Palm and Microsoft Announce Windows Mobile Treo

What do they need R&D money for? To discover more efficient ways to forward MS specs to HTC for design and manufacturing?

Background of the Merger

PalmSource’s board of directors has periodically discussed and reviewed PalmSource’s business, strategic direction, performance and prospects in the context of developments in the PDA, smartphone and feature phone markets and the competitive landscapes in which PalmSource operates. PalmSource’s board has also at times discussed with senior management various potential strategic alternatives involving possible acquisitions or business combinations that could complement and enhance PalmSource’s competitive strengths and strategic position.

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Recognizing the maturing of its core PDA business, during the fiscal year ending June 3, 2005, PalmSource began to transition its business model to address potential new growth opportunities in the broader phone market. As part of this strategy, in January 2005, PalmSource completed its acquisition of China MobileSoft Ltd., the parent of a Nanjing, China-based developer and licensor of software for mobile feature phones, a potential new platform for Palm OS outside of the current smartphone market. In addition, PalmSource announced a corporate restructuring on June 29, 2005, which included a 16% reduction in PalmSource’s U.S. headcount. PalmSource intended the restructuring to streamline its operating infrastructure, focus its product development activities and accelerate the integration of the China-based engineering resources into PalmSource’s global product development efforts

Between late May 2005 and July 2005, PalmSource was approached by ACCESS Co. and by a communications technology company, Nokia, on an unsolicited basis, to discuss a potential strategic relationship. This led in each case to unsolicited indications of interest in acquiring PalmSource.

Having received two unsolicited inquiries regarding a potential acquisition, on July 6, 2005, PalmSource’s board of directors approved engaging financial and business advisors to assist PalmSource in evaluating its strategic alternatives. In addition, board members Gassée, Finocchio and Keever were appointed as a committee to oversee, on a day to day basis, the process of reviewing strategic alternatives and to report back to the entire board with respect to material developments and recommendations. The board of directors also subsequently engaged an outside consultant to assist the committee in its activities.

On July 13, 2005, the committee of the board interviewed potential financial advisors to advise the company with respect to the unsolicited inquiries and the company’s strategic alternatives and, on July 18, 2005, PalmSource engaged Jefferies Broadview.

Following Mr. Finocchio’s resignation from the PalmSource board of directors on July 18, 2005, Dr. Shoven was named to the committee.

On July 18, 2005, members of the committee and PalmSource’s senior management met with representatives of Jefferies Broadview and representatives of Howard Rice Nemerovski Canady Falk & Rabkin (referred to in this proxy statement as Howard Rice), PalmSource’s external legal counsel, to discuss the initial inquiries and to discuss a process to consider strategic alternatives. A list of companies that could potentially have an interest in discussions with PalmSource was compiled and reviewed during the meeting. Three companies in addition to ACCESS and Nokia were selected by PalmSource for initial contact by Jefferies Broadview.

On July 19, 2005, Messrs. Nobuya Murofushi and Koichi Narasaki from ACCESS Co. met with the committee, PalmSource’s senior management and representatives of Jefferies Broadview to discuss the rationale and strategy for a potential acquisition.

During late July and early August 2005, Jefferies Broadview was in contact with ACCESS Co., Nokia and three other communications technology and mobile computing companies to discuss a potential strategic transaction with PalmSource. One of these other companies determined it was not interested in considering the opportunity. The remaining companies, ACCESS Co., Nokia, Palm and Motorola, conducted preliminary diligence on PalmSource and held various meetings with members of the committee, PalmSource’s senior management and representatives of Jefferies Broadview during late July and early August 2005.

During August 2005, Motorola determined that it was not prepared to make a proposal to acquire PalmSource, leaving ACCESS Co., Nokia and Palm in the process.

On August 18 and 19, 2005, ACCESS Co. and Nokia provided initial indications of interest to acquire PalmSource at prices in the range of $12.25 to $12.75 per share in cash.

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On August 19, 2005, the committee met with PalmSource’s senior management, representatives of Jefferies Broadview and the outside consultant to the committee to review the status of the process being conducted by Jefferies Broadview and the indications of interest received from ACCESS Co. and Nokia.

On August 20, 2005, Palm provided its initial indication of interest to acquire PalmSource at a price of $11.00 per share in half cash and half stock.

