the Closing), Parent and Buyer shall, at the request of Seller,
deliver such other instruments, coordinate with Parent's transfer agent, and
use commercially reasonable efforts to do and perform such other acts and
things as may be reasonably necessary to enable Seller to immediately sell,
transfer or otherwise liquidate the shares of Parent's common stock
constituting the Stock Consideration in the public markets.
3.3 Allocation of Consideration. The parties hereto intend that the purchase
be treated as a taxable transaction for federal and state income tax purposes.
Prior to the Closing Date, Buyer and Seller shall negotiate in good faith and
determine the allocation of the Stock Consideration among the Acquired Assets
(the "Allocation"). The Allocation shall be conclusive and binding upon Buyer
and Seller for all purposes, and the parties agree that all returns and reports
(including IRS Form 8594) and all financial statements shall be prepared in a
manner consistent with (and the parties shall not otherwise file a Tax return
position inconsistent with) the Allocation unless required by the IRS or any
other applicable taxing authority.
3.4 Transfer Taxes. Buyer and Seller shall each be responsible for fifty
percent (50%) of the aggregate amount of any sales, use, excise or similar
Taxes that may be payable in connection with the sale or purchase of
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the Acquired Assets and the granting of the licenses hereunder, including any
sales, use, excise or similar transfer Taxes. The parties hereto shall
cooperate with each other and use their reasonable best efforts to minimize the
transfer Taxes attributable to the sale of the Acquired Assets, including but
not limited to the transfer of all Software by remote electronic transmission.
ARTICLE 4
LICENSE TO BUYER
4.1 License of Licensed Intellectual Property. Effective as of the Closing
(and subject to the conditions thereto set forth herein), Seller shall be
deemed to have granted to Buyer under all of the Licensed Intellectual
Property, a royalty-free, fully-paid, world-wide, perpetual, irrevocable,
non-terminable, transferable right and license, with the right to grant and
authorize sublicenses, to fully exercise, use and otherwise exploit the
Licensed Intellectual Property in any manner and without limitation, including
the right and license under Copyrights to copy, create Derivative Works from,
distribute, publicly perform and display and transmit Software products and
other copyrightable works, and under Patent rights to make, have made, use,
sell, offer for sale and import products. To the extent that the foregoing
license is broader in any respect (including, without limitation, the rights
being licensed, the duration and revocability of the license, the geographic
scope of the license, and the transferability of the license) than the license
Seller has the right to grant without breaching any Contract, without
infringing any other Person's Intellectual Property Rights, and without being
required to pay any additional royalty, fee or other amount to any other Person
as a result of such license to Buyer, then the foregoing license will be deemed
to be limited in all such respects to the license Seller has the right to grant
without breaching any Contract, without infringing any other Person's
Intellectual Property Rights, and without being required to pay any royalty,
fee or other amount to any other Person. If, in order to grant the foregoing
license to Buyer with respect to any Licensed Intellectual Property owned by
any Person other than Seller or its Subsidiaries, Seller is required to notify
any such other Person of the license, obtain the approval or consent of any
such other Person, provide a copy of the license agreement to any such other
Person, obtain Buyer's written agreement to any particular term or condition
(each, a "Pass-Through Term"), or comply with any obligation, condition, or
requirement (collectively, "Sublicensing Requirements"), the foregoing license
will be effective with respect to such Licensed Intellectual Property only if
and when (a) Buyer authorizes Seller in writing to comply with such
Sublicensing Requirements, (b) Seller complies with all applicable Sublicensing
Requirements, (c) Buyer agrees in writing to be bound by and to comply with all
applicable Pass-Through Terms, if any, and (d) Buyer pays any royalty, fee or
other amount which is authorized by Buyer and is required to be paid by Seller
as the result of such license to Buyer.
4.2 Bankruptcy. The license granted to Buyer under Section 4.1 is, and shall
otherwise be deemed to be, for purposes of Section 365(n) of the United States
Bankruptcy Code, a license to rights of "Intellectual Property Rights" as
defined thereunder.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF SELLER
Except as disclosed in the disclosure schedule delivered to Parent and Buyer
on the Existing Agreement Date (the "Seller Disclosure Schedule"), Seller
hereby represents and warrants to Parent and Buyer, as of the Existing
Agreement Date (except to the extent such representations and warranties
address matters as of a particular date or period, in which case such
representations and warranties are made as of such date or period), as follows:
5.1 Organization of Seller.
(a) Except as set forth in Section 5.1(a) of the Seller Disclosure
Schedule, Seller has no Subsidiaries.
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(b) Seller is a corporation duly organized, validly existing and in good
standing under the laws of the jurisdiction of its incorporation and has all
necessary corporate power and authority: (i) to conduct its business in the
manner in which its business is currently being conducted; (ii) to own and
use its assets in the manner in which its assets are currently owned and
used; and (iii) to perform its obligations under all Contracts by which it
is bound.
(c) Seller is qualified to do business as a foreign corporation, and is
in good standing, under the laws of all jurisdictions where the nature of
its business requires such qualification and where the failure to so qualify
would have a Material Adverse Effect.
(d) Seller has delivered or made available to Buyer a true and correct
copy of the certificate of incorporation (including any certificate of
designations) and bylaws of Seller and similar governing instruments, each
as amended to date (collectively, the "Seller Charter Documents"), and each
such instrument is in full force and effect. Seller is not in violation of
any of the provisions of Seller Charter Documents.
5.2 Authority. Seller has all requisite corporate power and authority to
enter into this Agreement and the Collateral Agreements and to consummate the
transactions contemplated hereby and thereby. The execution and delivery of
this Agreement and the Collateral Agreements and the consummation of the
transactions contemplated hereby and thereby have been duly authorized by all
necessary corporate action on the part of Seller, and, except for approval by
the stockholders of Seller, no further action is required on the part of
Seller, any of its Subsidiaries or any of Seller's stockholders to authorize
the Agreement and the Collateral Agreements and the transactions contemplated
hereby. A vote of the holders of a majority of the outstanding shares of
Seller's common stock is sufficient for Seller's stockholders to approve and
adopt this Agreement and approve the transactions contemplated hereby and the
Dissolution (as defined in Section 7.16). This Agreement and the transactions
contemplated hereby have been approved by the Board of Directors of Seller.
This Agreement has been duly executed and delivered by Seller and, assuming the
due authorization, execution and delivery by Parent and Buyer, constitutes a
valid and binding obligation of Seller, enforceable against Seller in
accordance with its terms, subject to any applicable bankruptcy, insolvency,
reorganization, moratorium or similar laws now or hereafter in effect relating
to creditors' rights generally or to other equitable remedies.
5.3 No Conflict. The execution and delivery of this Agreement by Seller do
not, and the execution and delivery of the Collateral Agreements by Seller and
the performance of this Agreement and the Collateral Agreements by Seller will
not, (i) conflict with or violate the Seller Charter Documents, (ii) subject to
obtaining the approval and adoption of this Agreement by Seller's stockholders
as contemplated in Section 7.16, conflict with or violate any law, rule,
regulation, order, judgment or decree applicable to Seller or any of its
Subsidiaries or by which any of their properties is bound or affected, or (iii)
result in any breach of or constitute a default (or an event that with notice
or lapse of time or both would become a default) under, or impair the rights of
Seller or any of its Subsidiaries or alter the rights or obligations of any
third party under, or give to others any rights of termination, amendment,
acceleration or cancellation of, or result in the creation of a Lien on any of
the properties or assets of Seller or any of its Subsidiaries pursuant to, any
note, bond, mortgage, indenture, contract, agreement, lease, license, permit,
franchise, concession, or other instrument or obligation to which Seller or any
of its Subsidiaries is a party or by which Seller, any of its Subsidiaries or
the Acquired Assets are bound or affected, except with respect to clauses (ii)
and (iii), for the matters set forth on Section 5.3 of the Seller Disclosure
Schedule and for matters the existence of which would not reasonably be
expected, individually or in the aggregate, to have a Material Adverse Effect.
5.4 SEC Filings; Seller Financial Statements.
(a) Seller has delivered or made available to Parent (through reference
to documents filed by EDGAR or otherwise) accurate and complete copies of
all forms, reports and documents filed by Seller with the Securities and
Exchange Commission ("SEC") since January 1, 2000 (the "Seller SEC
Reports"), which are all the forms, reports and documents required to be
filed by Seller with the SEC since such date. As of their
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respective dates, the Seller SEC Reports (i) were prepared in accordance and
complied in all material respects with the requirements of the Securities
Act of 1933, as amended (the "Securities Act"), or the Securities Exchange
Act of 1934, as amended (the "Exchange Act"), as the case may be, and the
rules and regulations of the SEC thereunder applicable to such Seller SEC
Reports and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading.
(b) Each of the consolidated financial statements (including, in each
case, any related notes thereto) contained in Seller SEC Reports (the
"Seller Financials") (i) complied as to form in all material respects with
the published rules and regulations of the SEC with respect thereto, (ii)
were prepared in accordance with GAAP applied on a consistent basis
throughout the periods involved (except as may be indicated in the notes
thereto or, in the case of unaudited interim financial statements, as may be
permitted by the SEC on Form 10-Q under the Exchange Act) and (iii) fairly
presented the financial position of Seller as at the respective dates
thereof and the results of Seller's operations and cash flows for the
periods indicated, except that the unaudited interim financial statements
may not contain footnotes and were or are subject to normal and recurring
year-end adjustments. The balance sheet of Seller contained in the Form 10-Q
of Seller filed on August 14, 2001 is hereinafter referred to as the "Seller
Balance Sheet."
(c) Except as disclosed in the Seller Financials, since the date of
Seller Balance Sheet Seller has incurred no liabilities required under GAAP
to be set forth on a consolidated balance sheet (absolute, accrued,
contingent or otherwise), except for liabilities incurred (i) since the date
of the Seller Balance Sheet in the ordinary course of business consistent
with past practices or (ii) pursuant to this Agreement, which liabilities
would not reasonably be expected, individually or in the aggregate, to have
a Material Adverse Effect.
5.5 Transferred Contracts. True and complete copies of all of the
Transferred Contracts as of the Existing Agreement Date have been delivered to
Buyer. Each such Transferred Contract is in full force and effect. None of
Seller, any of its Subsidiaries or, to Seller's knowledge, any other party
thereto is in default or breach under the terms of any such Transferred
Contract and, to the Seller's knowledge, no event or circumstance has occurred
that, with notice or lapse of time or both, would reasonably be expected to
constitute any event of default thereunder.
5.6 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with any Governmental Entity or any third
party, including a party to any agreement with Seller or any of its
Subsidiaries, is required by or with respect to Seller or any of its
Subsidiaries in connection with the execution and delivery of this Agreement
and the Collateral Agreements or the consummation of the transactions
contemplated hereby, except for the filing of the Proxy Statement/Prospectus
(as defined in Section 7.15) with the SEC in accordance with the Exchange Act,
and the Consents listed on Section 5.6 of the Seller Disclosure Schedule.
5.7 Support and Service Contracts. Section 5.7 of the Seller Disclosure
Schedule sets forth a true and complete list of all Transferred Contracts
pursuant to which Seller or any of its Subsidiaries is obligated to provide
support, maintenance or other services to third parties following the Existing
Agreement Date, together with the amounts of prepaid fees that are associated
with the executory support, maintenance and other service obligations under
such Transferred Contracts and the portion of such fees attributable to
obligations to be performed subsequent to the Existing Agreement Date (each, a
"Prepaid Service Payment"). Each Prepaid Service Payment is as reflected in the
Books and Records.
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5.8 No Liquidation, Insolvency, Winding-Up
(a) Except as contemplated by this Agreement, no order has been made or
petition presented, or resolution passed by the board of directors or
stockholders of Seller for the dissolution or winding-up of Seller and there
is not outstanding:
(i) any petition or order for the winding-up of Seller;
(ii) any appointment of a receiver over the whole or part of the
undertaking of assets of Seller;
(iii) any petition or order for administration of Seller;
(iv) any voluntary arrangement between Seller and any of its
creditors;
(v) any assignment for the benefit of Seller's creditors or similar
creditor arrangement or remedy;
(vi) any voluntary petition, involuntary petition or order for relief
with respect to the Seller under the Bankruptcy Code, 11 U.S.C. section
101, et. seq.;
(vii) any distress or execution or other process levied in respect of
Seller which remains undischarged; and
(viii) any unfulfilled or unsatisfied judgment or court order against
Seller.
(b) Seller is not now insolvent, and will not be rendered insolvent by
any of the transactions contemplated by this Agreement. As used in this
section, "insolvent" means either of the following:
(i) at fair valuations, the sum of Seller's debts and other
liabilities, including, without limitation, contingent liabilities, is
greater than all of Seller's assets, provided that (A) such assets are
not to include any rights of Seller or any successor to Seller under any
fraudulent transfer, preference or similar theories to recover Seller's
property that was transferred, concealed or removed, and (B) the
valuation of such assets is to assume that the Closing occurs, but
otherwise is to be based on liquidation values of any assets not being
sold to Buyer under this Agreement (assuming a liquidation within 120
days following the Closing), and
(ii) Seller is not generally paying its debts as they come due
(within the meaning of Section 3439 of the California Civil Code).
(c) Upon occurrence of the transfers of property from Seller to Buyer
under this Agreement, Seller will have adequate capital for any business or
transaction in which Seller is or will be engaged.
(d) Seller has not incurred, does not intend to incur, and does not
reasonably believe it will incur debts beyond its ability to pay as such
debts mature or become due.
(e) Seller intends to and will wind-up its business operations in
accordance with applicable law as soon as reasonably practicable after the
Closing consistent with this Agreement and in a manner providing for full
payment to or adequate provision for all creditors. The parties agree that
notwithstanding anything to the contrary herein, the Dissolution (as defined
herein) shall not mandate that Seller effect the dissolution of its
corporate entity in accordance with Delaware law except to the extent that
the failure to do so would have a Material Adverse Effect or would
materially adversely impact Parent or Buyer.
5.9 Restrictions on Business Activities. There is no agreement (not to
compete or otherwise), commitment, judgment, injunction, order or decree to
which Seller or any of its Subsidiaries is a party which has or could
reasonably have the effect of prohibiting the transactions contemplated by this
Agreement, or which could reasonably have a Material Adverse Effect.
5.10 Title to Properties; Absence of Liens and Encumbrances.
(a) Seller does not own any real property.
(b) Seller has good and valid title to or, in the case of leased
properties and assets, valid leasehold interests in, all of the Acquired
Assets, free and clear of any Liens.
(c) None of the Subsidiaries of Seller has, or will as of the Closing
Date have, any right, title or interest in, or to any of the Acquired Assets
or any of the Transferred Contracts.
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5.11 Intellectual Property.
(a) Section 5.11(a) of the Seller Disclosure Schedule lists all
Registered Intellectual Property Rights included among the Transferred
Intellectual Property Rights. All such Registered Intellectual Property
Rights are currently in compliance with formal legal requirements (including
payment of filing, examination and maintenance fees and proofs of use), are
valid (except with respect to pending applications for any patents,
trademarks, or other forms of intellectual property, as to which no
representation or warranty concerning validity is made) and subsisting, and
are not subject to any unpaid maintenance fees or taxes or actions. All such
Registered Intellectual Property Rights have been assigned to Seller and
such assignments have been properly recorded prior to the Closing. There are
no pending proceedings or actions before any court or tribunal (including
the PTO or equivalent authority anywhere in the world) related to any such
Registered Intellectual Property Rights.
(b) Each item of Transferred Intellectual Property Rights embodied in or
relating to the Transferred Technology is free and clear of any Liens.
(c) To the extent that any Transferred Intellectual Property Rights
embodied in or relating to the Transferred Technology were originally owned
or created by or for any third party, including any contractor or employee
of Seller and any predecessor of Seller: (i) Seller has a written agreement
with such third party or parties with respect thereto, pursuant to which
Seller has obtained complete, unencumbered and unrestricted ownership and is
the exclusive owner of, all such Transferred Intellectual Property Rights by
valid assignment or otherwise; and (ii) the assignment by Seller to Buyer
hereunder of such Transferred Intellectual Property Rights will not violate
such third party agreements.
(d) Seller has not transferred ownership of, or granted any license of or
right to use that is in effect as of the Existing Agreement Date, or
authorized the retention of any rights to use, any Transferred Intellectual
Property Right embodied in or relating to the Transferred Technology to any
other Person, except for non-exclusive Object Code end-user licenses, and
non-exclusive end-user licenses to immaterial portions of the Source Code,
granted to customers in the ordinary course of business.
(e) The Transferred Technology delivered to Buyer under this Agreement
includes all Source Code, tools, and other Software used by Seller to, or
necessary to, build, modify, debug and operate the current versions or
releases of the Products in substantially the same manner as Seller did so
prior to the Existing Agreement Date, except for those items licensed to
Seller under the Excluded Contracts and the Non-Transferred Licenses which
Seller is prohibited from providing to Buyer under the Excluded Contracts or
the Non-Transferred Licenses. The Acquired Assets and the Licensed
Intellectual Property, along with the Intellectual Property Rights licensed
under the Excluded Contracts or the Non-Transferred Licenses, are sufficient
to make, use, sell, license, distribute and market the current version or
release of the Products in substantially the same manner as Seller did so
prior to the Existing Agreement Date without infringing or misappropriating
any other Person's Intellectual Property Rights. Seller has the right to
deliver all Software and other materials and information delivered to Buyer
under this Agreement without infringing or misappropriating any other
Person's Intellectual Property Rights.
(f) Seller hereby represents and warrants to Parent and Buyer, only as of
the Closing Date, that Section 5.11(f) of the Seller Disclosure Schedule to
be delivered pursuant to Section 7.2(h) will list all Third Party Software
in the Transferred Technology.
(g) No government funding, facilities of a university, college, other
educational institution or research center or funding from third parties was
used in the development of the Transferred Technology.
(h) To the knowledge of Seller, the making, using, selling, licensing and
distribution of the current version or release of the Products by Seller
does not (i) infringe or misappropriate the Intellectual Property Rights of
any Person, or (ii) constitute unfair competition or trade practices under
the laws of any jurisdiction. Seller has not received written notice from
any Person claiming that the making, using, selling, licensing or
distribution of the current versions or releases of the Products infringes
or misappropriates the
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Intellectual Property Rights of any Person or constitutes unfair competition
or trade practices under the laws of any jurisdiction.
(i) There are no Contracts between Seller and any other Person with
respect to the Acquired Assets, including the Transferred Intellectual
Property Rights, under which there is any pending dispute or (to Seller's
knowledge) threatened dispute regarding the scope of such Contract or
performance under such Contract.
(j) To the knowledge of Seller, no Person is infringing or
misappropriating the Transferred Intellectual Property Rights embodied in or
relating to the Transferred Technology.
(k) Seller has taken all reasonable steps that are required to protect
its rights in the Trade Secrets associated with or related to the
Transferred Technology, and Seller has taken reasonable steps to prevent
misappropriation of any Trade Secrets of any third party.
(l) Except as set forth in Section 5.11(l) of the Disclosure Schedule, no
third party possesses any copy of any Source Code for the Kernel for any
Product. In addition, no third party possesses any copy of any other Source
Code for any Product, other than portions of the Source Code the use of
which by any other Person would not have a Material Adverse Effect.
(m) There is no Third Party Software incorporated in the Kernel for the
current version of any Product.
(n) Seller has and enforces a policy requiring each employee and
consultant of Seller to execute a proprietary rights and confidentiality
agreement substantially in a form that Seller has delivered to Buyer, and
all current and former employees and consultants of Seller or any of its
Subsidiaries who have created or modified in any material respect any of the
Transferred Technology have executed such an agreement, except where the
failure to have obtained such an agreement would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
(o) No Transferred Intellectual Property Rights embodied in or relating
to the Transferred Technology are subject to any proceeding or outstanding
decree, order, judgment, or stipulation that restricts the use, transfer or
licensing thereof or may affect the validity, use, or enforceability
thereof.
(p) To the extent that Seller has distributed or licensed any Product to
an end user pursuant to any form of encryption key, no third party has had
access to any such keys enabling disclosure of such keys to a third party.
5.12 Litigation. There is no action, suit, claim, proceeding or
investigation of any nature pending or (to the knowledge of Seller) threatened
relating to the Products, the Acquired Assets or the Designated Employees as of
the Existing Agreement Date. To the knowledge of Seller, there is no
investigation or other proceeding pending or threatened relating to the
Acquired Assets or the Designated Employees by or before any Governmental
Entity as of the Existing Agreement Date. There are no judgments, orders,
decrees, citations, fines or penalties heretofore assessed against Seller or
any of its Subsidiaries under any foreign, federal, state or local law that
would reasonably have a Material Adverse Effect.
5.13 Brokers' or Finders' Fees. Except as set forth in Section 5.13 of the
Seller Disclosure Schedule, Seller has not incurred, nor will it incur,
directly or indirectly, any liability for brokerage or finders' fees or agents'
commissions or any similar charges in connection with this Agreement or any
transaction contemplated hereby.
5.14 Tax Matters
(a) Tax Returns and Audits.
(i) To the extent failure to do so could reasonably have a Material
Adverse Effect or would materially adversely impact Parent or Buyer,
Seller and each of its Subsidiaries has prepared and timely filed all
required federal, state, local and foreign returns, estimates,
information statements and
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reports ("Returns") relating to any and all Taxes concerning or
attributable to Seller, its Subsidiaries or the operations of Seller and
its Subsidiaries and such Returns are true and correct and have been
completed, in all material respects, in accordance with applicable law.
(ii) To the extent failure to do so could reasonably have a Material
Adverse Effect or would materially adversely impact Parent or Buyer,
Seller and each of its Subsidiaries (A) has paid all Taxes shown to be
due on such returns and (B) has withheld with respect to its employees
all federal, state and foreign income taxes and social security charges
and similar fees, Federal Insurance Contribution Act, Federal
Unemployment Tax Act and other Taxes required to be withheld.
(iii) To the extent failure to do so could reasonably have a Material
Adverse Effect or would materially adversely impact Parent or Buyer,
neither Seller nor any of its Subsidiaries has been delinquent in the
payment of any Tax, nor is there any Tax deficiency outstanding,
assessed or proposed against Seller, nor has Seller executed any waiver
of any statute of limitations on or extending the period for the
assessment or collection of any Tax.
(iv) No audit or other examination of any Return of Seller or any of
its Subsidiaries is presently in progress, nor has Seller or any of its
Subsidiaries been notified in writing of any request for such an audit
or other examination pursuant to which an assessment could reasonably
have a Material Adverse Effect or would materially adversely impact
Parent or Buyer.
(v) Seller is not aware of, and knows no factual basis for the
assertion of any material claim for Taxes for which Buyer would become
liable as a result of the transactions contemplated by this Agreement
and the Collateral Agreements.
5.15 Power of Attorney. There are no outstanding powers of attorney executed
on behalf of Seller in respect of the Acquired Assets except as granted to
Buyer hereunder.
5.16 Compliance with Laws. Seller and each of its Subsidiaries have complied
with, are not in violation of, and have not received any notices of violation
with respect to, any foreign, federal, state or local statute, law or
regulation with respect to the sale and distribution of the Products, or
otherwise with respect to the Acquired Assets, except for any non-compliance or
violations the existence of which would not reasonably be expected,
individually or in the aggregate, to have a Material Adverse Effect.
5.17 Product Warranties. Except for any of the following the existence of
which would not reasonably be expected, individually or in the aggregate, to
have a Material Adverse Effect, (i) each Product manufactured, sold, leased,
licensed or delivered by Seller has been done so in conformity with all
applicable contractual commitments and all express and implied warranties, and
(ii) Seller has no liability for replacement or repair thereof or other damages
in connection therewith.
5.18 Employee Matters.
(a) Pension Plan. Seller has never maintained, established, sponsored,
participated in, or contributed to, any Pension Plan which is subject to
Title IV of ERISA or Section 412 of the Code.
(b) Scheduled Employees. Concurrent with the execution of the Existing
Agreement, Seller delivered to Buyer a written statement that contains the
names of individuals (including dependents) (i) currently receiving COBRA
continuation coverage under any heath plan of Seller, (ii) terminated within
115 days prior to the Existing Agreement Date, (iii) employed by Seller as
of the date immediately preceding the Existing Agreement Date and who will
be terminated in connection with the acquisition, and (iv) who are
Designated Employees.
(c) Multiemployer and Multiple Employer Plans. At no time has Seller
contributed to or been obligated to contribute to any Multiemployer Plan.
Seller has never maintained, established, sponsored, participated in, or
contributed to any multiple employer plan, or to any plan described in
Section 413 of the Code.
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(d) No Post-Employment Obligations. Except as set forth in Section
5.18(d) of the Seller Disclosure Schedule, no Employee Plan provides, or
reflects or represents any liability to provide retiree health to any person
for any reason, except as may be required by COBRA or other applicable
statute.
(e) Effect of Transaction.
(i) Except as set forth on Section 5.18(e) of the Seller Disclosure
Schedule, the execution of this Agreement and the consummation of the
transactions contemplated hereby will not (either alone or upon the
occurrence of any additional or subsequent events) constitute an event
under any Employee Plan or Employment Agreement that will or would
reasonably result in any payment (whether of severance pay or
otherwise), acceleration, forgiveness of indebtedness, vesting,
distribution, increase in benefits or obligation to fund benefits with
respect to any Employee.
(f) Health Care Compliance. Neither Seller nor any ERISA Affiliate is in
violation, in any material respect, of the health care continuation
requirements of COBRA, the requirements of the Family Medical Leave Act of
1993, as amended, the requirements of the Health Insurance Portability and
Accountability Act of 1996, the requirements of the Women's Health and
Cancer Rights Act of 1998, the requirements of the Newborns' and Mothers'
Health Protection Act of 1996, or any amendment to each such act, or any
similar provisions of state law applicable to its Employees.
(g) Employment Matters. Seller: (i) is in compliance in all respects with
all applicable foreign, federal, state and local laws, rules and regulations
respecting employment, employment practices, terms and conditions of
employment and wages and hours, in each case, with respect to Employees;
(ii) has withheld and reported all amounts required by law or by agreement
to be withheld and reported with respect to wages, salaries and other
payments to Employees; (iii) is not liable for any arrears of wages or any
taxes or any penalty for failure to comply with any of the foregoing; and
(iv) is not liable for any payment to any trust or other fund governed by or
maintained by or on behalf of any governmental authority, with respect to
unemployment compensation benefits, social security or other benefits or
obligations for Employees (other than routine payments to be made in the
normal course of business and consistent with past practice).
(h) Labor. No work stoppage or labor strike against Seller is pending or,
to the knowledge of Seller, threatened involving any of the Designated
Employees. Seller does not know of any activities or proceedings of any
labor union to organize any of the Designated Employees. Except as set forth
in Section 5.18(h) of the Seller Disclosure Schedule, there are no actions,
suits, claims, labor disputes or grievances pending, or, to the knowledge of
Seller, threatened relating to any labor, safety or discrimination matters
involving any Designated Employee, including, without limitation, charges of
unfair labor practices or discrimination complaints, which, if adversely
determined, would, individually or in the aggregate, result in any material
liability to Seller. Except as set forth in Section 5.18(h) of the Seller
Disclosure Schedule, Seller is not a party to, or bound by, any collective
bargaining agreement or union contract with respect to any of the Designated
Employees and no collective bargaining agreement is currently being
negotiated by Seller.
5.19 International Employee Plan. Seller does not now, nor has it in the
last two years had the obligation to, maintain, establish, sponsor, participate
in, or contribute to any International Employee Plan.
5.20 Business Changes. From June 30, 2001 through the Existing Agreement
Date, except as otherwise contemplated by this Agreement, or as set forth in
Section 5.20 of the Seller Disclosure Schedule:
(a) There have been no changes in the condition (financial or otherwise),
business, net worth, assets, operations, obligations or liabilities of
Seller which, in the aggregate, have had or may be reasonably expected to
have a Material Adverse Effect.
(b) Seller has not mortgaged, pledged, or otherwise encumbered any of the
Acquired Assets.
(c) Seller has not sold, assigned, licensed, leased, transferred or
conveyed, or committed itself to sell, assign, license, lease, transfer or
convey, any of the Acquired Assets except for non-exclusive licenses entered
into in the ordinary course of business.
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(d) There has been no destruction of, damage to or loss of any of the
Acquired Assets.
(e) There has been no notice of any claim or potential claim of ownership
by any Person other than Seller or its Subsidiaries of the Transferred
Technology, the Transferred Intellectual Property Rights, the Licensed
Intellectual Property Rights, or the Licensed Technology or of infringement
by Buyer or its Subsidiaries of any other Person's Intellectual Property
Rights.
(f) There has been no dispute, proceeding, litigation, arbitration or
mediation pending or (to the knowledge of Seller) threatened against Seller
or any of its Subsidiaries related to the Acquired Assets.
(g) There has been no event or condition of any character that has had or
is reasonably likely to have a Material Adverse Effect.
(h) There has been no agreement by Seller or any of its Subsidiaries or
any employees, agents or affiliates of Seller or its Subsidiaries to do any
of the things described in the preceding clauses (a) through (g) (other than
negotiations with Parent and Buyer and their representatives regarding the
transactions contemplated by this Agreement).
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF PARENT AND BUYER
Except as disclosed in the Disclosure Schedule delivered to Seller on the
Existing Agreement Date (the "Parent Disclosure Schedule"), Parent and Buyer
hereby jointly and severally represent and warrant to Seller, as of the
Existing Agreement Date (except to the extent such representations and
warranties address matters as of a particular date or period, in which case
such representations and warranties are made as of such date or period), as
follows:
6.1 Organization, Good Standing and Qualification. Each of Parent and Buyer
is a corporation duly organized, validly existing, and in good standing under
the laws of Delaware. Buyer is a wholly owned Subsidiary of El Camino
Acquisition Corporation, which is in turn a wholly owned Subsidiary of Parent.
6.2 Authority. Each of Parent and Buyer has all requisite corporate power
and authority to enter into this Agreement and the Collateral Agreements and to
consummate the transactions contemplated hereby and thereby. The execution and
delivery of this Agreement and the Collateral Agreements and the consummation
of the transactions contemplated hereby and thereby have been duly authorized
by all necessary corporate action on the part of Parent and Buyer. This
Agreement and the Collateral Agreements have been duly executed and delivered
by Parent and Buyer and constitute the valid and binding obligations of Parent
and Buyer, enforceable in accordance with their terms, except as such
enforceability may be limited by principles of public policy and subject to the
rules of law governing specific performance, injunctive relief or other
equitable remedies.
6.3 No Conflict. Neither the execution and delivery of this Agreement and
the Collateral Agreements, nor the consummation of the transactions
contemplated hereby and thereby, will conflict with, or result in any violation
of, or default under (with or without notice or lapse of time, or both) (i) any
provision of the certificate of incorporation, as amended, and bylaws, as
amended, of Parent or Buyer, (ii) any Contract to which Parent or Buyer or any
of their respective properties or assets are subject and which has been filed
as an exhibit to Parent's filings under the Securities Act or the Exchange Act,
or (iii) any judgment, order, decree, statute, law, ordinance, rule or
regulation applicable to Parent or Buyer or their respective properties or
assets, except in each case where such conflict, violation or default will not
have a material adverse effect on Parent or Buyer or will not affect the
legality, validity or enforceability of this Agreement or the Collateral
Agreements.
6.4 SEC Filings. Parent has delivered or made available to Seller (through
reference to documents filed by EDGAR or otherwise) accurate and complete
copies of all forms, reports and documents filed by Parent with
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the SEC since March 2, 2000 (the "Parent SEC Reports"), which are all the
forms, reports and documents required to be filed by Parent with the SEC since
such date. As of their respective dates, the Parent SEC Reports (i) were
prepared in accordance and complied in all material respects with the
requirements of the Securities Act, or the Exchange Act, as the case may be,
and the rules and regulations of the SEC thereunder applicable to such Parent
SEC Reports and (ii) did not at the time they were filed contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements therein, in the
light of the circumstances under which they were made, not misleading. None of
Parent's Subsidiaries is required to file any forms, reports or other documents
with the SEC.
6.5 Consents. No consent, waiver, approval, order or authorization of, or
registration, declaration or filing with, any Governmental Entity, or any third
party is required by or with respect to Parent or Buyer in connection with the
execution and delivery of this Agreement and the Collateral Agreements or the
consummation of the transactions contemplated hereby, except for such consents,
waivers, approvals, orders, authorizations, registrations, declarations and
filings which, if not obtained or made, would not have a material adverse
effect on Parent or Buyer.
6.6 Brokers' and Finders' Fees. Neither Parent nor Buyer has incurred, nor
will they incur, directly or indirectly, any liability for brokerage or
finders' fees or agents' commissions or any similar charges in connection with
this Agreement or the transactions contemplated hereby.
ARTICLE 7
COVENANTS AND AGREEMENTS
7.1 Access. During the period commencing on the Existing Agreement Date and
continuing through the earlier of the Closing Date or the termination of this
Agreement, Seller, upon reasonable prior notice from Parent or Buyer to Seller,
and subject to the Confidentiality Agreement, will (a) afford to Buyer and its
representatives, at reasonable times during normal business hours, reasonable
access to the appropriate members of Seller's personnel, Seller's professional
advisors, and Seller's properties, and (b) furnish Buyer and its
representatives with reasonable access to or copies of Transferred Contracts,
relevant Books and Records, and other existing documents and data related to
the Acquired Assets as Buyer may reasonably request (including to enable Buyer
to assess Seller's compliance with its obligations under this Agreement).
Except as otherwise provided herein, no information or knowledge obtained in
any investigation pursuant to this Section 7.1 shall affect or be deemed to
modify any representation or warranty contained herein or the conditions to the
obligations of the parties hereto to consummate the transactions contemplated
hereby.
7.2 Pre-Closing Activities of Seller. Between the Existing Agreement Date
and the earlier of the Closing Date or the termination of this Agreement,
unless otherwise agreed in writing by Parent or Buyer, Seller will:
(a) conduct its business (as it relates to the Acquired Assets) in a
commercially reasonable manner;
(b) pay its debts and Taxes when due, where failure to pay when due would
be reasonably likely to have a Material Adverse Effect;
(c) pay or perform other obligations related to the Acquired Assets,
where failure to pay or perform would be reasonably likely to have a
Material Adverse Effect;
(d) use commercially reasonable, good faith efforts to maintain its
relations and goodwill with suppliers, customers, distributors, licensors,
licensees, landlords, trade creditors, employees, agents and others having
business relationships with Seller relating to the Acquired Assets to the
extent Seller knows or has reason to believe that Buyer intends to have
business relations with such parties with respect to the Acquired Assets
following the Closing;
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(e) keep Buyer reasonably informed concerning material business or
operational matters relating to the Acquired Assets;
(f) use commercially reasonable, good faith efforts to maintain the
Acquired Assets in their current condition, ordinary wear and tear excepted;
(g) use commercially reasonable efforts to identify and notify Buyer of
material Sublicensing Requirements and, upon receipt of Buyer's written
authorization to do so, comply with the Sublicensing Requirements for the
Licensed Intellectual Property specified in Buyer's authorization to the
extent provided in Section 4.1; provided, however, that, with respect to
those Sublicensing Restrictions that require the consent, approval or other
action of any third party, Seller shall only be required to use commercially
reasonable efforts to comply with such Sublicensing Restrictions; and
(h) complete and deliver to Buyer and Parent Section 5.11(f) of the
Seller Disclosure Schedule on or before the Closing Date.
7.3 Conduct Prior to Closing. Except as otherwise expressly permitted by
this Agreement, between the Existing Agreement Date and the earlier of (i) the
Closing Date and (ii) the termination of this Agreement, Seller will not take
any action as a result of which any of the changes or events described in
Section 5.20 of this Agreement would likely or foreseeably occur. In addition,
between the Existing Agreement Date and the earlier of (i) the Closing Date and
(ii) the termination of this Agreement, Seller will not, without the prior
written consent of Parent or Buyer, which consent shall not be unreasonably
withheld:
(a) take any action to materially impair, encumber, or create a Lien
against the Acquired Assets;
(b) except to comply with existing contractual obligations or commitments
or with respect to non-exclusive licenses entered into in the ordinary
course of business consistent with past practice, buy, or enter into any
inbound license agreement with respect to, Third Party Technology or the
Intellectual Property Rights of any third party to be incorporated in or
used in connection with the Products or sell, lease or otherwise transfer or
dispose of, or enter into any outbound license agreement with respect to,
any of the Acquired Assets with any third party;
(c) except to comply with existing contractual obligations or commitments
or with respect to non-exclusive licenses entered into in the ordinary
course of business consistent with past practice, enter into any Contract
relating to (i) the sale or distribution of any Product, (ii) any of the
Acquired Assets, or (iii) any Licensed Intellectual Property (subject to
Section 7.2(g) above);
(d) change pricing or royalties charged to customers or licensees of the
Acquired Assets;
(e) enter into any strategic arrangement or relationship, development or
joint marketing arrangement or agreement relating to the Acquired Assets;
(f) fire, or give notice of termination to, any Designated Employee,
except as permitted under the terms of that certain Funding Agreement
between Buyer and Seller of even date herewith (the "Funding Agreement");
(g) amend or modify, except to the extent required by the terms thereof,
or violate the terms of, any of the Transferred Contracts;
(h) adopt or change any accounting method in respect of Taxes, enter into
any closing agreement, settle any claim or assessment in respect of Taxes,
or consent to any extension or waiver of the limitation period applicable to
any claim or assessment in respect of Taxes, in each case where such action
would reasonably have a Material Adverse Effect; and
(i) agree in writing or otherwise to take any of the actions described in
Sections 7.3(a) through (h) above.
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7.4 Confidentiality. Each of the parties hereto hereby agrees that the
information obtained in any investigation pursuant to Section 7.1, or pursuant
to the negotiation and execution of this Agreement or the effectuation of the
transactions contemplated hereby, shall be governed by the terms of the Mutual
Nondisclosure Agreement between Parent and Seller dated June 22, 2000, as
amended by Amendment Number 1 to such agreement dated June 21, 2001.
7.5 Use of Confidential Information. Notwithstanding anything to the
contrary contained herein or in any other agreement of Seller, including any
agreement between Seller and any employee of Seller, after the Closing, Buyer
shall have the unrestricted, sublicensable and transferable right, and Seller
hereby consents to such rights of Buyer, to use, disclose and exploit in any
manner and without restriction any and all confidential information embodied in
any of the Acquired Assets. To the extent that any Designated Employee may be
bound by any agreement or policy of Seller or any of its Subsidiaries that
would in any way limit or restrict the rights of Buyer to such confidential
information hereunder, Seller shall not assert, enforce or otherwise exercise
its rights under such agreement or policy against any Designated Employee or
Buyer.