On August 21, 2005, PalmSource’s board of directors held a special meeting at which PalmSource’s senior management, representatives of Jefferies Broadview, representatives of Howard Rice and the outside consultant were present to discuss the status of the process and the initial indications of interest received from the three potential bidders. Howard Rice advised the board with respect to its fiduciary obligations with respect to a transaction of the type proposed by the indications of interest and the standard of care that would have to be satisfied under Delaware law in meeting those obligations. Based on the initial indications of interest that had been received from ACCESS Co. and Nokia and taking into consideration PalmSource’s prospects as a stand-alone entity, the board of directors decided it was in the best interests of the stockholders of PalmSource to continue the process and to provide ACCESS Co. and Nokia with the opportunity to conduct broader diligence on PalmSource. The board of directors determined that Palm's bid was not competitive with the other bids and directed Jefferies Broadview to inform Palm that it would not be allowed into the next stage of the process based on its current bid. In addition, PalmSource directed Howard Rice to begin preparation of a draft merger agreement to present to the bidders.

On August 21, 2005, at the direction of the board of directors, Jefferies Broadview contacted Palm and informed Palm that it would not be included in the next stage of the process because its initial indication of interest was not competitive. On August 24, 2005, Palm provided a revised initial indication of interest at a price of $13.00 per share and on August 25, 2005, Palm was provided the opportunity to conduct broader diligence on PalmSource.

Following the August 21, 2005 PalmSource special board meeting, at the direction of the board of directors, Jefferies Broadview contacted two additional companies, a communications technology company and a network computing company, to gauge their interest in a potential strategic transaction with PalmSource. Both of these companies subsequently indicated that they were not interested in pursuing a transaction.

During the period beginning August 22, 2005, with respect to ACCESS Co. and Nokia, and beginning August 25, 2005, with respect to Palm, through September 6, 2005, the bidders met with members of PalmSource’s senior management, members of the committee and the outside consultant and conducted in depth diligence on the business, technology, operations and financial condition of PalmSource. A draft merger agreement was provided to each of the three bidders during this period. Counsel for each of the bidders and representatives of Howard Rice exchanged drafts of the merger agreement and negotiated with respect to the terms of each of the three proposed merger agreements, including terms related to the potential structures for the transaction, treatment of employee equity incentives and the scope and content of the disclosure schedules.

On September 5, 2005, ACCESS Co., Nokia and Palm provided bids to acquire PalmSource at prices in the range of $13.00 to $14.00 per share. ACCESS Co. and Nokia proposed all cash transactions, and Palm proposed a half cash and half stock transaction.

On September 5, 2005, the committee met with PalmSource’s senior management, representatives of Jefferies Broadview, representatives of Howard Rice and the outside consultant to review and consider the three bids. The committee directed Jefferies Broadview to instruct the three bidders to provide final bids on September 7, 2005.

On September 6, 2005, the committee and PalmSource’s senior management met with members of Nokia's senior management. At this meeting, Nokia presented its strategy if the proposed strategic transaction were to proceed and Nokia acquired PalmSource.

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On September 6, 2005, PalmSource’s senior management and Jefferies Broadview held meetings with senior management of Palm to conduct diligence on the bidder’s business and financial condition given that Palm was offering stock as a part of the consideration for the transaction.

On September 6, 2005, PalmSource’s board of directors held a special meeting at which PalmSource’s senior management, representatives of Jefferies Broadview, representatives of Howard Rice and the outside consultant were present to discuss the status of discussions with ACCESS Co., Nokia and Palm and to review their bids. There was extensive discussion about the transactions proposed by the three bidders, the different structures and consideration being offered, the risks and benefits of each structure and the financial condition of each of the three bidders.

On September 7, 2005, ACCESS Co., Nokia and Palm provided revised bids to acquire PalmSource in the range of $15.00 to $15.90 per share. The proposed nature of the consideration being offered by the three bidders remained unchanged from the initial bids.

On September 7, 2005, PalmSource’s board of directors held a special meeting at which PalmSource’s senior management, representatives of Jefferies Broadview, representatives of Howard Rice and the outside consultant were present to review the revised bids to acquire PalmSource. Further discussion was held about the proposed transaction and the relative risks and benefits of proceeding with each bidder. During the board meeting, PalmSource received increased bids from ACCESS Co. and Nokia and discussed with all three bidders the prospects of obtaining higher offers. Palm did not increase its bid during the meeting. ACCESS Co.’s last and highest bid to acquire PalmSource was for $17.00 per share in an all-cash transaction. The last and highest bid from Nokia to acquire PalmSource was for $17.25 per share in an all-cash transaction, conditioned on completion of merger agreement negotiations and execution of a definitive agreement prior to the opening of market the next day. The board of directors concluded that Nokia had made the highest bid and Jefferies Broadview delivered its oral opinion that, as of September 7, 2005, based on and subject to certain assumptions, qualifications, limitations and factors, the $17.25 in cash per share to be received by holders of PalmSource common stock was fair, from a financial point of view, to holders of PalmSource common stock. Howard Rice summarized legal and contractual issues relating to the proposed transaction, including the status of the merger agreement, the disclosure schedule and closing conditions to which the transaction would be subject. PalmSource’s board of directors then informed Nokia that it had authorized its senior management and counsel to proceed on the basis of the $17.25 per share bid, conditioned on completion of merger agreement and disclosure schedule negotiations and execution of a definitive agreement.