7.6 Seller Intellectual Property Covenants. After the Closing, Seller shall
not: (i) transfer or license any Intellectual Property Rights to any third
party; (ii) use, exercise or otherwise exploit any Transferred Technology; or
(iii) disclose any Trade Secrets related to the Transferred Intellectual
Property Rights to any third party. Prior to the Closing, at Seller's request
Seller and Parent shall enter into an escrow agreement with a third party
escrow agent (the "Escrow Agreement") which shall provide that: (1) Seller
shall deposit, with such escrow agent, prior to the Closing, a copy of the
Source Code for the Products (including prior versions thereof) and related
materials or information (the "Escrowed Materials") which Seller reasonably
expects could be necessary for the prosecution or defense of claims or causes
of action by or against Seller for violations of (or that otherwise arise
under) the antitrust laws of any jurisdiction, and (2) Seller shall have the
right to obtain from such escrow agent a copy of the Escrowed Materials that
are reasonably necessary for the prosecution or defense of any such antitrust
claim or cause of action by or against Seller, provided that Seller first
obtains certain protective orders or other reasonable confidentiality
protections as set forth in the Escrow Agreement, and provided further that
Seller shall have the right to use such materials only in connection with such
specific claim or cause of action, and shall return to the escrow agent or
destroy such materials upon the final resolution (including through any
appeals) of such claim or cause of action. Except with respect to Escrowed
Materials released to Seller as described above, after the Closing, upon
written notice from Buyer, Seller shall destroy all copies of Source Code in
Seller's possession or control relating to the current version and all prior
versions of the Product and all copies in Seller's possession or control of
specifications, documentation, and other materials and information relating
thereto.
7.7 Covenant Not to Compete or Solicit.
(a) Subject to the Closing, and without limiting Seller's ability to
prosecute antitrust claims against third parties, beginning on the Closing
Date and ending on the second (2nd) anniversary of the Closing Date (the
"Non-Competition Period"), Seller shall not directly or indirectly (other
than on behalf of Buyer), without the prior written consent of Parent or
Buyer, engage in a Competitive Business Activity (as defined below) anywhere
in the Restricted Territory (as defined below). For all purposes hereof, the
term "Competitive Business Activity" shall mean: (i) engaging in, managing
or directing persons engaged in any business in competition with Parent's
Platform Business; (ii) acquiring or having an ownership interest in any
entity which derives revenues from any business in competition with Parent's
Platform Business (except for ownership of one percent (1%) or less of any
entity whose securities have been registered under the Securities Act, or
Section12 of the Exchange Act); or (iii) participating in the operation,
management or control of any firm, partnership, corporation, entity or
business described in clause (ii) of this sentence. For all purposes hereof,
the term "Restricted Territory" shall mean each and every country, province,
state, city or other political subdivision of the world including those in
which Parent is currently engaged in business or otherwise distributes,
licenses or sells products.
(b) Subject to the Closing, and beginning on the Closing Date and ending
on the second (2nd) anniversary of the Closing Date, Seller shall not
solicit, encourage or take any other action which is intended
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to induce or encourage or could reasonably be expected to have the effect of
inducing or encouraging, any employee of Parent or any Subsidiary of Parent
or any Continuing Employee to terminate his or her employment with Parent or
any Subsidiary of Parent; provided, however, that any general solicitation
of employees not specifically targeted to employees of Parent or any
Subsidiary of Parent or any Continuing Employee shall not be deemed a
violation of this Section 7.7(b).
(c) The covenants contained in Section 7.7(a) shall be construed as a
series of separate covenants, one for each country, province, state, city or
other political subdivision of the Restricted Territory. Except for
geographic coverage, each such separate covenant shall be deemed identical
in terms to the covenant contained in Section 7.7(a). If, in any judicial
proceeding, a court refuses to enforce any of such separate covenants (or
any part thereof), then such unenforceable covenant (or such part) shall be
eliminated from this Agreement to the extent necessary to permit the
remaining separate covenants (or portions thereof) to be enforced. In the
event that the provisions of this Section 7.7(a) are deemed to exceed the
time, geographic or scope limitations permitted by applicable law, then such
provisions shall be reformed to the maximum time, geographic or scope
limitations, as the case may be, permitted by applicable laws.
(d) Seller acknowledges (without in any way representing to Parent or
Buyer any of the following) that (i) the value of the Acquired Assets is an
integral component of the value to Buyer of the transactions contemplated by
this Agreement and is reflected in the value of the Stock Consideration to
be received by Seller, and (ii) Seller's agreement as set forth in Sections
7.7(a) and 7.7(b) is necessary to preserve the value of the Acquired Assets
for Buyer following the Closing. Seller also acknowledges that the
limitations of time, geography and scope of activity agreed to in Section
7.7(a) are reasonable because, among other things, (A) Seller has had unique
access to the Trade Secrets and know-how relating to the Acquired Assets,
including, without limitation, the plans and strategy (and, in particular,
the competitive strategy) relating to the Acquired Assets, and (B) Seller is
receiving significant consideration in connection with the consummation of
the transactions contemplated by this Agreement.
(e) The parties agree that in the event of a breach or threatened breach
by Seller of any of the covenants set forth in Sections 7.7(a) and 7.7(b),
monetary damages alone would be inadequate to fully protect Buyer from, and
compensate Buyer for, the harm caused by such breach or threatened breach.
Accordingly, Seller agrees that if it breaches or threatens breach of any
provision of Sections 7.7(a) and 7.7(b), Buyer shall be entitled to, in
addition to any other right or remedy otherwise available, the right to seek
injunctive relief restraining such breach or threatened breach and to
specific performance of any such provision of Sections 7.7(a) and 7.7(b),
and Buyer shall not be required to post a bond in connection with, or as a
condition to, obtaining such relief before a court of competent
jurisdiction.
7.8 No Solicitation.
(a) From and after the Existing Agreement Date until the earlier of (i)
the Closing Date and (ii) termination of this Agreement pursuant to ARTICLE
10, neither Seller nor any of its Subsidiaries will, nor will they authorize
or permit any of their officers, directors or affiliates to, nor will they
authorize or knowingly permit any of their employees or any investment
banker, attorney or other advisor or representative retained by them to,
directly or indirectly, (i) solicit, initiate, knowingly encourage or induce
the making, submission or announcement of any Acquisition Proposal (as
hereinafter defined), (ii) engage or participate in any discussions or
negotiations regarding, or furnish to any person any non-public information
with respect to, or knowingly take any other action to facilitate or that
could reasonably be expected to lead to, any Acquisition Proposal, (iii)
approve, endorse or recommend any Acquisition Proposal other than in
compliance with Section 7.16(c), or (iv) enter into any letter of intent or
similar document or any contract agreement or commitment contemplating or
otherwise relating to any Acquisition Transaction; provided, however, that
nothing contained in this Section 7.8 shall prohibit the Board of Directors
of Seller from (i) in response to a bona fide written Acquisition Proposal
for a Qualifying Acquisition Transaction not solicited by Seller in
violation of this Section 7.8(a) that the Board of Directors of Seller has
in good faith concluded (based on, among other things, the advice of a
financial advisor of nationally recognized reputation), is reasonably likely
to lead to a Superior Offer, furnishing nonpublic
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information to the party making such Acquisition Proposal, and submitting to
the party making such Acquisition Proposal written questions, the sole
purpose of which is to elicit clarifications as to the material terms of
such Acquisition Proposal so as to enable the Board of Directors of Seller
to make a determination whether to construe such Acquisition Proposal as a
Superior Offer, to the extent that (A) the Board of Directors of Seller
concludes in good faith, after consultation with its outside counsel, that
its fiduciary obligations under applicable law require it to do so, (B) (x)
concurrently with furnishing any such nonpublic information to, or written
questions to such party, Seller gives Buyer written notice of Seller's
intention to furnish nonpublic information, or written questions to such
party and (y) Seller receives from such party an executed confidentiality
agreement containing customary limitations on the use and disclosure of all
nonpublic written and oral information furnished to such party on behalf of
Seller, the terms of which are at least as restrictive as the terms
contained in the Confidentiality Agreement, and (C) contemporaneously with
furnishing any such nonpublic information to such party, Seller furnishes
such nonpublic information to Buyer (to the extent such nonpublic
information has not been previously furnished by Seller to Buyer) and (ii)
in response to a bona fide written Acquisition Proposal not solicited by
Seller in violation of this Section 7.8(a) that constitutes a Superior
Offer, engaging in negotiations with the party making such Acquisition
Proposal to the extent that (A) the Board of Directors of Seller concludes
in good faith, after consultation with its outside counsel, that its
fiduciary obligations under applicable law require it to do so, (B) (x)
concurrently with entering into negotiations with such party, Seller gives
Buyer written notice of Seller's intention to enter into negotiations with
such party and (y) Seller receives from such party an executed
confidentiality agreement containing customary limitations on the use and
disclosure of all nonpublic written and oral information furnished to such
party on behalf of Seller, the terms of which are at least as restrictive as
the terms contained in the Confidentiality Agreement. Seller will
immediately cease any and all existing activities, discussions or
negotiations with any parties conducted heretofore with respect to any
Acquisition Proposal. Without limiting the foregoing, it is understood that
any violation of the restrictions set forth in the preceding two sentences
by any officer or director of Seller shall be deemed to be a breach of this
Section 7.8 by Seller.
(b) For purposes of this Agreement, "Acquisition Proposal" shall mean any
offer or proposal (other than an offer or proposal by Parent or Buyer)
relating to any Acquisition Transaction. For purposes of this Agreement,
"Acquisition Transaction" shall mean any transaction or series of related
transactions involving: (i) any purchase from Seller or acquisition by any
person or "group" (as defined under Section13(d) of the Exchange Act and the
rules and regulations thereunder) of more than a 15% interest in the total
outstanding voting securities of Seller or any tender offer or exchange
offer that if consummated would result in any person or "group" (as defined
under Section13(d) of the Exchange Act and the rules and regulations
thereunder) beneficially owning 15% or more of the total outstanding voting
securities of Seller or any merger, consolidation, business combination or
similar transaction involving Seller; or (ii) any sale, lease (other than in
the ordinary course of business), exchange, transfer, license (other than
non-exclusive licenses in the ordinary course of business), acquisition or
disposition of more than 15% of the assets of Seller or of any of the
Acquired Assets, except for an immaterial (individually or in the aggregate)
portion of such Acquired Assets. In addition, for the purposes of this
Agreement "Qualifying Acquisition Transaction" shall mean any Acquisition
Transaction pursuant to which (i) the stockholders of Seller immediately
preceding such Acquisition Transaction would immediately following such
Acquisition Transaction hold less than fifty percent (50%) of the aggregate
equity interests in the Seller (or if the Seller does not survive such
Acquisition Transaction, in the surviving or resulting entity); or (ii)
Seller would sell all or substantially all of its assets.
(c) In addition to the obligations of Seller set forth in paragraph (a)
of this Section 7.8, Seller as promptly as practicable after learning of any
of the following matters shall advise Buyer in writing of any Acquisition
Proposal or any request for non-public information or inquiry which Seller
reasonably believes would lead to an Acquisition Proposal or to any
Acquisition Transaction the material terms and conditions of such,
Acquisition Proposal, or request inquiry, and the identity of the person or
group making any such request, Acquisition Proposal or inquiry. Seller will
keep Buyer informed as promptly as practicable after
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learning of any of the following matters in all material respects of the
status and details (including material amendments or proposed material
amendments) of any such request, Acquisition Proposal or inquiry.
7.9 Notification of Certain Matters.
(a) Seller shall give prompt notice to Buyer of (i) the occurrence or
non-occurrence of any event, the occurrence or non-occurrence of which is
likely to cause any representation or warranty of Seller contained in this
Agreement to be untrue or inaccurate in any material respect at the Closing,
and (ii) any failure of Seller to comply with or satisfy in any material
respect any covenant or agreement required to be complied with or satisfied
by it hereunder, in either case such that the conditions set forth in
Section 8.2(a) might reasonably not be satisfied by the End Date; provided,
however, that the delivery of any notice pursuant to this Section 7.9(a)
shall not (a) limit or otherwise affect any remedies available to the party
receiving such notice or (b) constitute an acknowledgment or admission of a
breach of this Agreement. No disclosure by Seller pursuant to this Section
7.9(a), however, shall be deemed to amend or supplement the Seller
Disclosure Schedule or prevent or cure any misrepresentations, breach of
warranty or breach of covenant by Seller hereunder.
(b) Parent or Buyer shall give prompt notice to Seller of (i) the
occurrence or non-occurrence of any event, the occurrence or non-occurrence
of which is likely to cause any representation or warranty of Parent or
Buyer contained in this Agreement to be untrue or inaccurate in any material
respect at the Closing, and (ii) any failure of Parent or Buyer to comply
with or satisfy in any material respect any covenant, condition or agreement
required to be complied with or satisfied by it hereunder, in either case
such that the conditions set forth in Section 8.3(a) might reasonably not be
satisfied by the End Date; provided, however, that the delivery of any
notice pursuant to this Section 7.9(b) shall not (a) limit or otherwise
affect any remedies available to Seller, or (b) constitute an acknowledgment
or admission by Parent or Buyer of a breach of this Agreement. No disclosure
by Parent or Buyer pursuant to this Section 7.9(b), however, shall be deemed
to amend or supplement the Buyer Disclosure Schedule or prevent or cure any
misrepresentations, breach of warranty or breach of covenant by Parent or
Buyer hereunder.
7.10 New Employment Arrangements. Parent has offered each person who is a
Designated Employee "at-will" employment with Parent, to be effective as of the
Closing Date, subject to proof evidencing a legal right to work in his or her
country of current employment. Such "at-will" employment arrangements have been
set forth in offer letters based on Parent's standard form delivered to the
Designated Employees prior to the Existing Agreement Date (each, an "Offer
Letter"), copies of which have been provided to Seller. At least seven of the
Key Employees executed an Offer Letter prior to or concurrent with the
execution of the Existing Agreement, which Offer Letters shall be effective as
of the Closing Date. Each employee of Seller who becomes an employee of Parent
after the Closing Date shall be referred to hereafter as a "Continuing
Employee." Continuing Employees shall be eligible to receive benefits
consistent with Parent's standard human resources policies. In furtherance of
the foregoing, at the Closing Seller shall terminate all employment agreements
and other arrangements with any Continuing Employees who have accepted
employment with Parent, and waive any non-competition agreements and any duty
of confidentiality owed to Seller by any such Continuing Employee, effective as
of the Closing Date.
7.11 Public Disclosure. Except as may be required by law or any listing
agreement with a national securities exchange, no party shall issue any
statement or communication to any third party (other than their respective
agents) regarding the subject matter of this Agreement or the transactions
contemplated hereby, including, if applicable, the termination of this
Agreement and the reasons therefor, without the consent of the other party,
which consent shall not be unreasonably withheld. Immediately following the
execution of the Existing Agreement, each of Parent and Seller issued a press
release announcing the execution of the Existing Agreement and the transactions
contemplated thereby, and each of Parent and Seller shall be entitled, in its
discretion, to file a current report with the SEC disclosing the foregoing
matters.
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7.12 Consents. Seller shall use commercially reasonable efforts to obtain
the consents, waivers and approvals under any of the Transferred Contracts or
under any contractual restrictions relating to the Tangible Assets that are
necessary to permit the transfer of such Transferred Contracts or Tangible
Assets to Buyer as may be required in connection with this Agreement, as well
as any consents that may be necessary to permit the transfer to Buyer of any
Supplemental Transferred Contracts. Buyer shall reasonably cooperate in
Seller's efforts to obtain such consents, waivers and approvals.
7.13 COBRA Continuation Coverage. Seller agrees and acknowledges that the
selling group (as defined in Treasury Regulation Section 54.4980B-9, Q&A-3(a))
of which it is a part (the "Selling Group") will continue to offer a group
health plan to employees of Seller after the Closing Date and, accordingly,
that Seller and the Selling Group shall be solely responsible for providing
continuation coverage under COBRA to those individuals who are M&A qualified
beneficiaries (as defined in Treasury Regulation Section 54.4980B-9, Q&A-4(a))
with respect to the transactions contemplated by this Agreement (collectively,
the "M&A Qualified Beneficiaries"). Seller further agrees and acknowledges that
in the event that the Selling Group ceases to provide any group health plan to
any employee prior to the expiration of the continuation coverage period for
all M&A Qualified Beneficiaries (pursuant to Treasury Regulation Section
54.4980B-9, Q&A-8(c)), then Seller shall provide Buyer with (i) written notice
of such cessation as far in advance of such cessation as is reasonably
practicable (and, in any event, at least thirty (30) days prior to such
cessation), and (ii) all information necessary or appropriate for Purchaser to
offer continuation coverage to such M&A Qualified Beneficiaries.
7.14 Prepaid Service Payment Update. Seller shall prepare and deliver, at
least three(3) business days prior to the Closing Date, an updated Section 5.7
of the Seller Disclosure Schedule estimated as of the Closing Date (the
"Prepaid Service Payment Update"), including an update to each Prepaid Service
Payment contained thereon, that has been prepared on a basis consistent with
Section 5.7 of the Seller Disclosure Schedule delivered on the Existing
Agreement Date.
7.15 Registration Statement.
(a) As promptly as practicable after the execution of this Agreement,
Seller will prepare a proxy statement with respect to the transactions
contemplated by this Agreement (the "Proxy Statement/Prospectus") and Parent
shall prepare and file with the SEC a registration statement on Form S-4
with respect to the registration of the Stock Consideration (the "Form S-4
Registration Statement"), in which the Proxy Statement/Prospectus will be
included as a prospectus. Each of Parent and Seller will use all reasonable
efforts to (i) cause the Form S-4 Registration Statement and the Proxy
Statement/Prospectus to comply with the rules and regulations promulgated by
the SEC, (ii) respond promptly to any comments of the SEC, and (iii) have
the Form S-4 Registration Statement declared effective under the Securities
Act as promptly as practicable after it is filed with the SEC. As promptly
as practicable after the effective date of the Form S-4 Registration
Statement, Seller shall cause the Proxy Statement/Prospectus to be mailed to
the stockholders of Seller. Each of the Parent and Seller will notify the
other promptly upon the receipt of any comments from the SEC or its staff or
any other government officials in connection with any filing made pursuant
hereto and of any request by the SEC or its staff or any other government
officials for amendments or supplements to the Form S-4 Registration
Statement or the Proxy Statement/Prospectus or for additional information.
Each of the Parent and Seller will supply the other with copies of all
correspondence between such party or any of its representatives, on the one
hand, and the SEC, or its staff or any other government officials, on the
other hand, with respect to the Form S-4 Registration Statement or the Proxy
Statement/Prospectus. Each party will cause all documents that it is
responsible for filing with the SEC or other regulatory authorities under
this Section 7.15 to comply in all material respects with all applicable
requirements of law and the rules and regulations promulgated thereunder.
Whenever any event occurs that is required to be set forth in an amendment
or supplement to the Form S-4 Registration Statement or the Proxy
Statement/Prospectus, each of Parent and Seller will promptly inform the
other of such occurrence and cooperate in filing with the SEC or its staff
or any other government officials, or mailing to stockholders of Seller,
such amendment or supplement. No amendment or supplement to the Form S-4
Registration Statement or the Proxy Statement/Prospectus shall be made
without the approval of Parent and
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Seller, which approval shall not be unreasonably withheld or delayed. In the
event that, at any time prior to the effectiveness of the Form S-4
Registration Statement under the Securities Act, the SEC shall take the
position that Form S-4 is not available or is otherwise inappropriate with
respect to the registration of the Stock Consideration, (i) Parent shall
issue the Stock Consideration hereunder pursuant to the Resale Registration
Statement as provided in Section 7.15(b), (ii) the parties shall comply with
Section 7.15(b) and (iii) Parent shall use commercially reasonable efforts
to seek a waiver from Foothill Capital Corporation to enable Parent to make
the Cash Loan in accordance with Section 7.15(c)(the "Waiver").
(b) In the event that, at any time prior to the effectiveness of the Form
S-4 Registration Statement under the Securities Act, the SEC shall take the
position that Form S-4 is not available or is otherwise inappropriate with
respect to the registration of the Stock Consideration, Parent shall, at
Parent's own expense, file with the SEC promptly (and in any event not more
than two business days) following the Closing, a resale registration
statement on Form S-3 (the "Resale Registration Statement") under the
Securities Act to provide for the resale by Seller of such number of shares
of Parent's common stock as may be required to be issued to Seller in
accordance with the last sentence of this clause (b), and will use
commercially reasonable efforts to cause such Resale Registration Statement
to become effective as promptly as reasonably practicable thereafter;
provided, however, that Parent will not be required to cause such Resale
Registration Statement to become effective until at least one (1) Business
Day after Parent publicly discloses operating results from its most recently
ended fiscal quarter. Parent will use its reasonable best efforts to keep
such Resale Registration Statement effective for a period of thirty (30)
days after such Resale Registration Statement becomes effective; provided,
however, that at any time after fifteen (15) days after the SEC shall have
declared the Resale Registration Statement effective, Parent may suspend the
use of the Resale Registration Statement beginning on the fifteenth (15th)
day of the last month prior to the end of each fiscal quarter of Parent and
ending one (1) business day after Parent publicly discloses operating
results from such fiscal quarter, in keeping with the black-out periods in
Parent's standard stock trading policy, and during any other black-out
period designated by Parent under Parent's standard stock trading policy;
provided, however, that in no event shall Parent suspend the effectiveness
of the Resale Registration Statement for more than 60 consecutive days.
Seller shall, on or prior to the Closing Date, complete a selling
stockholder questionnaire containing customary investment representations in
such form as may be reasonably provided by Parent not later than the tenth
(10th) day prior to the Closing Date. In the event that Seller shall have
failed to furnish such completed questionnaire to Parent on or prior to the
Closing Date, Parent will be entitled, in its reasonable discretion, to (i)
defer the filing of the Resale Registration Statement until the earlier to
occur of the tenth (10th) day after Seller will have furnished such
information or the thirtieth (30th) day after such Resale Registration
Statement is otherwise required to filed pursuant to this Section 7.15(b).
In the event that Parent shall file the Resale Registration Statement, and
Seller shall not have otherwise disposed of the Stock Consideration prior to
the effectiveness of the Resale Registration Statement, the Stock
Consideration shall be increased or decreased so that Seller shall receive
that number of shares of Parent's common stock, rounded up or down to the
nearest number of whole shares (with 0.5 being rounded up) equal to the
quotient determined by dividing (A) $11,000,000 minus the Adjustment Amount,
by (B) the opening price of Parent's common stock as quoted on the Nasdaq
National Market on the first trading day following the declaration of
effectiveness of the Resale Registration Statement.
(c) Provided that Parent obtains the Waiver, (i) if the Resale
Registration Statement is not declared effective by the SEC on or prior to
the 15th day after the Closing Date, Parent shall immediately make a loan to
Seller of $5,500,000 in cash, and (ii) if the Resale Registration Statement
is not declared effective by the SEC on or prior to the 30th day after the
Closing Date, Parent shall immediately make a second loan to Seller of
$5,500,000 in cash (collectively, the "Cash Loans"). The Cash Loans shall
not bear any interest. Repayment of each Cash Loan shall be secured by a
pledge of the Stock Consideration, and Seller and Parent agree to enter into
a promissory note and security agreement containing customary and reasonable
terms and conditions relating to such Cash Loan. The Cash Advances shall be
repayable at any time by Seller, without interest or penalty. In the event
that Buyer makes the Cash Loan, Seller shall be obligated to sell the Stock
Consideration promptly (but, in any event, within two business days)
following the
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effectiveness of the Resale Registration Statement and simultaneously repay
the Cash Loan with the proceeds of such sale.
(d) In the event that the SEC shall take the position, at any time prior
to the effectiveness of the Form S-4 Registration Statement under the
Securities Act, that Form S-4 is not available or is otherwise inappropriate
with respect to the registration of the Stock Consideration and the Form S-4
Registration Statement shall not have been declared effective under the
Securities Act by the Closing, the Stock Consideration issued to Seller at
Closing shall constitute "restricted securities" within the meaning of Rule
144 of the Securities Act and will be issued in a private placement
transaction in reliance upon the exemption from the registration and
prospectus delivery requirements of Section 5 of the Securities Act afforded
by Section 4(2) of the Securities Act and Regulation D promulgated
thereunder and pending the effectiveness of the Registration Statement, will
be subject to the following legend to identify such privately placed shares
as being "restricted securities" under the Securities Act, to comply with
foreign, provincial, state and federal securities laws and to notice the
restrictions on transfer of such shares:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR
INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "SECURITIES ACT"). THESE SECURITIES MAY NOT BE
SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS THERE IS (A) AN
EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT COVERING SUCH
SECURITIES, OR (B) A VALID EXEMPTION THEREFROM AND THE CORPORATION
RECEIVES AN OPINION OF COUNSEL FOR THE HOLDER OF THESE SECURITIES
REASONABLY SATISFACTORY TO THE CORPORATION, STATING THAT SUCH SALE,
TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE REGISTRATION
AND PROSPECTUS DELIVERY REQUIREMENTS OF THE SECURITIES ACT."
7.16 Meeting of Seller's Stockholders
(a) Seller will take all action necessary in accordance with Delaware law
and its certificate of incorporation and bylaws to convene a meeting (the
"Seller Stockholders' Meeting") of Seller's stockholders to consider
adoption and approval of this Agreement and the dissolution or winding-up of
Seller's business after the Closing in a manner providing for full payment
to or adequate provision for creditors in advance of any distribution to
Seller's stockholders (the "Dissolution") to be held as promptly as
practicable after the Form S-4 Registration Statement is declared effective
under the Securities Act or, in the event that the SEC shall take the
position, at any time prior to the effectiveness of the Form S-4
Registration Statement under the Securities Act, that Form S-4 is not
available or is otherwise inappropriate with respect to the registration of
the Stock Consideration, within 45 days after Seller is notified of the
SEC's position. Subject to Section 7.16(c), Seller will use its commercially
reasonable efforts to solicit from its stockholders proxies in favor of the
adoption and approval of this Agreement and the Dissolution and to take all
other action necessary or advisable to secure the vote or consent of its
stockholders required by Delaware law in favor of such matters.
Notwithstanding anything to the contrary contained in this Agreement, Seller
may adjourn or postpone the Seller Stockholders' Meeting to the extent
necessary to ensure that any necessary supplement or amendment to the Proxy
Statement/Prospectus is provided to Seller's stockholders in advance of a
vote on this Agreement and the Dissolution or, if as of the time for which
Seller Stockholders' Meeting is originally scheduled (as set forth in the
Proxy Statement/Prospectus) there are insufficient shares of Seller's common
stock represented (either in person or by proxy) to constitute a quorum
necessary to conduct the business of the Seller Stockholders' Meeting.
Seller shall ensure that Seller Stockholders' Meeting is called, noticed,
convened, held and conducted, and that all proxies solicited by Seller in
connection with Seller Stockholders' Meeting are solicited, in compliance
with the Delaware law, Seller's certificate of incorporation and bylaws, the
rules of Nasdaq and all other applicable legal requirements. Seller's
obligation to call, give notice of, convene and hold the Seller
Stockholders' Meeting in accordance with this Section 7.16(a) shall not be
limited to or otherwise affected by the commencement, disclosure,
announcement or submission to Seller of any Acquisition Proposal (as defined
in Section 7.8), or by any
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withdrawal, amendment or modification of the recommendation of the Board of
Directors of Seller with respect to this Agreement and the Dissolution.
(b) Subject to Section 7.16(c): (i) the Board of Directors of Seller
shall recommend that Seller's stockholders vote in favor of the adoption and
approval of this Agreement and the approval of the Dissolution at the Seller
Stockholders' Meeting; (ii) the Proxy Statement/Prospectus shall include a
statement to the effect that the Board of Directors of Seller has
recommended that Seller's stockholders vote in favor of the adoption and
approval of this Agreement and the Dissolution at the Seller Stockholders'
Meeting; and (iii) neither the Board of Directors of Seller nor any
committee thereof shall withdraw, amend or modify, or propose or resolve to
withdraw, amend or modify in a manner adverse to Buyer, the recommendation
of the Board of Directors of Seller that Seller's stockholders vote in favor
of the adoption and approval of this Agreement and the approval of the
Dissolution.
(c) Nothing in this Agreement shall prevent the Board of Directors of
Seller from withholding, withdrawing, amending or modifying its
recommendation in favor of the adoption and approval of this Agreement and
the approval of the Dissolution if (i) a Superior Offer (as defined below)
is made to Seller and is not withdrawn, (ii) Seller shall have provided
written notice to Buyer (a "Notice of Superior Offer") advising Buyer that
Seller has received a Superior Offer, specifying the material terms and
conditions of such Superior Offer and identifying the person or entity
making such Superior Offer, (iii) Buyer shall not have, within five (5)
business days of Buyer's receipt of the Notice of Superior Offer, made an
offer that the Board of Directors of Seller by a majority vote determines in
its good faith judgment (based on, among other things, the advice of a
financial adviser of nationally recognized reputation) to be at least as
favorable to Seller's stockholders as such Superior Offer (it being agreed
that Board of Directors of Seller shall convene a meeting to consider any
such offer by Buyer promptly following the receipt thereof), (iv) the Board
of Directors of Seller concludes in good faith, after consultation with its
outside counsel, that, in light of such Superior Offer, the withholding,
withdrawal, amendment or modification of such recommendation is required in
order for the Board of Directors of Seller to comply with its fiduciary
obligations to Seller's stockholders under applicable law and (v) neither
Seller nor any of its representatives shall have violated any of the
restrictions set forth in Section 7.8 or this Section 7.16 in connection
with such Superior Offer. Seller shall provide Buyer with at least three
business days' prior notice (or such lesser prior notice as provided to the
members of Seller's Board of Directors) of any meeting of Seller's Board of
Directors at which Seller's Board of Directors is reasonably expected to
consider any Acquisition Transaction (as defined below). Nothing contained
in this Section shall limit Seller's obligation to hold and convene the
Seller Stockholders' Meeting (regardless of whether the recommendation of
the Board of Directors of Seller shall have been withdrawn, amended or
modified). For purposes of this Agreement "Superior Offer" shall mean a bona
fide written offer not solicited by Seller in violation of Section 7.8(a) to
acquire, directly or indirectly, including pursuant to a tender offer,
exchange offer, merger, consolidation, business combination,
recapitalization, liquidation, dissolution or similar transaction, for
consideration consisting of cash or securities, either (x) a
majority-in-interest of the total outstanding voting securities of Seller,
if as a result of such transaction, the stockholders of Seller immediately
preceding such transaction would hold less than fifty percent (50%) of the
equity interest in the surviving corporation or resulting entity of such
transaction or (y) all or substantially all the assets of Seller, on terms
that the Board of Directors of Seller determines, in its good faith judgment
(based on, among other things, the advice of a financial adviser of
nationally recognized reputation) to be more favorable to Seller's
stockholders than the terms of the transaction contemplated by this
Agreement and is reasonably capable of being consummated; provided, however,
that any such offer shall not be deemed to be a "Superior Offer" if any
financing required to consummate the transaction contemplated by such offer
is not committed and is not likely in the judgment of Seller's Board of
Directors to be obtained by the entity making such Acquisition Proposal on a
timely basis.
(d) Nothing contained in this Agreement shall prohibit Seller or its
Board of Directors from taking and disclosing to its stockholders a position
contemplated by Rules14d-9 and 14e-2(a) promulgated under the Exchange Act
with respect to a Superior Offer; provided, however, that the content of any
such disclosure shall not be inconsistent with the terms of this Agreement.
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7.17 Reasonable Efforts. Subject to the terms and conditions provided in
this Agreement, each of the parties hereto shall use commercially reasonable
efforts to take promptly, or cause to be taken, all actions, and to do
promptly, or cause to be done, all things necessary, proper or advisable under
applicable laws and regulations to consummate and make effective the
transactions contemplated hereby, to obtain all necessary waivers, consents and
approvals and to effect all necessary registrations and filings and to remove
any injunctions or other impediments or delays, legal or otherwise, in order to
consummate and make effective the transactions contemplated by this Agreement
for the purpose of securing to the parties hereto the benefits contemplated by
this Agreement; provided that no party to this Agreement shall be required to
agree to any divestiture of shares of capital stock or of any business, assets
or property of Buyer or its Subsidiaries or affiliates or of Seller, as the
case may be, or the imposition of any material limitation on the ability of any
of them to conduct their businesses or to own or exercise control of such
assets, properties and stock.
7.18 Change of Control Agreements. Upon the written request of Buyer, Seller
shall take commercially reasonable actions to have any Continuing Employee
waive any right under any change of control agreement with Seller that, if not
waived, would reasonably be expected to have the effect of providing such
Continuing Employee in the future with similar rights in connection with any
future change of control of Parent or Buyer.
7.19 Post Closing Tax Covenants.
(a) Subject to Section 7.19(c) below, Seller and its Subsidiaries will be
responsible for the preparation and filing of all Tax Returns of Seller and
its Subsidiaries (including Tax Returns required to be filed after the
Closing Date) to the extent such Tax Returns include or relate to the use or
ownership of the Acquired Assets by Seller or any of its Subsidiaries, or to
sales, use and employment taxes. The Tax Returns of Seller and its
Subsidiaries to the extent they relate to the Acquired Assets or to sales,
use and employment taxes shall be true, complete and correct and prepared in
accordance with applicable law in all material respects. Seller and its
Subsidiaries will be responsible for and make all payments of Taxes shown to
be due on such Tax Returns to the extent they relate to the Acquired Assets
or to sales, use and employment taxes.
(b) Buyer will be responsible for the preparation and filing of all Tax
Returns it is required to file with respect to Buyer's ownership or use of
the Acquired Assets attributable to taxable periods (or portions thereof)
commencing on or after the Closing Date. Buyer's Tax Returns, to the extent
they related to the Acquired Assets, shall be true, complete and correct and
prepared in accordance with applicable law in all material respects. Buyer
will make all payments of Taxes shown to be due on such Tax Returns to the
extent they relate to the Acquired Assets.
(c) In the case of any real or personal property taxes (or other similar
Taxes) attributable to the Acquired Assets which returns cover a taxable
period commencing before the Closing Date and ending thereafter, Buyer shall
prepare such returns and make all payments required with respect to any such
return; provided, however, Seller will promptly reimburse Buyer upon receipt
of a copy of the filed Tax return to the extent any payment made by Buyer
relates to that portion of the taxable period ending on or before the
Closing Date which amount shall be determined and prorated on a per diem
basis.
(d) To the extent relevant to the Acquired Assets, each party shall (i)
provide the other with such assistance as may reasonably be required in
connection with the preparation of any Tax Return and the conduct of any
audit or other examination by any taxing authority or in connection with
judicial or administrative proceedings relating to any liability for Taxes
and (ii) retain and provide the other with all records or other information
that may be relevant to the preparation of any Tax Returns, or the conduct
of any audit or examination, or other proceeding relating to Taxes. Seller
and its Subsidiaries shall retain all documents, including prior years' Tax
Returns, supporting work schedules and other records or information with
respect to all sales, use and employment tax returns and, absent the receipt
by Seller or any of its Subsidiaries of the relevant Sales Tax Certificates,
shall not destroy or otherwise dispose of any such records for six (6) years
after closing without the prior written consent of Buyer or Parent.
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(e) On or before September 14, 2001, Seller shall file or cause to be
filed properly completed applications or other appropriate forms of request
with (i) California's Employment Development Department (or any other
appropriate or analogous governmental agency) to obtain a certificate of
release as authorized in, and pursuant to, California's Unemployment
Insurance Code sections 1731 through and including 1734, and, to the extent
available under analogous law, a certificate of release or payment pursuant
to the law of Washington state (the "Employment Tax Certificates") and (ii)
California's State Board of Equalization to obtain a certificate of receipt
of payment of all sales and use taxes as authorized in and pursuant to
California Revenue and Taxation Code sections 6811 through and including
6814 and, to the extent available under analogous law, a certificate of
payment pursuant to the law of Washington state (the "Sales and Use Tax
Certificates"). The Employment Tax Certificates and the Sales and Use Tax
Certificates are collectively referred to as the "State Tax Certificates".
7.20 Employee Withholding. Seller shall prepare and furnish to Continuing
Employees a Form W-2 which shall reflect all wages and compensation paid to
Continuing Employees for that portion of the calendar year in which the Closing
Date occurs during which the Continuing Employees were employed by Seller.
Seller shall furnish to Parent the Forms W-4 and W-5 of each Continuing
Employee. Parent shall send to the appropriate Social Security Administration
office a duly completed Form W-3 and accompanying copies of the duly completed
Forms W-2. It is the intent of the parties hereunder that the obligations of
Parent and Seller under this Section 7.20 shall be carried out in accordance
with Section 5 of Revenue Procedure 96-60.
7.21 Termination of Compaq Agreement. Prior to September 19, 2001, Seller
shall deliver a notice of termination to Compaq Computer Corporation in
accordance with Section 14.1 of the Web Appliance OEM License and Distribution
Agreement between Seller and Compaq. Seller shall use commercially reasonable
efforts to obtain the consent of Compaq to terminate all maintenance and other
obligations that continue beyond the end of the term. Buyer shall reasonably
cooperate in Seller's efforts to obtain such consent.
7.22 Additional Documents and Further Assurances. Each party hereto, at the
request of another party hereto, shall execute and deliver such other
instruments and do and perform such other acts and things as may be reasonably
necessary or desirable for effecting the consummation of this Agreement and the
transactions contemplated hereby. Without limiting the foregoing, at any time
or from time to time after the Closing, at Buyer's request and expense, Seller
shall at the expense of Buyer: (i) execute and deliver to Buyer such other
instruments of sale, transfer, conveyance, assignment and confirmation; (ii)
provide such materials and information; (iii) take such other actions, as Buyer
may reasonably deem necessary or desirable in order effectively to transfer,
convey and assign to Buyer, to confirm Buyer's title to, all of the Acquired
Assets, and, to the full extent permitted by law, to put Buyer in actual
possession and operating control of the Acquired Assets; and (iv) provide
reasonable assistance and information in connection with the filing,
prosecution and enforcement of the Transferred Intellectual Property Rights. In
the event Seller is unable or unwilling to execute any document described in
clause (i) above, Seller hereby appoints Buyer as its attorney-in-fact to
execute such documents on its behalf. Such appointment shall be deemed a power
coupled with an interest and is therefore irrevocable. Buyer shall only
exercise such power if Seller fails to execute the necessary document within
thirty (30) business days of Buyer's written request to do so.
7.23 Disclosure by Seller. None of the information supplied or to be
supplied by or on behalf of Seller for inclusion or incorporation by reference
in the Form S-4 Registration Statement or the Resale Registration Statement, if
applicable, will, at the time such documents are filed with the SEC or at the
time either the Form S-4 Registration Statement or the Resale Registration
Statement, if applicable, becomes effective under the Securities Act, contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary in order to make the statements
therein, in the light of the circumstances under which they are made, not
misleading. None of the information supplied or to be supplied by or on behalf
of Seller for inclusion or incorporation by reference in the Proxy
Statement/Prospectus to be filed with the SEC, will, at the time the Proxy
Statement/Prospectus is mailed to the stockholders of Seller, or at the time of
the Seller Stockholders' Meeting, contain any untrue statement of a material
fact or omit to state any material fact required
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to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading. The
Proxy Statement/Prospectus will comply as to form in all material respects with
the provisions of the Exchange Act and the rules and regulations promulgated by
the SEC thereunder, except that no representation or warranty is made by Seller
with respect to statements made or incorporated by reference therein based on
information supplied by Parent or Buyer for inclusion or incorporation by
reference in the Proxy Statement/Prospectus.