After the September 7, 2005 special board meeting, negotiations continued between counsel for Nokia and Howard Rice concerning the terms of a definitive merger agreement and the related disclosure schedule.

Very shortly after the September 7, 2005 special board meeting, ACCESS Co. submitted to PalmSource by e-mail an unsolicited increased offer to acquire PalmSource for $18.50 per share in an all-cash transaction. Mr. Gassée, members of PalmSource’s senior management, representatives of Jefferies Broadview, representatives of Howard Rice and the outside consultant then discussed this higher offer. It was determined that a special board meeting needed to be convened on September 8, 2005 to consider the higher offer. Jefferies Broadview was directed to inform the financial advisor to Nokia that a higher offer had been received and that the PalmSource board of directors was reviewing the higher offer. Through the night of September 7, 2005 and into the morning of September 8, 2005, representatives of Howard Rice continued to negotiate the terms of definitive merger agreements and disclosure schedules with counsel to ACCESS Co. and counsel to Nokia.

On September 8, 2005, PalmSource received a letter from Nokia demanding that PalmSource enter into an agreement with Nokia based on the $17.25 price. ACCESS Co. was apprised of the receipt of that letter.

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On September 8, 2005, PalmSource’s board of directors convened a special meeting at which PalmSource’s senior management, representatives of Jefferies Broadview, representatives of Howard Rice and the outside consultant were present to discuss the ACCESS Co. $18.50 bid and the demand letter from Nokia. Howard Rice again advised the board with respect to its fiduciary obligations. The board of directors directed management to continue negotiations of the terms of the definitive merger agreements and disclosure schedules with ACCESS Co. and with Nokia. The board of directors adjourned the meeting and set a time for reconvening later that day.

During the adjournment of the September 8, 2005, special board meeting, at the direction of the board of directors, Jefferies Broadview contacted ACCESS Co. to have ACCESS Co. confirm its bid at $18.50 and Howard Rice continued to negotiate with counsel to ACCESS Co. and with counsel to Nokia the terms of definitive merger agreements and disclosure schedules.

Later on September 8, 2005, PalmSource’s board of directors reconvened and was presented with the terms of the definitive merger agreement and disclosure schedule that had been negotiated with ACCESS Co. PalmSource’s senior management, representatives of Jefferies Broadview and representatives of Howard Rice were present when the board reconvened. Jefferies Broadview discussed the financial capability of ACCESS Co. to close the transaction. Howard Rice summarized legal and contractual issues relating to the proposed transaction with ACCESS Co., including closing conditions to which the transaction would be subject. Jefferies Broadview reviewed its financial analysis of the merger consideration proposed in the ACCESS Co. transaction. Jefferies Broadview then rendered its oral opinion, subsequently confirmed in writing, that, as of September 8, 2005, based on and subject to certain assumptions, qualifications, limitations and factors described in the Jefferies Broadview opinion, the $18.50 in cash per share, as such amount may be adjusted in accordance with the merger agreement, to be received by holders of PalmSource common stock pursuant to the merger agreement was fair, from a financial point of view, to such holders. During the course of the meeting, representatives of Nokia contacted Jefferies Broadview to inform Jefferies Broadview that Nokia was prepared to discuss an offer that was above their last offer price but was still below ACCESS Co.’s offer. This information was communicated to the board of directors, but no further bid was made by Nokia. By the unanimous vote of directors present at the time of the vote, PalmSource’s board, among other things, duly approved the merger agreement with ACCESS Co. as being in the best interests of the stockholders of PalmSource and directed that the merger agreement be submitted to PalmSource’s stockholders for adoption at the annual meeting with the recommendation of the board that PalmSource’s stockholders adopt the merger agreement at the annual meeting. During the special meeting, PalmSource entered into the merger agreement with ACCESS Co.

Following the special meeting and later that evening, the transaction was publicly announced in both Japan and the United States and, on September 9, 2005, PalmSource filed a Form 8-K with the SEC describing the transaction.