7.24 Disclosure by Buyer or Parent. None of the information supplied or to
be supplied by or on behalf of Parent or Buyer for inclusion or incorporation
by reference in the Form S-4 Registration Statement or the Resale Registration
Statement, if applicable, will, at the time such documents are filed with the
SEC or at the time either the Form S-4 Registration Statement or the Resale
Registration Statement becomes effective under the Securities Act, contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary in order to make the statements therein, in
the light of the circumstances under which they are made, not misleading. None
of the information supplied or to be supplied by or on behalf of Parent or
Buyer for inclusion or incorporation by reference in the Proxy
Statement/Prospectus to be filed with the SEC, will, at the time the Proxy
Statement/Prospectus is mailed to the stockholders of Seller, or at the time of
the Seller Stockholders' Meeting, contain any untrue statement of a material
fact or omit to state any material fact required to be stated therein or
necessary in order to make the statements therein, in the light of the
circumstances under which they are made, not misleading. The Form S-4
Registration Statement and the Resale Registration Statement, if applicable,
will comply as to form in all material respects with the provisions of the
Securities Act and the rules and regulations promulgated by the SEC thereunder,
except that no representation or warranty is made by Parent or Buyer with
respect to statements made or incorporated by reference therein based on
information supplied by Seller for inclusion or incorporation by reference in
the Form S-4 Registration Statement or the Resale Registration Statement, if
applicable.
7.25 Sublicensing Requirements. To the extent that Seller was not able prior
to the Closing Date to identify all material Sublicensing Requirements or, upon
receipt of Buyer's written authorization to do so, to comply with the
Sublicensing Requirements for the Licensed Intellectual Property specified in
Buyer's authorization, Seller shall do so until the earlier of (a) six (6)
months after the Closing Date or (b) the date on which Seller files its
certificate of dissolution with the Secretary of State of the State of
Delaware; provided, however, that, with respect to those Sublicensing
Restrictions that require the consent, approval or other action of any third
party, Seller shall only be required to use commercially reasonable efforts to
comply with such Sublicensing Restrictions.
7.26 Supplemental Transferred Contracts. At any time prior to the Closing,
if Buyer elects, in its sole discretion, to assume one or more additional
Eligible Contracts of Seller by delivering a written notice of such election to
Seller, Seller agrees that such an Eligible Contract shall thereafter be
considered a Transferred Contract hereunder, unless Seller reasonably
determines in good faith that Seller cannot transfer such Eligible Contract to
Buyer due to a change in circumstances between the Existing Agreement Date and
the date of Buyer's written notice. Seller shall deliver true and complete
copies of all Supplemental Transferred Contracts to Buyer.
ARTICLE 8
CONDITIONS TO THE CLOSING
8.1 Conditions to Obligations of Each Party. The respective obligations of
Parent, Buyer and Seller to effect the transactions contemplated hereby shall
be subject to the satisfaction, at or prior to the Closing, of the following
conditions, any of which may be waived, in writing, by Parent and Buyer (on the
one hand) and Seller (on the other hand):
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(a) No Order. No Governmental Entity shall have enacted, issued,
promulgated, enforced or entered any statute, rule, regulation, executive
order, decree, injunction or other order (whether temporary, preliminary or
permanent) which is in effect and which has the effect of making the
transactions contemplated hereby illegal or otherwise prohibiting the
consummation of the transactions contemplated hereby.
(b) No Injunctions or Restraints; Illegality. No temporary restraining
order, preliminary or permanent injunction or other order issued by any
court of competent jurisdiction or other legal restraint or prohibition
preventing the consummation of the transactions contemplated hereby shall be
in effect, nor shall any proceeding brought by a Governmental Entity seeking
any of the foregoing be pending.
(c) Stockholder Approval. This Agreement shall have been approved and
adopted, and the Dissolution shall have been duly approved, by the requisite
vote under applicable law and the certificate of incorporation of Seller by
the stockholders of Seller.
(d) Governmental Approval. Any governmental or regulatory notices,
approvals or other requirements necessary to consummate the transactions
contemplated hereby and shall have been given, obtained or complied with, as
applicable.
8.2 Additional Conditions to the Obligations of Parent and Buyer. The
obligations of Parent and Buyer to consummate the transactions contemplated
hereby shall be subject to the satisfaction at or prior to the Closing of each
of the following conditions, any of which may be waived, in writing,
exclusively by Parent and Buyer:
(a) Representations, Warranties and Covenants. (i) The representations
and warranties of Seller in this Agreement shall have been true and correct
on the date they were made and shall be true and correct on and as of the
Closing Date as though such representations and warranties were made on and
as of such date, except in either case to the extent that the aggregate of
all breaches thereof has not had and would not reasonably be expected to
have a Material Adverse Effect (without giving effect to any limitation as
to "materiality" or "Material Adverse Effect" set forth therein) and except
to the extent such representations and warranties address matters as of a
particular date or period, in which case such representations and warranties
shall be true and correct as of such date or period (and in any event,
subject to the foregoing Material Adverse Effect qualification), and (ii)
Seller shall have performed and complied in all material respects with all
covenants and obligations under this Agreement required to be performed and
complied with by Seller as of the Closing.
(b) Litigation. There shall be no action or proceeding of any nature
pending or threatened with respect to the Acquired Assets against Seller or
any of its Subsidiaries where such action is reasonably likely to have a
Material Adverse Effect.
(c) Opinion of Financial Advisor. Buyer shall have received an opinion of
a financial advisor or appraiser, in form and substance reasonably
acceptable to Buyer, that (i) Seller is not insolvent as of the Closing
Date, and (ii) the sale of the Acquired Assets will not cause Seller to be
insolvent immediately following the Closing. Notwithstanding anything to the
contrary in this Agreement, Buyer shall bear and incur all costs related to
the issuance of such opinion, and Buyer agrees that any opinion in
substantially the form of Exhibit D hereto shall presumptively be deemed to
be acceptable to Buyer.
(d) New Employment Arrangements. At least seven of the Key Employees
(provided that such seven Key Employees include both Key Employees set forth
on Schedule 8.2(d)) and at least 33 of the Designated Employees other than
the Key Employees shall have entered into "at-will" employment arrangements
with Parent pursuant to their execution of an Offer Letter and shall be
employees of Seller immediately prior to the Closing. In addition, effective
as of the Closing Date, Seller shall have terminated all employment
agreements and other arrangements with the Continuing Employees and waived
all of its rights with respect to any duty of confidentiality owed to Seller
by any such Continuing Employee with respect to the Acquired Assets or any
other intellectual property or technology of Seller.
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(e) Non-Competition Agreements. Each of the Key Employees set forth on
Schedule 8.2(e) shall have executed Non-Competition Agreements concurrent
with the execution and delivery of the Existing Agreement and such
Non-Competition Agreements shall be in full force and effect as of the
Closing Date.
(f) Certificate of Seller. Buyer shall have received a certificate,
validly executed by a duly authorized officer of Seller for and on its
behalf (the "Certificate of Seller"), to the effect that, as of the Closing,
each of the conditions specified in Section 8.2(a) and Section 8.2(b) have
been satisfied.
(g) Certificate of Secretary of Seller. Buyer shall have received a
certificate, validly executed by the Secretary of Seller, certifying as to
(i) the terms and effectiveness of the certificate of incorporation and the
bylaws of Seller, (ii) the valid adoption of resolutions of the Board of
Directors of Seller approving this Agreement, and (iii) the valid adoption
and approval of this Agreement and approval of the Dissolution by the
stockholders of Seller.
(h) Prepaid Service Payment Update. Buyer shall have received from Seller
the Prepaid Service Payment Update pursuant to Section 7.14.
(i) Deliveries. Seller shall have delivered to Buyer executed copies of
the Collateral Agreements.
(j) State Tax Certificates. Buyer shall have received from Seller
certified copies of the completed and date stamped applications or filings
made in satisfaction of the covenant in Section 7.19(e) or, if received,
true and complete copies of the State Tax Certificates.
8.3 Additional Conditions to Obligations of Seller. The obligations of
Seller to consummate and effect the transactions contemplated hereby shall be
subject to the satisfaction at or prior to the Closing of each of the following
conditions, any of which may be waived, in writing, exclusively by Seller:
(a) Representations, Warranties and Covenants. (i) The representations
and warranties of Parent and Buyer in this Agreement shall have been true
and correct on the date they were made and shall be true and correct on and
as of the Closing Date as though such representations and warranties were
made on and as of such date, except in either case to the extent that the
aggregate of all breaches thereof has not had and would not reasonably be
expected to have a material adverse effect on Parent or Buyer (without
giving effect to any limitation as to "materiality" or "material adverse
effect" set forth therein) and except to the extent such representations and
warranties address matters as of a particular date or period, in which case
such representations and warranties shall be true and correct as of such
date or period (and in any event, subject to the foregoing material adverse
effect qualification), and (ii) Parent and Buyer shall have performed and
complied in all material respects with all covenants and obligations under
this Agreement required to be performed and complied with by Parent or Buyer
as of the Closing.
(b) Certificate of Parent and Buyer. Seller shall have received a
certificate, validly executed by an executive officer of both Parent and
Buyer for and on behalf of each of them (the "Certificate of Buyer"), to the
effect that, as of the Closing, each of the conditions specified in Section
8.3(a) have been satisfied.
(c) Certificate of Secretaries of Parent and Buyer. Seller shall have
received certificates, validly executed by the Secretaries of Parent and
Buyer, certifying as to (i) the terms and effectiveness of the certificates
of incorporation and the bylaws of Parent and Buyer, and (ii) the valid
adoption of resolutions of the Board of Directors of Parent and Buyer
approving this Agreement.
(d) Deliveries. Buyer shall have delivered to Seller executed copies of
the Collateral Agreements.
(e) Securities Approvals. Parent shall have received all state securities
laws or "blue sky" permits and authorizations necessary to issue the Stock
Consideration.
(f) Effectiveness of Registration Statement. The Form S-4 Registration
Statement shall have become effective in accordance with the provisions of
the Securities Act, and no stop order shall have been issued and still be
pending, and no proceeding for that purpose shall have been initiated or be
threatened by the SEC with respect to the Form S-4 Registration Statement,
and Parent shall have duly authorized and issued and made available for
delivery to Seller at the Closing a stock certificate that in form and
substance is
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sufficient to enable Seller to immediately sell on the open market the
shares of Parent's common stock comprising the Stock Consideration;
provided, however, that in the event that, at any time prior to the
effectiveness of the Form S-4 Registration Statement under the Securities
Act, the SEC shall take the position that Form S-4 is not available or is
otherwise inappropriate with respect to the registration of the Stock
Consideration, this condition shall be deemed to have been satisfied if
Parent duly and validly issues the Stock Consideration to Seller in a
transaction exempt from the registration requirements of the Securities Act,
and provides Seller with evidence reasonably satisfactory to Seller that
Parent is prepared to file the Resale Registration Statement immediately
following the Closing.
ARTICLE 9
SURVIVAL OF REPRESENTATIONS AND WARRANTIES; INDEMNIFICATION
9.1 Survival of Representations, Warranties and Covenants. The
representations and warranties of Seller contained in this Agreement, or in the
Certificate of Seller, shall terminate on the earliest of (i) the first
anniversary of the Closing Date, (ii) the date on which Seller files its
certificate of dissolution with the Delaware Secretary of State and (iii) the
date 15 days following the delivery of a Dissolution Notice; provided, however,
that a termination pursuant to clause (iii) shall be rescinded if a certificate
of dissolution is not filed with the Delaware Secretary of State within 30 days
following the delivery of such Dissolution Notice. A "Dissolution Notice" shall
mean a notice delivered by Seller to Buyer indicating Seller's good faith
intention to file a certificate of dissolution with the Delaware Secretary of
State within 30 days. The representations and warranties of Buyer contained in
this Agreement, or in any certificate or other instrument delivered pursuant to
this Agreement, shall terminate at the Closing.
9.2 Indemnification. Seller agrees to indemnify and hold Parent and Buyer
and their respective officers, directors and affiliates (collectively, the
"Indemnified Parties"), harmless against all claims, losses, liabilities,
damages, deficiencies, costs and expenses, including reasonable attorneys' fees
and expenses of investigation and defense (hereinafter individually a "Loss"
and collectively "Losses") incurred or sustained by the Indemnified Parties, or
any of them, arising out of (i) any breach or inaccuracy of a representation or
warranty of Seller contained in this Agreement as of the Existing Agreement
Date (or such other particular date or period that is addressed by such
representation or warranty) and as of the Closing Date or in the Certificate of
Seller, (ii) any failure by Seller to perform or comply with any covenant given
or made by it contained in this Agreement, or (iii) any failure on the part of
Seller to perform and discharge in full the Excluded Liabilities.
9.3 Indemnification Procedure. An Indemnified Party seeking indemnification
pursuant to Section 9.2 shall deliver an Officer's Certificate to Seller.
Seller may object to such claim by written notice to such Indemnified Party
specifying the basis for Seller's objection, within thirty (30) days following
receipt by Seller of notice from such Indemnified Party regarding such claim.
If no objection is made, Seller shall promptly pay the claim. For the purposes
hereof, "Officer's Certificate" shall mean a certificate signed in good faith
by any executive officer of Buyer: (1) stating that Buyer has paid, sustained,
incurred, or properly accrued, or reasonably anticipates that it will have to
pay, sustain, incur, or accrue Losses, and (2) specifying in reasonable detail
the individual items of Losses included in the amount so stated, the date each
such item was paid, sustained, incurred, or properly accrued, or the basis for
such anticipated liability, and the nature of the misrepresentation, breach of
warranty or covenant or Excluded Liability to which such item is related.
9.4 Resolution of Conflicts; Arbitration.
(a) In case Seller shall object in writing to any claim or claims made in
any Officer's Certificate to recover Losses within thirty (30) days after
delivery of such Officer's Certificate, Seller and Buyer shall attempt in
good faith to agree upon the rights of the respective parties with respect
to each of such claims. If Seller and Buyer should so agree, a memorandum
setting forth such agreement shall be prepared and signed by both parties
and Seller shall promptly pay to the Indemnified Party the amount of the
claim agreed upon, if any.
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(b) If no such agreement can be reached after good faith negotiation and
prior to sixty (60) days after delivery of an Officer's Certificate, Buyer
or Seller may demand arbitration of the matter unless the amount of the Loss
is at issue in pending litigation with a third party, in which event
arbitration shall not be commenced until such amount is ascertained or both
parties agree to arbitration, and in either such event the matter shall be
settled by arbitration conducted by one arbitrator mutually agreeable to
Buyer and Seller. In the event that, within thirty (30) days after
submission of any dispute to arbitration, Buyer and Seller cannot mutually
agree on one arbitrator, then, within fifteen (15) days after the end of
such thirty (30) day period, Buyer and Seller shall each select one
arbitrator. The two arbitrators so selected shall select a third arbitrator.
If Seller does not select an arbitrator during this fifteen (15) day period,
then the parties agree that the arbitration will be conducted by one
arbitrator selected by Buyer.
(c) Any such arbitration shall be held in Santa Clara County, California,
under the rules then in effect of the American Arbitration Association. The
arbitrator(s) shall determine how all expenses relating to the arbitration
shall be paid, including without limitation, the respective expenses of each
party, the fees of each arbitrator and the administrative fee of the
American Arbitration Association. The arbitrator or arbitrators, as the case
may be, shall set a limited time period and establish procedures designed to
reduce the cost and time for discovery while allowing the parties an
opportunity, adequate in the sole judgment of the arbitrator or majority of
the three arbitrators, as the case may be, to discover relevant information
from the opposing parties about the subject matter of the dispute. The
arbitrator or a majority of the three arbitrators, as the case may be, shall
rule upon motions to compel or limit discovery and shall have the authority
to impose sanctions, including attorneys' fees and costs, to the same extent
as a competent court of law or equity, should the arbitrators or a majority
of the three arbitrators, as the case may be, determine that discovery was
sought without substantial justification or that discovery was refused or
objected to without substantial justification. The decision of the
arbitrator or a majority of the three arbitrators, as the case may be, as to
the validity and amount of any claim in such Officer's Certificate shall be
final, binding, and conclusive upon the parties to this Agreement. Such
decision shall be written and shall be supported by written findings of fact
and conclusions which shall set forth the award, judgment, decree or order
awarded by the arbitrator(s). Within thirty (30) days of a decision of the
arbitrator(s) requiring payment by one party to another, such party shall
make the payment to such other party.
(d) Judgment upon any award rendered by the arbitrator(s) may be entered
in any court having jurisdiction.
9.5 Third-Party Claims. In the event Buyer becomes aware of a third-party
claim which Buyer reasonably believes is reasonably likely to result in a
demand for indemnification pursuant to this ARTICLE 9, Buyer shall notify
Seller in writing of such claim, and Seller shall be entitled, at its expense,
to participate in, but not to determine or conduct, the defense of such claim.
Buyer shall have the right in its sole discretion to conduct the defense of and
settle any such claim; provided, however, that except with the written consent
of Seller, no settlement of any such claim with third-party claimants shall be
determinative of the amount of Losses relating to such matter. In the event
that Seller has consented to any such settlement, Seller shall have no power or
authority to object under any provision of this ARTICLE 9 to the amount of any
claim by Buyer against Seller with respect to such settlement.
9.6 Maximum Payments; Remedy
(a) Except with respect to (A) any Excluded Liabilities, and (B) Taxes
referred to in Section 3.4 and 5.14 that are owed by Seller and which Buyer
may become obligated to pay, the aggregate maximum amount the Indemnified
Parties may recover from Seller pursuant to the indemnity set forth in
Section 9.2 or otherwise for Losses, or otherwise in respect of any breaches
of any of the representations, warranties or covenants of Seller hereunder
or in the Certificate of Seller, shall be limited to $3,300,000.
(b) The maximum amount an Indemnified Party may recover from Seller in
respect of Losses arising out of any Excluded Liabilities shall not be
limited.
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(c) Without limiting the effect of any of the other limitations set forth
herein, Seller shall not be required to make any indemnification payment
hereunder until such time as the total amount of all Losses that have been
suffered or incurred by any one or more of the Indemnified Parties and to
which any Indemnified Party is entitled to indemnification hereunder, or to
which any one or more of the Indemnified Parties has or have otherwise
become subject with respect to which any Indemnified Party is entitled to
indemnification hereunder, exceeds $100,000 in the aggregate, at which point
Seller shall indemnify the full amount of such claims and all claims
thereafter, subject to any other applicable limitations under this ARTICLE
9.
(d) The right of Parent and Buyer hereto and their related Indemnified
Parties to assert indemnification claims and receive indemnification
payments pursuant to this ARTICLE 9 shall be the sole and exclusive right
and remedy exercisable by Parent and Buyer with respect to any breach by
Seller of any representation, warranty or covenant hereunder or other matter
with respect to which such indemnification is provided; provided, however,
that the foregoing clause of this sentence shall not be deemed a waiver by
any Indemnified Party of any right to specific performance or injunctive
relief, or any right or remedy they may otherwise have against any Person
that has committed fraud with respect to this Agreement.
(e) Nothing herein shall limit the liability of Seller, Buyer or Parent
for any breach or inaccuracy of any representation, warranty or covenant
contained in this Agreement if the Closing does not occur.
9.7 Liability of Parent and Buyer. The fact that neither Parent nor Buyer is
obligated to indemnify Seller hereunder shall not be construed so as to limit
the rights or remedies that Seller may otherwise have against Parent or Buyer,
whether under this Agreement or applicable law, in the event of (a) any breach
or inaccuracy of a representation or warranty of Parent or Buyer contained in
this Agreement or in the Certificate of Buyer, (ii) any failure by Parent or
Buyer to perform or comply with any covenant given or made by either of them
contained in this Agreement, or (iii) any failure on the part of Buyer to
perform and discharge in full the Assumed Liabilities.
ARTICLE 10
TERMINATION, AMENDMENT AND WAIVER
10.1 Termination. Except as provided in Section 10.3, this Agreement may be
terminated and the transactions contemplated hereby abandoned at any time prior
to the Closing whether before or after the requisite approval of the
stockholders of Seller:
(a) by mutual written consent duly authorized by the Boards of Directors
of Parent, Buyer and Seller;
(b) by any party if the Closing Date shall not have occurred for any
reason (i) in the event that the SEC has determined to review the Form S-4
Registration Statement, by December 31, 2001, or (ii) in the event the SEC
has determined not to review the Form S-4 Registration Statement, by
November 30, 2001 (in either case, the "End Date"); provided, however, that
the right to terminate this Agreement under this Section 10.1(b) shall not
be available to any party whose (or whose affiliate's) action or failure to
act has been a principal cause of or resulted in the failure of the Closing
Date to occur on or before such date and such action or failure to act
constitutes a material breach of this Agreement;
(c) by any party if a Governmental Entity shall have issued an order,
decree or ruling or taken any other action, in any case having the effect of
permanently restraining, enjoining or otherwise prohibiting the transactions
contemplated hereby, which order, decree, ruling or other action is final
and nonappealable;
(d) by any party if (i) the Seller Stockholders' Meeting (including any
adjournments and postponements thereof) shall not have been held and
completed prior to the End Date or shall have been held and completed and
the stockholders of Seller shall have taken a final vote on a proposal to
adopt and
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approve this Agreement and the transactions contemplated by this Agreement;
and (ii) this Agreement and the transactions contemplated by this Agreement
shall not have been adopted and approved at the Seller Stockholders' Meeting
(and shall not have been adopted and approved at any adjournment or
postponement thereof) by the required approval of the stockholders of
Seller; provided, however, that the right to terminate this Agreement under
this Section 10.1(d) shall not be available to Seller where the failure to
hold the Seller Stockholders' Meeting and to obtain Seller stockholder
approval shall have been caused by (A) the action or failure to act of
Seller and such action or failure to act constitutes a breach by Seller of
this Agreement or (B) a material breach of any Support Agreement by any
party thereto other than Buyer; provided further, however, that the right to
terminate this Agreement under this Section 10.1(d) shall not be available
to Parent or Buyer where the failure to hold the Seller Stockholders'
Meeting and to obtain Seller stockholder approval shall have been caused by
the action or failure to act of Parent or Buyer and such action or failure
to act constitutes a breach by Parent or Buyer of this Agreement;
(e) by Buyer (at any time prior to the adoption and approval of this
Agreement and the approval of the Dissolution by the required vote of the
stockholders of Seller) if a Seller Triggering Event (as defined below)
shall have occurred;
(f) by Seller (at any time prior to the adoption and approval of this
Agreement and the approval of the Dissolution by the required vote of the
stockholders of Seller) if Parent shall have breached (and failed to cure
within 10 days after notice of such breach is delivered by Seller to Parent)
any of its obligations under the Funding Agreement;
(g) by Seller (at any time prior to the adoption and approval of this
Agreement and the approval of the Dissolution by the required vote of the
stockholders of Seller) in the event that (i) at any time prior to the
effectiveness of the Form S-4 Registration Statement under the Securities
Act, the SEC shall take the position that Form S-4 is not available or is
otherwise inappropriate with respect to the registration of the Stock
Consideration, and (ii) Parent shall not have obtained the Waiver within ten
(10) business days following the taking of such position by the SEC;
(h) by Buyer, upon a breach of any representation, warranty, covenant or
agreement on the part of Seller set forth in this Agreement, or if any
representation or warranty of Seller shall have become untrue, in either
case such that the conditions set forth in Section 8.2(a) would not be
satisfied by the End Date, provided, that if such inaccuracy in Seller's
representations and warranties or breach by Seller is curable by Seller
through the exercise of its commercially reasonable efforts, then Buyer may
not terminate this Agreement under this Section 10.1(h) prior to the End
Date, provided Seller continues to exercise commercially reasonable efforts
to cure such breach (it being understood that Buyer may not terminate this
Agreement pursuant to this paragraph (h) if it shall have materially
breached this Agreement or if such breach by Seller is cured prior to the
End Date); and
(i) by Seller, upon a breach of any representation, warranty, covenant or
agreement on the part of Parent or Buyer set forth in this Agreement, or if
any representation or warranty of Parent or Buyer shall have become untrue,
in either case such that the conditions set forth in Section 8.3(a) would
not be satisfied by the End Date, provided, that if such inaccuracy in
Parent's or Buyer's representations and warranties or breach by Parent or
Buyer is curable by Parent or Buyer through the exercise of its commercially
reasonable efforts, then Seller may not terminate this Agreement under this
Section 10.1(i) prior to the End Date, provided Parent or Buyer (as the case
may be) continues to exercise commercially reasonable efforts to cure such
breach (it being understood that Seller may not terminate this Agreement
pursuant to this paragraph (i) if it shall have materially breached this
Agreement or if such breach by Parent or Buyer is cured prior to the End
Date).
For the purposes of this Agreement, a "Seller Triggering Event" shall be
deemed to have occurred if: (i) the Board of Directors of Seller or any
committee thereof shall for any reason have withdrawn or shall have amended or
modified in a manner adverse to Buyer its recommendation in favor of the
adoption and approval of this Agreement or the approval of the Dissolution;
(ii) Seller shall have failed to include in the Proxy Statement/
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Prospectus the recommendation of the Board of Directors of Seller in favor of
the adoption and approval of the Agreement and the approval of the Dissolution;
(iii) the Board of Directors of Seller fails to reaffirm its recommendation in
favor of the adoption and approval of the Agreement and the approval of the
Dissolution within ten (10) days after Buyer requests in writing that such
recommendation be reaffirmed following the public announcement of an
Acquisition Proposal; (iv) the Board of Directors of Seller or any committee
thereof shall have approved or recommended any Acquisition Proposal; or (v) a
tender or exchange offer relating to securities of Seller shall have been
commenced by a Person unaffiliated with Buyer and Seller shall not have sent to
its securityholders pursuant to Rule 14e-2 promulgated under the Securities
Act, within ten (10) business days after such tender or exchange offer is first
published sent or given, a statement disclosing that Seller recommends
rejection of such tender or exchange offer.
10.2 Notice of Termination. Any termination of this Agreement under Section
10.1 will be effective immediately upon the delivery of written notice thereof
by the terminating party to the other parties hereto (or, in the case of
termination pursuant to Section 10.1(h) or Section 10.1(i), on the date
specified therein).
10.3 Effect of Termination. In the event of termination of this Agreement as
provided in Section 10.1, this Agreement shall forthwith become void and there
shall be no liability or obligation on the part of any party hereto, or its
affiliates, officers, directors or stockholders, provided that each party shall
remain liable for any breaches of this Agreement prior to its termination; and
provided further that, the provisions of Section 7.4, Section 7.10, ARTICLE 11
and this Section 10.3 of this Agreement shall remain in full force and effect
and survive any termination of this Agreement. Notwithstanding the foregoing,
no termination of this Agreement shall relieve any party from liability for any
breach hereof prior to such termination.
10.4 Amendment. This Agreement may be amended by the parties hereto at any
time by execution of an instrument in writing signed on behalf of each of the
parties hereto.
10.5 Extension; Waiver. At any time prior to the Closing, Buyer, on the one
hand, and Seller, on the other hand, may, to the extent legally allowed, (i)
extend the time for the performance of any of the obligations of the other
party hereto, (ii) waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered pursuant
hereto, and (iii) waive compliance with any of the agreements or conditions for
the benefit of such party contained herein. Any agreement on the part of a
party hereto to any such extension or waiver shall be valid only if set forth
in an instrument in writing signed on behalf of such party.
ARTICLE 11
GENERAL
11.1 Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail (return
receipt requested) or sent via facsimile (with acknowledgment of complete
transmission) to the parties at the following addresses (or at such other
address for a party as shall be specified by like notice); provided, however,
that notices sent by mail will not be deemed given until received:
(a) if to Buyer, to:
Palm, Inc.
5470 Great America Parkway
Santa Clara, California 95052
Attention: General Counsel
Telephone No.: (408) 878-9000
Facsimile No.: (408) 878-2750
A-37
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attention: Katharine A. Martin, Esq.
Robert Sanchez, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(b) if to Seller, to:
Be Incorporated
800 El Camino Real
Menlo Park, California 94025
Attention: General Counsel
Telephone No.: (650) 462-4100
Facsimile No.: (650) 462-4129
with a copy to:
Cooley Godward LLP
5 Palo Alto Square
3000 El Camino Real
Palo Alto, California 94306
Attention: David Lipkin, Esq.
Telephone No.: (650) 843-5000
Facsimile No.: (650) 849-7400
11.2 Entire Agreement; Assignment. This Agreement, the Exhibits hereto, the
Seller Disclosure Schedule, the Parent Disclosure Schedule, the Non-Disclosure
Agreement, the Collateral Agreements and the documents and instruments and
other agreements among the parties hereto referenced herein: (i) constitute the
entire agreement among the parties with respect to the subject matter hereof
and supersede all prior agreements and understandings both written and oral,
among the parties with respect to the subject matter hereof; (ii) are not
intended to confer upon any other person any rights or remedies hereunder; and
(iii) shall not be assigned by operation of law or otherwise, except that Buyer
may assign its rights and delegate its obligations hereunder to Parent. The
Existing Agreement is hereby amended and restated in its entirety by this
Agreement, and each of Seller, Buyer and Parent agree that, without limiting
any liability that any party may have by reason of any breach of the Existing
Agreement, this Agreement shall from and after the date first set forth above
supersede in its entirety the Existing Agreement.
11.3 Severability. In the event that any provision of this Agreement or the
application thereof, becomes or is declared by a court of competent
jurisdiction to be illegal, void or unenforceable, the remainder of this
Agreement will continue in full force and effect and the application of such
provision to other persons or circumstances will be interpreted so as
reasonably to effect the intent of the parties hereto. The parties further
agree to replace such void or unenforceable provision of this Agreement with a
valid and enforceable provision that will achieve, to the extent possible, the
economic, business and other purposes of such void or unenforceable provision.
11.4 Other Remedies. Any and all remedies herein expressly conferred upon a
party will be deemed cumulative with and not exclusive of any other remedy
conferred hereby, or by law or equity upon such party, and the exercise by a
party of any one remedy will not preclude the exercise of any other remedy.
11.5 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF CALIFORNIA, REGARDLESS OF THE LAWS
A-38
THAT MIGHT OTHERWISE GOVERN UNDER APPLICABLE PRINCIPLES OF CONFLICTS OF LAWS
THEREOF.
11.6 Jurisdiction and Venue. Each of the parties hereto irrevocably consents
to the exclusive jurisdiction and venue of any court within Santa Clara County,
State of California, in connection with any matter based upon or arising out of
this Agreement or the matters contemplated herein, agrees that process may be
served upon them in any manner authorized by the laws of the State of
California for such persons and waives and covenants not to assert or plead any
objection which they might otherwise have to such jurisdiction, venue and such
process.
11.7 Rules of Construction. The parties hereto agree that they have been
represented by counsel during the negotiation and execution of this Agreement
and, therefor, waive the application of any law, regulation, holding or rule of
construction providing that ambiguities in an agreement or other document will
be construed against the party drafting such agreement or document.
11.8 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY
WAIVES ALL RIGHT TO TRIAL BY JURY AND ANY ACTION, PROCEEDING OR COUNTERCLAIM
(WHETHER BASED ON CONTRACT, TORT, OR OTHERWISE) ARISING OUT OF OR RELATING TO
THIS AGREEMENT OR THE ACTIONS OF ANY PARTY HERETO IN NEGOTIATION,
ADMINISTRATION, PERFORMANCE OR ENFORCEMENT HEREOF.
11.9 Fees and Expenses. Except as otherwise provided herein, whether or not
the transactions contemplated herein are consummated, all expenses, including
without limitation all legal, accounting, financial advisory, consulting and
other fees, incurred in connection with the negotiation or effectuation of this
Agreement or consummation of such transactions, shall be the obligation of the
respective party incurring such expenses.
11.10 Counterparts. This Agreement may be executed in one or more
counterparts, all of which shall be considered one and the same agreement and
shall become effective when one or more counterparts have been signed by each
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
[Remainder of Page Intentionally Left Blank]
A-39
IN WITNESS WHEREOF, this Agreement has been executed by the parties hereto
as of the date first above written.
PALM, INC.
By: /s/ Judy Bruner
_________________________________
Name: Judy Bruner
_______________________________
Title: Senior Vice President and
_______________________________
Chief Financial Officer
_______________________________
BE INCORPORATED
By: /s/ Steve Sakoman
_________________________________
Name: Steve Sakoman
_______________________________
Title: Chief Operating Officer
_______________________________
ECA SUBSIDIARY ACQUISITION
CORPORATION
By: /s/ Stephen Yu
_________________________________
Name: Stephen Yu
_______________________________
Title: President
_______________________________
A-40
ANNEX B
PLAN OF DISSOLUTION
OF
BE INCORPORATED
This Plan of Dissolution (the "Plan") is intended to accomplish the
dissolution and winding-up of Be Incorporated, a Delaware corporation ("Be"),
in accordance with the Delaware General Corporation Law, as follows:
1. The Board of Directors of Be (the "Board of Directors") has adopted this
Plan and called a special meeting (the "Meeting") of the holders of Be's common
stock to approve dissolution of Be pursuant to this plan of dissolution. If
stockholders holding a majority of Be's outstanding common stock, par value
$0.001 per share (the "Common Stock"), vote in favor of the approval of this
Plan at the Meeting, the Plan shall constitute the adopted Plan of Be as of the
date of the Meeting, or such later date on which the stockholders may approve
the dissolution of Be pursuant to the Plan if the Meeting is adjourned to a
later date (the "Adoption Date").
2. Pursuant to the terms of that certain Asset Purchase Agreement dated as
of August 16, 2001, as amended, among Be, Palm, Inc. ("Palm") and ECA
Subsidiary Acquisition Corporation, an indirect wholly owned subsidiary of Palm
(the "Purchase Agreement"), Be will be retaining certain rights, assets and
liabilities in connection with the sale of assets pursuant to the Purchase
Agreement, including its cash and cash equivalents, receivables, certain
contractual rights, and rights to assert and bring certain claims and causes of
action, including under antitrust laws. If, notwithstanding the approval of the
dissolution pursuant to his Plan by the stockholders of Be, the Board of
Directors determines that it would be in the best interests of Be's
stockholders or creditors for Be not to dissolve, including in order to permit
Be to pursue (or more easily pursue) and retained claims or causes of action,
the dissolution of Be pursuant to this Plan may be abandoned or delayed until a
future date to be determined by Board of Directors.
3. From and after the Adoption Date, contingent upon the consummation of the
transactions contemplated by the Purchase Agreement, and subject to the
discretionary right of the Board of Directors to abandon or delay
implementation of this Plan as described in Section 2 above, Be shall complete
the following corporate actions:
(a) Be shall determine whether and when to (i) transfer Be's remaining
property and assets to a liquidating trust (established pursuant to Section
6 hereof), or (ii) collect, sell, exchange or otherwise dispose of all of
its property and assets in one or more transactions upon such terms and
conditions as the Board of Directors, in its absolute discretion, deems
expedient and in the best interests of Be and the stockholders and creditors
of Be, without any further vote or action by Be's stockholders. It is
understood that Be will be permitted to commence the sale and disposition of
its assets as soon as possible following the adoption of this Plan by the
Board of Directors and approve of the dissolution of Be pursuant to this
Plan by the stockholders of Be in order to attain the highest value for such
assets and maximize value for its stockholders and creditors. Be's assets
and properties may be sold in bulk to one buyer or a small number of buyers
or on a piecemeal basis to numerous buyers. Be will not be required to
obtain appraisals or other third party opinions as to the value of its
properties and assets in connection with the liquidation. In connection with
such collection, sale, exchange and other disposition, Be shall use
commercially reasonable collect or make provision for the collection of all
accounts receivable, debts and claims owing to Be.
(b) Be shall pay or, as determined by the Board of Directors, make
reasonable provision to pay, all claims, liabilities and obligations of Be,
including all unascertained, contingent, conditional or unmatured claims
known to Be and all claims which are known to Be but for which the identity
of the claimant is unknown.
(c) Subject to the approval of any such distribution by the Board of
Directors, Be shall distribute pro rata to its stockholders available cash,
including the cash proceeds of any sale, exchange or disposition,
B-1
except such cash, property or assets as are required for paying or making
reasonable provision for the liabilities and obligations of Be. Such
distribution may occur all at once or in a series of distributions and shall
be in cash or assets, in such amounts, and at such time or times, as the
Board of Directors or the Trustees (as defined in Section 6 hereof), in
their absolute discretion, may determine. If and to the extent deemed
necessary, appropriate or desirable by the Board of Directors or the
Trustees, in their absolute discretion, Be may establish and set aside a
reasonable amount of cash and/or property (the "Contingency Reserve") to
satisfy claims against and unmatured or contingent liabilities and
obligation of Be, including, without limitation, tax obligations, and all
expenses of the sale of Be's property and assets, of the collection and
defense of Be's property and assets, and the liquidation and dissolution
provided for in this Plan.
4. Any distributions to the stockholders of Be pursuant to Section 3 and 6
hereof shall be in complete redemption and cancellation of all of the
outstanding Common Stock of Be. As a condition to receipt of any distribution
to Be's stockholders, the Board of Directors or the Trustees, in their absolute
discretion, may require the stockholders to (i) surrender their certificates
evidencing the Common Stock to Be or its agents for recording of such
distributions thereon or (ii) furnish Be with evidence satisfactory to the
Board of Directors or the Trustees of the loss, theft or destruction of their
certificates evidencing the Common Stock, together with such surety bond or
other security or indemnity as may be required by and satisfactory to the Board
of Directors or the Trustees. As a condition to receipt of any final
distribution to Be's stockholders, the Board of Directors or the Trustees, in
their absolute discretion, may require the stockholders to (i) surrender their
certificates evidencing the Common Stock to Be or its agent for cancellation or
(ii) furnish Be with such security or indemnity. The Company will finally close
its stock transfer books and discontinue recording transfers of Common Stock on
the earliest to occur of (i) the close of business on the record date fixed by
the Board of Directors for the final liquidating distribution, (ii) the close
of business on the date on which the remaining assets of Be are transferred to
the Trust or (iii) such other date on which the Board of Directors, in
accordance with applicable law, determines and close such stock transfer books,
and thereafter certificates representing Common Stock will not be assignable or
transferable on the books of Be except by will, intestate succession, or
operation of law.
5. If any distribution to a stockholder cannot be made, whether because the
stockholder cannot be located, has not surrendered its certificates evidencing
the Common Stock as required hereunder or for any other reason, the
distribution to which such stockholder is entitled (unless transferred to the
Trust established pursuant to Section 6 hereof) shall be transferred, at such
time as the final liquidating distribution is made by Be, to the official of
such state or other jurisdiction authorized by applicable law to receive the
proceeds of such distribution. The proceeds of such distribution shall
thereafter be held solely for the benefit of and for ultimate distribution to
such stockholder as the sole equitable owner thereof and shall be treated as
abandoned property and escheat to the applicable state or other jurisdiction in
accordance with applicable law. In no event shall the proceeds of any such
distribution revert to or become the property of Be.