Other Recent Events

On September 13, 2005, Nokia submitted a letter to PalmSource demanding payment of $8,697,595 and stating that Nokia intended to file a complaint against PalmSource in Delaware Chancery Court for New Castle County if the payment was not made by September 16, 2005. The letter enclosed a copy of a draft complaint against PalmSource alleging a claim for breach of contract. In the letter and in the draft complaint, Nokia generally alleged the following: (i) PalmSource and Nokia entered into a purported merger agreement, (ii) PalmSource elected not to proceed with the purported merger agreement with Nokia, and (iii) PalmSource must pay Nokia $8,697,595 in connection with a termination provision in the purported merger agreement. In a letter to Nokia dated September 16, 2005, PalmSource denied all of Nokia's allegations and maintained that PalmSource did not enter into a definitive merger agreement with Nokia. On September 20, 2005, Nokia sent a response to PalmSource’s September 16, 2005 letter stating that Nokia would withhold further action until at least October 1, 2005.

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I'm surprised Colligan was smiling so much at the press conference seeing how Beelzebub Gates just ****** him up the ***. Ouch!

Fo' shizzle ma bizzle

Where they missed out was the lack of wifi in most of their units when everyone else had it in their whole lineup.

--
http://www.arpx.net/article.php/top_10_palmos_applications - my top 10 palm apps

There is no ambiguity about what is an OS and what is not.

PALM has to twiddle coonsiderably low-level OS stuff to get it to work - always has with the TREO line for sure.

I'll stick with my interpretation of his remarks.

Oh don't be dense. So there's no ambiguity about whether he considers Palm OS for Linux to be Palm OS or "another" OS? And your assumption is that Palm just needed to what? Bleed off some excess cash when it licensed the Palm OS through 2009?

David Beers
Pikesoft Mobile Computing
www.pikesoft.com
Software Everywhere blog
www.pikesoft.com/blog

If Colligan thinks PalmOS and PalmLinux are just slight variations on PalmOS then PALM is in bigger trouble thaan we suspect!

Of course not. But you have to admit that there is some ambiguity as to whether "Palm OS" refers to "Palm OS for Linux" or not. Colligan's remark clearly excludes the possibility of Palm doing a Linux phone using the maemo or qTopia APIs, which don't have all the things that make Palm OS familiar (like the applications, PACE, HotSync, Exchange Manager, Palm Desktop, etc etc). But Palm OS for Linux will have all these defining elements, even if the kernel is different.

Palm is not going to say they are committed to Palm OS for Linux, because in the terms of their license renewal there is no such commitment implied. Just as they conditioned the collaboration with Microsoft on MS giving them room to innovate on top of the OS, there are clearly conditions for Palm's adoption of Palm OS for Linux (the milestones referred to in the agreement). And even if those conditions are met by PalmSource Palm could still decline to use the new Palm OS. They don't have anything you would call a "plan", then, but for several reasons I think it's reasonable to deduce that they are actively investigating it with significant staff and money.

The most reasonable way to reconcile the hiring of all those Linux engineers with Colligan's statement that they are not developing a Linux phone is by recognizing that:

(a) Colligan considers Palm OS for Linux to be more "Palm OS" than whatever he means by "Linux" (which by the way is *not* an operating system), and

(b) Palm thinks Palm OS for Linux is worth investing some R&D in.

Here are how the job descriptions for several positions currently on the Palm site start out:

"Linux Engineer, Mobile Handset....As a Linux Engineer, you will play a key role in the architecture, design and implementation of enabling technologies for a new generation of Palm devices."

"Senior Linux Software Engineer....As the Senior Software Engineer, you will play a key role in the architecture, design and implementation of enabling technologies for a new generation of Palm devices."

Several other positions require

"Significant project experience developing software for Palm OS or UNIX/Linux"

or

1 year of experience in developing or testing device drivers (Linux preferably)

Maybe you can, but I don't know how to make sense of this except to conclude they are actively investigating Palm OS for Linux as a future smartphone platform.

David Beers
Pikesoft Mobile Computing
www.pikesoft.com
Software Everywhere blog
www.pikesoft.com/blog

He also denied any Symbian or Linux Treo.

Surur

What does this say about The Next Great Thing outta ACCESS/PSRC?

You might as well ask a Yankees fan how he felt about the Red Sox winning the World Series last year.

-David

Visit me on the web at
http://www.permanent4.com/

How about OS 4.1 with a nice, high-contrast monochrome screen, AA cells and Graffiti 1!

Or maybe they renewed their license purely as a sentimental gesture toward PalmSource. Shareholders love that kind of thing.

Boy, it's hard to say.