6. If deemed necessary, appropriate or desirable by the Board of Directors,
in its absolute discretion, in furtherance of the liquidation and distribution
of Be's assets to the stockholders, as a final liquidating distribution or from
time to time, Be shall transfer to one or more liquidating trustees (the
"Trustees"), for the benefit of its stockholders and/or creditors, under one or
more liquidating trusts (each a "Trust" and collectively the "Trusts"), any
assets of Be which are (i) not reasonably susceptible to distribution to the
stockholders, including without limitation non-cash assets and assets held on
behalf of the stockholders (a) who cannot be located or who do not tender their
certificates evidencing the Common Stock to Be or its agent as herein above
required or (b) to whom distributions may not be made based upon restrictions
under contract or law, including, without limitation, restrictions of the
federal securities laws and regulations promulgated thereunder, or (ii) held as
the Contingency Reserve. The Board of Directors is hereby authorized to appoint
one or more individuals, corporations, partnerships or other persons, or any
combination thereof, including, without limitation, any one or more officers,
directors, employees, agents or representatives of Be, to act as the initial
Trustee or Trustees for the benefit of the stockholders and to receive any
assets of Be. Any Trustees appointed as provided in the preceding sentence
shall succeed to all right, title and interest of Be of any kind and character
with respect to such transferred assets and, to the extent of the assets so
transferred and solely in their capacity as Trustees, shall assume all of the
liabilities
B-2
and obligations of Be, including, without limitation, any unsatisfied claims
and unascertained or contingent liabilities. Further, any conveyance of assets
to the Trustees shall be deemed to be a distribution of property and assets by
Be to the stockholders for the purposes of Section 3 of this Plan. Any such
conveyance to the Trustees shall be in trust for the creditors and the
stockholders of Be. Be, subject to this Section and as authorized by the Board
of Directors, in its absolute discretion, may enter into one or more
liquidating trust agreements with the Trustees, on such terms and conditions as
the Board of Directors, in its absolute discretion, may deem necessary,
appropriate or desirable. Approval of the dissolution of Be pursuant to this
Plan by the holders of a majority of the outstanding Common Stock shall
constitute the approval of the stockholders of any such appointment, any such
liquidating trust agreement and any transfer of assets by Be to the Trust, or
Trusts, as their act and as a part hereof as if herein written.
7. After the Adoption Date, but subject to Section 2 above, the officers of
Be shall, at such time as the Board of Directors, in its absolute discretion,
deems necessary, appropriate or desirable, obtain any certificates required
from the Delaware tax authorities and, upon obtaining such certificates, Be
shall file with the Secretary of State of the State of Delaware a certificate
of dissolution in accordance with the Delaware General Corporation Law. After
the filing of the Certificate of Dissolution, Be shall not engage in any
business activities except to the extent necessary to preserve the value of its
assets, wind-up its business affairs and distribute its assets in accordance
with this Plan.
8. Approval of the dissolution of Be pursuant to this Plan by holders of a
majority of the outstanding Common Stock shall constitute the approval of the
stockholders of the sale, exchange or other disposition in liquidation of all
of the property and assets of Be, whether such sale, exchange or other
disposition occurs in one transaction or a series of transactions, and shall
constitute ratification of all contracts for sale, exchange or other
disposition which are conditioned on approval of this Plan.
9. In connection with and for the purposes of implementing and assuring
completion of this Plan, Be may, in the absolute discretion of the Board of
Directors, pay any brokerage, agency, professional and other fees and expenses
of persons rendering services to Be in connection with the collection, sale,
exchange or other disposition of Be's property and assets and the
implementation of this Plan.
10. In connection with and for the purpose of implementing and assuring
completion of this Plan, Be may, in the absolute discretion of the Board of
Directors, pay Be's officers, directors, employees, agents and representatives,
or any of them, compensation or additional compensation above their regular
compensation, in money or other property, as severance, bonus, acceleration of
vesting of stock or stock options, or in any other form, in recognition of the
extraordinary efforts they, or any of them, will be required to undertake, or
actually undertake, in connection with the implementation of this Plan.
Approval of the dissolution of Be pursuant to this Plan by holders of a
majority of the outstanding Common Stock shall constitute the approval of Be's
stockholders of the payment of any such compensation.
11. Be shall continue to indemnify its officers, directors, employees,
agents and representatives in accordance with its certificate of incorporation,
as amended, and by-laws and any contractual arrangements, for the actions taken
in connection with this Plan and the winding-up of the affairs of Be. Be's
obligation to indemnify such persons may also be satisfied out of the assets of
any Trust. The Board of Directors and the Trustees, in their absolute
discretion, are authorized to obtain and maintain insurance as may be necessary
or appropriate to cover Be's obligation hereunder, including seeking an
extension in time and coverage of Be's insurance policies currently in effect.
12. Notwithstanding approval of or consent to this Plan and the transactions
contemplated hereby by Be's stockholders, the Board of Directors may modify,
amend or abandon this Plan and the transactions contemplated hereby without
further action by the stockholders to the extent permitted by the Delaware
General Corporation Law.
B-3
13. The Board of Directors of Be is hereby authorized, without further
action by Be's stockholders, to do and perform or cause the officers of Be,
subject to approval of the Board of Directors, to do and perform, any and all
acts, and to make, execute, deliver or adopt any and all agreements,
resolutions, conveyances, certificates and other documents of every kind which
are deemed necessary, appropriate or desirable, in the absolute discretion of
the Board of Directors, to implement this Plan and the transaction contemplated
hereby, including, without limiting the foregoing, all filings or acts required
by any state or federal law or regulation to wind-up its affairs.
B-4
ANNEX C
FUNDING AGREEMENT
This Funding Agreement (the "Agreement") is made and entered into as of
August 16, 2001, by and between Palm, Inc. ("P Company") and Be Incorporated
(the "Company").
RECITALS
A. The parties hereto have executed an Asset Purchase Agreement of even date
herewith, by and among P Company, ECA Subsidiary Acquisition Corporation
("ECA") and the Company (the "Purchase Agreement"), whereby ECA has agreed to
purchase certain assets of the Company (the "Transaction").
B. P Company has requested that the Company continue its development and
related activities until the closing of the Transaction, and the Company
desires to comply with P Company's request.
NOW THEREFORE, the parties agree as follows:
1. Obligations of the Company. Beginning on the date of this Agreement and
continuing until the End Date (defined below) unless earlier terminated as
specified below, the Company agrees to continue to employ the Designated
Employees (as defined in the Purchase Agreement) at the same salary and benefit
levels as the date hereof through the termination of this agreement, and to
assign such employees to work on the continued development and enhancement of
the BeOS and BeIA operating systems or other software, products, documentation,
specifications or development tools and environments of the Company (including
all versions or portions of any of the foregoing under development) as
reasonably requested by P Company (the "Agreed Obligations"); provided,
however, that neither (a) the Company's right to terminate any Designated
Employee if in the Company's sole judgment such termination is in the best
interests of the Company nor (b) the right of any Designated Employee to resign
from the Company shall be limited by this Agreement. The parties agree that
there are no third party beneficiaries to this Agreement and no rights,
benefits, privileges or entitlements are accorded to any third party under this
Agreement, including without limitation, the Designated Employees.
2. Consideration. As consideration for the Agreed Obligations, P Company
agrees to pay the Company an amount equal to $2,500 multiplied by the number of
Designated Employees employed by the Company at the start of the applicable
weekly period (the "Weekly Sum") at the end of such one-week period, with the
first Weekly Sum being due on August 21, 2001 and weekly thereafter with
respect to each subsequent weekly period unless this Agreement is earlier
terminated as specified below. Such Weekly Sum shall be due and payable no
later than 1:00 p.m. local time at the end of the applicable one-week period,
to be paid by wire transfer to the account specified by the Company. In the
event of termination of this Agreement during a one-week period, P Company
shall be required to pay the entire Weekly Sum for such one-week period. The
parties agree that time is of the essence with respect to the payment of each
Weekly Sum.
(a) Term; Termination. This Agreement shall continue in full force and
effect until the earliest to occur of (i) of the Closing Date (as defined in
the Purchase Agreement), (ii) the date of termination of the Purchase
Agreement in accordance with Article 10 of the Purchase Agreement, and (iii)
termination of this Agreement by mutual written consent of P Company and the
Company (the "End Date").
3. Governing Law. This Agreement shall be governed in all respects by the
internal laws of the State of California.
4. Interpretation. In the event that any provisions or any capitalized term
used herein shall conflict with the terms or conditions of the Purchase
Agreement, the terms and conditions of the Purchase Agreement shall govern.
C-1
5. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
[Remainder of Page Intentionally Left Blank]
C-2
IN WITNESS WHEREOF, the parties have executed this Agreement the date first
written above.
PALM, INC.
By: /s/ Carl Yankowski
_________________________________
Name: Carl Yankowski
_______________________________
Title: Chief Executive Officer
_______________________________
BE INCORPORATED
By: /s/ Jean-Louis Gassee
_________________________________
Name: Jean-Louis Gassee
_______________________________
Title: President and Chief Executive
Officer
_______________________________
[SIGNATURE PAGE TO FUNDING AGREEMENT]
C-3
ANNEX D
FORM OF
STOCKHOLDER SUPPORT AGREEMENT
This Stockholder Support Agreement ("Agreement") is made and entered into as
of August 16, 2001, among Palm, Inc., a Delaware corporation ("Parent"), ECA
Subsidiary Acquisition Corporation, a Delaware corporation and an indirect
wholly owned subsidiary of Parent ("Buyer") and the undersigned stockholder
(the "Stockholder") of Be Incorporated, a Delaware corporation ("Seller").
RECITALS
A. Parent, Buyer and Seller are entering into an Asset Purchase Agreement of
even date herewith (the "Asset Agreement"), which provides for the sale by
Seller to Buyer of substantially all of the assets relating to, required for,
used in or otherwise constituting the Operating Systems (as defined in the
Asset Agreement) of Seller, in exchange for shares of common stock of Parent,
the assumption by Buyer of certain liabilities relating to the Operating
Systems and other consideration (the "Transaction").
B. The Stockholder is (i) the beneficial owner (as defined in Rule 13d-3
under the Securities Exchange Act of 1934, as amended) (but not the record
owner) of such number of issued and outstanding shares of the outstanding
common stock of Seller ("Seller Common Stock") as is indicated on the signature
page of this Agreement, (ii) the record owner of such number of shares of
Seller Common Stock as is indicated on the signature page of this Agreement and
(iii) the holder of options to purchase the number of shares of Seller Common
Stock indicated on the signature page of this Agreement.
C. In consideration of the execution of the Asset Agreement by Parent and
Buyer, the Stockholder (in his capacity as such) has agreed to vote the Shares
(as defined below) as set forth herein.
NOW, THEREFORE, intending to be legally bound hereby, the parties hereto
hereby agree as follows:
1. Certain Definitions. Capitalized terms used but not defined herein shall
have the respective meanings ascribed thereto in the Asset Agreement. For all
purposes of and under this Agreement, the following terms shall have the
following respective meanings:
1.1 "Expiration Date" shall mean the earlier to occur of (i) the date on
which the Asset Agreement is validly terminated pursuant to its terms, or
(ii) the Closing Date (as defined in the Asset Agreement).
1.2 "Person" shall mean any individual, any corporation, limited
liability company, general or limited partnership, business trust,
unincorporated association or other business organization or entity, or any
governmental authority.
1.3 "Shares" shall mean all of the issued and outstanding shares of
capital stock of Seller (including all shares of Seller Common Stock) that
now are or hereafter may be owned of record or beneficially owned by the
Stockholder.
1.4 "Subject Securities" shall mean: (i) all securities of Seller
(including all shares of Seller Common Stock and all options, warrants and
other rights to acquire shares of Seller Common Stock) owned by the
Stockholder as of the date of this Agreement, and (ii) all additional
securities of Seller (including all additional shares of Seller Common Stock
and all additional options, warrants and other rights to acquire shares of
Seller Common Stock) of which the Stockholder acquires beneficial ownership
during the period commencing with the execution and delivery of this Support
Agreement and continuing until the Expiration Date.
1.5 Transfer. A Person shall be deemed to have effected a "Transfer" of a
security if such person directly or indirectly (i) sells, pledges,
encumbers, grants an option with respect to, transfers or otherwise
D-1
disposes of such security or any interest therein, or (ii) enters into an
agreement or commitment providing for the sale of, pledge of, encumbrance
of, grant of an option with respect to, transfer of or disposition of such
security or any interest therein.
2. Transfer of Securities.
2.1 Transferee of Securities to be Bound by this Agreement. The
Stockholder hereby agrees that, at all times during the period commencing
with the execution and delivery of this Agreement until the Expiration Date,
the Stockholder shall not cause or permit any Transfer of any of the Subject
Securities to be effected, unless each Person to which any such Subject
Securities, or any interest therein, is Transferred shall have executed a
binding counterpart of this Support Agreement and a proxy substantially in
the form attached hereto as Exhibit A.
2.2 Transfer of Voting Rights. The Stockholder hereby agrees that, at all
times commencing with the execution and delivery of this Agreement and
continuing until the Expiration Date, the Stockholder shall not deposit, or
permit the deposit of, any Shares in a voting trust, grant any proxy in
respect of the Shares, or enter into any voting agreement or similar
arrangement or commitment in contravention of the obligations of the
Stockholder under this Agreement with respect to any of the Shares.
3. Agreement to Vote Shares. Until the Expiration Date, at every meeting of
stockholders of Seller called with respect to any of the following matters, and
at every adjournment or postponement thereof, and on every action or approval
by written consent of stockholders of Seller with respect to any of the
following matters, the Stockholder shall, and the Stockholder shall use his
best efforts to cause the holder of record of any Shares to, vote, to the
extent not voted by the person(s) appointed under the Proxy (as defined in
Section 4 hereof), the Shares:
(1) in favor of approval of the Transaction and the adoption and approval
of the Asset Agreement, and in favor of each of the other actions
contemplated by the Asset Agreement, including the Dissolution (as defined
in the Asset Agreement);
3.2 against approval of any proposal made in opposition to, or in
competition with, consummation of the Transaction and the actions
contemplated by the Asset Agreement, including the Dissolution; and
3.3 against any other action that is intended, or would reasonably be
expected to, impede, interfere with, delay, postpone, discourage or
adversely affect the Transaction or any of the other actions contemplated by
the Asset Agreement, including the Dissolution.
Prior to the Expiration Date, the Stockholder shall not enter into any
agreement or understanding with any person to vote or give instructions in any
manner inconsistent with the terms of this Section 3.
4. Irrevocable Proxy. Concurrently with the execution of this Agreement, the
Stockholder agrees to deliver to Buyer, and to use his best efforts to cause
holders of record of shares beneficially owned by Stockholder to deliver to
Buyer, a proxy in the form attached hereto as Exhibit A (the "Proxy"), which
shall be irrevocable to the fullest extent permissible by applicable law, with
respect to the Shares.
5. Representations and Warranties of the Stockholder. The Stockholder hereby
represents and warrants to Buyer that, as of the date hereof: (i) the
Stockholder is the beneficial owner of the number of issued and outstanding
shares of Seller Common Stock set forth on signature page of this Agreement,
(ii) the Stockholder is the record owner of the number of issued and
outstanding shares of Seller Common Stock set forth on signature page of this
Agreement, with full power to vote or direct the voting of such shares for and
on behalf of all beneficial owners of such shares; (iii) the Shares are (and
will be, unless Transferred pursuant to Section 2.1 hereof) free and clear of
any liens, pledges, security interests, claims, options, rights of first
refusal, co-sale rights, charges or other encumbrances; (iv) the Stockholder
does not beneficially own any securities of Seller other than the shares of
Seller Common Stock, and options, warrants and other rights to purchase shares
of Seller
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Common Stock, set forth on the signature page of this Agreement; and (v) the
Stockholder has full power and authority to make, enter into and carry out the
terms of this Agreement and the Proxy.
6. Additional Documents. The Stockholder and Buyer hereby covenant and agree
to execute and deliver any additional documents reasonably necessary or
desirable to carry out the purpose and intent of this Agreement.
7. Termination. This Agreement, the Proxy and all obligations of the
Stockholder hereunder and thereunder shall terminate and be of no further force
or effect as of the Expiration Date.
8. Miscellaneous.
8.1 Waiver. No waiver by any party hereto of any condition or any breach
of any term or provision set forth in this Agreement shall be effective
unless in writing and signed by each party hereto. The waiver of a condition
or any breach of any term or provision of this Agreement shall not operate
as or be construed to be a waiver of any other previous or subsequent breach
of any term or provision of this Agreement.
8.2 Severability. In the event that any term, provision, covenant or
restriction set forth in this Agreement, or the application of any such
term, provision, covenant or restriction to any person, entity or set of
circumstances, shall be determined by a court of competent jurisdiction to
be invalid, unlawful, void or unenforceable to any extent, the remainder of
the terms, provisions, covenants and restrictions set forth in this
Agreement shall remain in full force and effect, shall not be impaired,
invalidated or otherwise affected and shall continue to be valid and
enforceable to the fullest extent permitted by applicable law.
8.3 Binding Effect; Assignment. This Agreement and all of the terms and
provisions hereof shall be binding upon, and inure to the benefit of, the
parties hereto and their respective successors and permitted assigns, but,
except as otherwise specifically provided herein, neither this Agreement nor
any of the rights, interests or obligations of either party hereto may be
assigned without the prior written consent of the other party.
8.4 Amendments. This Agreement may not be modified, amended, altered or
supplemented, except upon the execution and delivery of a written agreement
executed by each of the parties hereto.
8.5 Specific Performance; Injunctive Relief. Each of the parties hereto
hereby acknowledge that (i) the representations, warranties, covenants and
restrictions set forth in this Agreement are necessary, fundamental and
required for the protection of Buyer and to preserve for Buyer the benefits
of the Transaction; (ii) such covenants relate to matters which are of a
special, unique, and extraordinary character that gives each such
representation, warranty, covenant and restriction a special, unique, and
extraordinary value; and (iii) a breach of any such representation,
warranty, covenant or restriction, or any other term or provision of this
Agreement, will result in irreparable harm and damages to Buyer which cannot
be adequately compensated by a monetary award. Accordingly, Buyer and the
Stockholder hereby expressly agree that in addition to all other remedies
available at law or in equity, Buyer shall be entitled to seek the immediate
remedy of specific performance, a temporary and/or permanent restraining
order, preliminary injunction, or such other form of injunctive or equitable
relief as may be used by any court of competent jurisdiction to restrain or
enjoin any of the parties hereto from breaching any representations,
warranties, covenants or restrictions set forth in this Agreement, or to
specifically enforce the terms and provisions hereof.
8.6 Governing Law. This Agreement shall be governed by and construed,
interpreted and enforced in accordance with the internal laws of the State
of Delaware without giving effect to any choice or conflict of law
provision, rule or principle (whether of the State of Delaware or any other
jurisdiction) that would cause the application of the laws of any
jurisdiction other than the State of Delaware.
8.7 Entire Agreement. This Agreement and the Proxy and the other
agreements referred to in this Agreement set forth the entire agreement and
understanding of Buyer and the Stockholder with respect to
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the subject matter hereof and thereof, and supersede all prior discussions,
agreements and understandings between Buyer and the Stockholder, both oral
and written, with respect to the subject matter hereof and thereof.
8.8 Notices. All notices and other communications pursuant to this
Agreement shall be in writing and deemed to be sufficient if contained in a
written instrument and shall be deemed given if delivered personally,
telecopied, sent by nationally-recognized overnight courier or mailed by
registered or certified mail (return receipt requested), postage prepaid, to
the respective parties at the following address (or at such other address
for a party as shall be specified by like notice):
(a) if to Buyer or Parent, to:
Palm, Inc.
5470 Great America Parkway
Santa Clara, CA 95052
Attention: General Counsel
Tel.: (408) 878-7487
Fax: (408) 878-9770
with a copy to:
Palm, Inc.