David Beers
Pikesoft Mobile Computing
www.pikesoft.com
Software Everywhere blog
www.pikesoft.com/blog

Not sure what that was in response to, but I agree that it's faster and easier to develop .NET applications than Palm OS C API apps if you don't have a good bag of tricks already assembled for doing Palm development.

If you want a high-level language with object-orientation and good access to the underlying system you should take a look at SuperWaba, though. You can use any Java development environment (like Eclipse) then sell your apps to both Palm and Windows Mobile users (as well as Linux and Symbian Series 80).

David Beers
Pikesoft Mobile Computing
www.pikesoft.com
Software Everywhere blog
www.pikesoft.com/blog

From my experiences, the Palm OS constistently wins the best user experience award over Windows Mobile applications. The user interface is the only aspect that truly matters.

I am a contractor for a large healthcare technologies company. Our contracting team developed a Palm OS client (CodeWarrior C++) and employees developed the Windows Mobile client (.NET and SQL Server CE) of a handheld application for hospitals.

The Palm OS client starts instantaneously, completes form transitions in less than a second, uses custom drawing in table controls to ensure neat row/column displays and fully supports five-way navigation and rectangular (portrait/landscape) screen displays.

The Windows Mobile client takes five to ten seconds TO START, completes form transitions in one to five seconds, creates jagged and improperly sized rows and columns in its “automatic” table control and does not support five-way navigation or portrait/landscape screen layouts.

However, in the interest of full disclosure, this Palm OS developer of five years started learning Windows Mobile and .NET Compact Framework development last week. After Colligan and company effectively announced the death of the Palm OS today, I have a lot of catching up to do. My first challenge will be making Windows Mobile applications that match or beat the user interface experience and performance of Palm OS applications. It's a tall order...

So that's two checks against the Windows Mobile Treo with the kind of business clients my company writes custom applications for.

The average PIC poster screams that "Palm OS is dead" but what they're really saying is that they think they won't get the Palm OS device that they want in the future. So they project this to the whole diverse market. It's understandable.

Relyons, your company's experience with .NET Compact Framework matches mine. .NET is a very productive development environment, but managed code exacts a performance penalty that can be objectionable to people who are used to Palm OS. Of course, the newer Palm devices aren't as fast as they used to be, thanks in large part to Palm's implementation of NVFS. Also I've seen the specs on Windows Mobile 5.0 and it looks like they've done a lot to improve performance of managed code. So unfortunately I don't think snappy performance in business applications is a selling point for Palm OS anymore.

David Beers
Pikesoft Mobile Computing
www.pikesoft.com
Software Everywhere blog
www.pikesoft.com/blog

You are describing many people's LifeDrive experience. Do you know what the recommended procedure for upgrading to a LifeDrive is. First you need to delete your backup folder, and then install software one at a time, run if for a few days to assess stability, and then add the next piece of software. Rinse and repeat. Also keep a backup of your preference database on a storage card, as these are prone to disappearing. Two weeks later, once you have run out of your return period it will lock up and die. Return your paperweight to Palm. Start over again.

Surur

I just feel like we were portrayed by Palm.

"For now, Palm remains the simpler, faster choice. But if Microsoft keeps plugging away, that won't be the case forever."

There still is time for Access to save the platform. Their buyout will let this fight go on for a while longer, I hope.

It is this fight (drama sometimes), and the hope for something better that makes following mobile OS world so fun.

As for the numbers, it was to allow them to call/SMS each other on the stage, like Ed's call to the demo guy. I am sure those numbers will be thrown away by the end of the day. It did provide some amusement though to see audience members SMS'ing questions.

Easy, it was running on a modern PalmOne device running a Microsoft operating system.

Welcome to the new smartphone market.

Welcome to the new smartphone market."

EXACTLY!

All good things...

The Missing Sync lets Macs talk to Windows Mobile devices. It's not free, but it reportedly works (and it's actually supported by a company that cares about the Mac platform).

Palm (formerly PalmOne) isn't the one to blame; PalmSource started the ball rolling by stating Cobalt wouldn't support Mac synchronisation:
http://www.palminfocenter.com/view_story.asp?ID=6547

so if Palm had released a Cobalt powered PDA it wouldn't be able to sync out of the box with a Mac; you'd be in the same position as someone with WinMob where you'd need third party software to sync info between Mac and PDA.

I remember Palm (formerly PalmOne) promised to bundle such software with their Cobalt PDAs to enable them to sync with OS X despite PalmSource's lack of effort in the area. Of course we don't have any Cobalt PDAs to see if it would have worked!

"What counts is not necessarily the size of the dog in the fight but the size of the fight in the dog" - Dwight D. Eisenhower