5470 Great America Parkway
Santa Clara, CA 95052
Attention: General Counsel
Tel.: (408) 878-7487
Fax: (408) 878-9770
and a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304-1050
Attention: Robert Sanchez
Craig Norris
Tel.: (650) 493-9300
Fax: (650) 493-6811
(b) if to the Stockholder, to the address for notice set forth on the
last page hereof,
or to such other address as any party may have furnished to the other in
writing in accordance herewith, except that notices of change of address
shall only be effective upon receipt.
8.9 Entire Agreement. This Agreement contains the entire understanding of
the parties in respect of the subject matter hereof, and supersedes all
prior negotiations and understandings, both oral and written, between the
parties with respect to such subject matter.
8.10 Counterparts. This Agreement may be executed in several
counterparts, each of which shall be an original, but all of which together
shall constitute one and the same agreement.
8.11 Effect of Headings. The section headings herein are for convenience
only and shall not affect the construction or interpretation of this
Agreement.
[Remainder of Page Intentionally Left Blank]
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IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed on the date and year first above written.
PALM, INC. ("PARENT") ECA SUBSIDIARY ACQUISITION CORPORATION
("BUYER")
By: By:
(Signature) (Signature)
Name: Name:
(Print Name) (Print Name)
Title: Title:
"STOCKHOLDER:"
(Print Stockholder Name)
By:
(Signature)
Name:
(Print Name)
Title:
Telephone
Facsimile No.
shares of Seller Common Stock owned
beneficially (but not of record) on the date hereof
shares of Seller Common Stock owned of
record on the date hereof
shares of Seller Common Stock issuable upon
the exercise of outstanding options, warrants or other rights
held on the date hereof
Address:
****SUPPORT AGREEMENT****
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EXHIBIT A
FORM OF
IRREVOCABLE PROXY
The undersigned stockholder of Be Incorporated, a Delaware corporation (the
"Seller"), hereby irrevocably (to the fullest extent permitted by law) appoints
the directors on the Board of Directors of Palm, Inc., a Delaware corporation
("Parent"), and each of them, as the sole and exclusive attorneys and proxies
of the undersigned, with full power of substitution and resubstitution, to vote
and exercise all voting and consent rights (to the full extent that the
undersigned is entitled to do so) with respect to all of the issued and
outstanding shares of capital stock of Seller (including all shares of Seller
Common Stock) that now are or hereafter may be owned of record by the
undersigned (collectively, the "Shares") in accordance with the terms of this
Proxy. The Shares owned of record by the undersigned stockholder of Seller as
of the date of this Proxy are listed on the final page of this Proxy. Upon the
execution of this Proxy by the undersigned, any and all prior proxies given by
the undersigned with respect to any Shares are hereby revoked and the
undersigned hereby agrees not to grant any subsequent proxies with respect to
the Shares until after the Expiration Date (as defined below).
This Proxy is irrevocable (to the fullest extent permitted by law), is
coupled with an interest and is granted pursuant to that certain Stockholder
Support Agreement of even date herewith by and among Parent, ECA Subsidiary
Acquisition Corporation, a Delaware corporation and an indirect wholly owned
subsidiary of Parent ("Buyer"), and the undersigned stockholder (the "Support
Agreement"), and is granted in consideration of Buyer entering into that
certain Asset Purchase Agreement (the "Asset Agreement"), of even date
herewith, by and among Parent, Buyer and Seller, which provides for the sale by
Seller of substantially all of the assets relating to, required for, used in or
otherwise constituting the Operating Systems (as defined in the Asset
Agreement) of Seller, in exchange for shares of common stock of Parent, the
assumption of certain liabilities relating to the Operating Systems and other
consideration (the "Transaction"). As used herein, the term "Expiration Date"
shall mean the earlier to occur of (i) the date on which the Asset Agreement
shall have been validly terminated pursuant to its terms, or (ii) the Closing
Date (as defined in the Asset Agreement).
The attorneys and proxies named above, and each of them, are hereby
authorized and empowered by the undersigned, at any time prior to the
Expiration Date, to act as the undersigned's attorney and proxy to vote the
Shares, and to exercise all voting and consent rights of the undersigned with
respect to the Shares (including, without limitation, the power to execute and
deliver written consents) at every annual, special, adjourned or postponed
meeting of stockholders of Seller and in every written consent in lieu of such
meeting:
(i) in favor of approval of the Transaction and the adoption and approval
of the Asset Agreement, and in favor of each of the other actions
contemplated by the Asset Agreement, including the Dissolution (as defined
in the Asset Agreement);
(ii) against approval of any proposal made in opposition to, or in
competition with, consummation of the Transaction and the actions
contemplated by the Asset Agreement, including the Dissolution; and
(iii) against any other action that is intended, or would reasonably be
expected to, impede, interfere with, delay, postpone, discourage or
adversely affect the Transaction or any of the other actions contemplated by
the Asset Agreement, including the Dissolution. The attorneys and proxies
named above may not exercise this Proxy to vote, consent or act on any
matter except as provided above. The undersigned stockholder may vote the
Shares on all other matters.
Any obligation of the undersigned hereunder shall be binding upon the
successors and assigns of the undersigned.
This Proxy is irrevocable (to the fullest extent permitted by law). This
Proxy shall terminate, and be of no further force and effect, automatically
upon the Expiration Date.
[Remainder of Page Intentionally Left Blank]
D-6
Dated: , 2001
Signature of Stockholder: ________________________
Print Name of Stockholder: _______________________
shares of Seller Common Stock owned of
record on the date hereof
****IRREVOCABLE PROXY****
D-7
ANNEX E
FORM OF
NON-COMPETITION AGREEMENT
THIS NON-COMPETITION AGREEMENT (the "Agreement") is made as of the Effective
Date (as defined below) by and between Palm, Inc., a Delaware corporation
("Parent"), and the undersigned stockholder or optionholder ("Stakeholder") in
Be Incorporated, a Delaware corporation ("Seller").
WHEREAS, concurrently with the execution of this Agreement, Parent, an
indirect wholly owned subsidiary of Parent ("Buyer") and Seller are entering
into an Asset Purchase Agreement dated as of August 16, 2001 (the "Purchase
Agreement") pursuant to which Buyer has agreed to purchase certain of the
assets (the "Assets") of Seller (the "Purchase"). The Closing Date (as defined
in the Purchase Agreement) shall be the "Effective Date" of this Agreement.
WHEREAS, in connection with the Purchase, Seller shall receive significant
consideration in exchange for the sale of Assets pursuant to the terms of the
Purchase Agreement, and it is anticipated that Stakeholder will become an
employee of Parent as of the Effective Date.
WHEREAS, as a condition to the Purchase, and to preserve the value of the
Assets being acquired by Buyer after the Purchase, the Purchase Agreement
contemplates, among other things, that Stakeholder shall enter into this
Agreement and that this Agreement shall become effective on the Effective Date.
WHEREAS, Stakeholder's primary place of employment with Seller is in
California.
NOW, THEREFORE, in consideration of the mutual promises made herein, Parent
and the Stakeholder hereby agree as follows:
1. Covenant Not to Compete or Solicit.
(a) Non-Competition. Beginning on the Effective Date and ending on the
earlier of: (i) the second anniversary of the Effective Date and (ii) the
date of termination of Stakeholder's employment with Parent by Parent for
other than Cause (as defined below) (the "Non-Competition Period"),
Stakeholder shall not (other than on behalf of Parent), without the prior
written consent of Parent, engage in a Competitive Business Activity (as
defined below) anywhere in the Restricted Territory (as defined below). Upon
termination of the Purchase Agreement without the prior occurrence of the
Closing thereunder, this Agreement shall automatically terminate and be of
no further force or effect.
Solely for purposes of this Agreement, the term "Cause" shall mean: (i)
Stakeholder's continued failure to perform his or her duties and
responsibilities in good faith and in a commercially reasonable manner for a
period of thirty days after written notice thereof from Parent to
Stakeholder; (ii) Stakeholder personally engaging in fraud, (iii)
Stakeholder being convicted of a felony; (iv) Stakeholder materially
breaching any term of this Agreement or any other written agreement between
Stakeholder and Parent or any subsidiary of Parent; (v) Stakeholder's
commencement of employment or consulting arrangement with another employer
while he or she is an employee of Parent or any subsidiary of Parent,
without Parent's prior written consent, excluding any service by Stakeholder
as an outside member of a board of directors; (vi) material noncompliance by
Stakeholder with the human resources policies of Parent generally known by
Parent's employees, made known or made available to Stakeholder or delivered
in writing to Stakeholder, provided Stakeholder has been provided notice of
such noncompliance and fails to cure such noncompliance within thirty (30)
days of such notice; (vii) Stakeholder's material nonconformance with
Parent's standard business practices and policies generally known by
Parent's employees, made known or made available to Stakeholder or delivered
in writing to Stakeholder, provided Stakeholder has been provided notice of
such nonconformance and fails to cure such nonconformance within thirty (30)
days of such notice; or (viii) termination or loss, through no fault or
derogation of duty on the part of Parent, of Stakeholder's
E-1
employment authorization from the U.S. Immigration and Naturalization
Service or the U.S. Department of State reflecting a right to work in the
United States.
For all purposes hereof, the term "Competitive Business Activity" shall
mean: (i) engaging in, or managing or directing persons engaged in any
business in competition with Parent's operating systems platform business;
(ii) acquiring or having an ownership interest in any entity that derives
revenues from any business in competition with Parent's operating systems
platform business (except for passive ownership of one percent (1%) or less
of any entity whose securities are publicly traded on a national securities
exchange or market or five percent (5%) or less of any entity whose
securities are not publicly traded on a national securities exchange or
market); or (iii) participating in the operation, management or control of
any firm, partnership, corporation, entity or business (each, an "Entity")
described in clause (ii) of this sentence; provided, however, that
Stakeholder shall not be deemed to be engaging in a Competitive Business
Activity solely because Stakeholder is employed by, serves as an independent
contractor to or is otherwise associated with an Entity that engages in a
Competitive Business Activity if (i) Stakeholder is employed in, serves as
an independent contractor to or is otherwise associated with a division of
such Entity other than the division engaged in a Competitive Business
Activity (a "Competing Division") and (ii) the Stakeholder does not provide
technical, marketing or other assistance to a Competing Division.
For all purposes hereof, the term "Restricted Territory" shall mean each
and every country, province, state, city or other political subdivision of
North America, Central America, South America, Asia, Australia and Europe in
which Parent is currently engaged in business or otherwise distributes,
licenses or sells its products.
(b) Non-Solicitation. During the Non-Competition Period, Stakeholder
shall not (i) solicit, encourage or take any other action which is intended
to induce or encourage, or could reasonably be expected to have the effect
of inducing or encouraging, any employee of the Parent or any of its
subsidiaries to terminate his or her employment with the Parent; provided,
however, that any general solicitation of employees not specifically
targeted to Parent's employees shall not be deemed a violation of this
Section 1(b).
(c) The covenants contained in Section 1(a) hereof shall be construed as
a series of separate covenants, one for each country, province, state, city
or other political subdivision of the Restricted Territory. Except for
geographic coverage, each such separate covenant shall be deemed identical
in terms to the covenant contained in Section 1(a) hereof. If, in any
judicial proceeding, a court refuses to enforce any of such separate
covenants (or any part thereof), then such unenforceable covenant (or such
part) shall be eliminated from this Agreement to the extent necessary to
permit the remaining separate covenants (or portions thereof) to be
enforced. In the event that the provisions of this Section 1 are deemed to
exceed the time, geographic or scope limitations permitted by applicable
law, then such provisions shall be reformed to the maximum time, geographic
or scope limitations, as the case may be, permitted by applicable laws.
(d) Stakeholder acknowledges that following the Effective Date, provided
he becomes an employee of Parent, he will be subject to Parent's trade
secret protection policies and agrees to comply with such policies.
(e) Stakeholder acknowledges (without in any way representing to Parent
any of the following) that (i) the goodwill associated with the Assets prior
to the Purchase is an integral component of the value of Assets to Parent
and is reflected in the consideration to be received by Seller, and (ii)
Stakeholder's agreement as set forth herein is necessary to preserve the
value of the Assets for Parent following the Purchase. Stakeholder also
acknowledges that the limitations of time, geography and scope of activity
agreed to in this Agreement are reasonable because, among other things, (A)
Seller and Parent are engaged in a highly competitive industry, (B)
Stakeholder has unique access to, and will continue to have access to, the
trade secrets and know-how relating to the Assets, including, without
limitation, the plans and strategy (and, in particular, the competitive
strategy) relating to the Assets, (C) if Stakeholder becomes an employee of
Parent following the Effective Date, Stakeholder is accepting employment
with Parent on favorable terms in connection with the Purchase, (D) in the
event Stakeholder's employment with Parent ended, Stakeholder
E-2
would be able to obtain suitable and satisfactory employment without
violation of this Agreement, and (E) this Agreement provides no more
protection than is necessary to protect Parent's interests in its goodwill,
trade secrets and confidential information.
(f) Stakeholder's obligations under this Agreement shall remain in effect
if Stakeholder's employment with Parent is terminated for any reason,
subject to the provisions of Section 1(a) above.
2. Miscellaneous.
(a) Governing Law; Consent to Personal Jurisdiction. This Agreement shall
be governed by the laws of the State of California without reference to
rules of conflicts of law. Stakeholder hereby consents to the personal
jurisdiction of the state and federal courts located in California for any
action or proceeding arising from or relating to this Agreement or relating
to any arbitration in which the parties are participants.
(b) Specific Performance; Injunctive Relief. The parties acknowledge that
Parent will be irreparably harmed and that there will be no adequate remedy
at law for a violation of any of the covenants or agreements of Stakeholder
set forth herein. Therefore, it is agreed that, in addition to any other
remedies that may be available to Parent upon any such violation, Parent
shall have the right to seek enforcement of such covenants and agreements by
specific performance, injunctive relief or by any other means available to
Parent at law or in equity.
(c) Severability. If any portion of this Agreement is held by an
arbitrator or a court of competent jurisdiction to conflict with any
federal, state or local law, or to be otherwise invalid or unenforceable,
such portion of this Agreement shall be of no force or effect and this
Agreement shall otherwise remain in full force and effect and be construed
as if such portion had not been included in this Agreement.
(d) No Assignment. Because the nature of the Agreement is specific to the
actions of Stakeholder, Stakeholder may not assign this Agreement. This
Agreement shall inure to the benefit of Parent and its successors and
assigns.
(e) Notices. All notices and other communications hereunder shall be in
writing and shall be deemed given if delivered personally or by commercial
messenger or courier service, or mailed by registered or certified mail
(return receipt requested) or sent via facsimile (with acknowledgment of
complete transmission) to the parties at the following addresses (or at such
other address for a party as shall be specified by like notice); provided,
however, that notices sent by mail will not be deemed given until received:
(i) if to Parent, to:
Palm, Inc.
5470 Great America Parkway
Santa Clara, CA 95052
Attn: General Counsel
Telephone No.: (408) 878-9000
Facsimile No.: (408) 878-2180
with a copy to:
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
Attn: Katharine A. Martin, Esq.
Telephone No.: (650) 493-9300
Facsimile No.: (650) 493-6811
(ii) if to Stakeholder, at the address set forth on the signature
page hereto.
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(f) Entire Agreement. This Agreement contains the entire agreement and
understanding of the parties and supersedes all prior discussions,
agreements and understandings relating to the subject matter hereof. This
Agreement may not be changed or modified, except by an agreement in writing
executed by Parent and Stakeholder.
(g) Waiver of Breach. The waiver of a breach of any term or provision of
this Agreement, which must be in writing, shall not operate as or be
construed to be a waiver of any other previous or subsequent breach of this
Agreement.
(h) Headings. All captions and section headings used in this Agreement
are for convenience only and do not form a part of this Agreement.
(i) Counterparts. This Agreement may be executed in counterparts, and
each counterpart shall have the same force and effect as an original and
shall constitute an effective, binding agreement on the part of each of the
undersigned.
[Remainder of Page Intentionally Left Blank]
E-4
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
Effective Date.
PALM, INC.:
By: _________________________________
Name: _______________________________
Title: ______________________________
STAKEHOLDER:
By: _________________________________
Name: _______________________________
Address: ____________________________
_____________________________________
_____________________________________
[SIGNATURE PAGE TO NON-COMPETITION AGREEMENT]
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Be Incorporated
800 El Camino Real, Suite 400, Menlo Park, CA 94025
Dear Stockholder:
Formal notice of the Special Meeting of Stockholders to be held on November
12, 2001 at 10:00 a.m. at Holbrook Palmer Park-The Pavilion, 150 Watkins Avenue,
Atherton, California is in the enclosed proxy statement. Please read the proxy
statement and vote promptly. Your vote is important. Please vote today.
For this Special Meeting, you may vote by telephone, Internet, fax or mail.
------------------------------ -------------------------------------------------
Vote by Telephone Have this proxy card available when you call the
toll-free number 1-800-250-9081 using a touch-
tone telephone. Enter your Control Number when
asked and follow the simple prompts.
------------------------------ -------------------------------------------------
Vote by Internet Have this proxy card available when you access
the website at http://www.votefast.com - Enter
your Control Number where indicated and follow
the simple prompts.
------------------------------ -------------------------------------------------
Vote by Fax Please mark, sign and date this proxy card and
fax it to 1-412-299-9191.
------------------------------ -------------------------------------------------
Vote by Mail Please mark, sign and date this proxy card and
return it to Corporate Election Services, P.O.
Box 1150, Pittsburgh, Pennsylvania 15230 in the
enclosed postage-paid envelope.
------------------------------ -------------------------------------------------
Vote 24 hours a day, 7 days a week!
Your telephone or Internet vote must be received by 11:59 p.m. California time
on November 11, 2001 to be counted in the final tabulation.
If you vote by telephone, Internet or fax, please do not send your proxy by
mail.
---------------------------------------------------
Your Control Number is:
---------------------------------------------------
\/ Please fold and detach card at perforation before mailing \/
--------------------------------------------------------------------------------
PROXY Be Incorporated PROXY
--------------------------------------------------------------------------------
This proxy is solicited by the Board of Directors for use at the Special Meeting
of Stockholders on November 12, 2001. The shares of stock you hold in your
account will be voted as specified below. If no choice is specified, the proxy
will be voted "FOR" items 1 and 2. If you wish to withhold the discretionary
authority referred to in Proposal 3 below, you should mark a line through the
entire proposal. The Board of Directors recommends a vote FOR items 1 and 2.
1. To approve the sale by Be of substantially all of Be's intellectual
property and other technology assets, including those related to the BeOS
and BeIA operating systems, to an indirect wholly owned subsidiary of Palm,
Inc. pursuant to the terms of the asset purchase agreement dated August 16,
2001, as amended and restated as of September 10, 2001, in the form of
Annex A attached to the proxy statement.
|_| FOR |_| AGAINST |_| ABSTAIN
2. To approve the dissolution of Be and adopt the plan of dissolution in
the form of Annex B attached to the proxy statement.
|_| FOR |_| AGAINST |_| ABSTAIN
3. In the Board's discretion upon such other business as may properly come
before the Special Meeting of Stockholders or any adjournments thereof.
--------------------------------------------------------------------------------
By signing the proxy, you revoke all prior proxies and appoint Jean-Louis F.
Gassee and Daniel S. Johnston, and each of them, as attorneys and proxies of the
undersigned, with full power of substitution and resubstitution, to vote your
shares on the matters shown above and any other matters which may come before
the Special Meeting of Stockholders and all adjournments.
--------------------------------------------------------------------------------
------------------------------------------------------------
Signature
------------------------------------------------------------
Signature
------------------------------------------------------------
Date
Please sign exactly as your name appears hereon. If signing
as attorney, executor, trustee or guardian, please give your
full title as such. Corporations should provide full name of
corporation and title of authorized officer signing the
proxy.