BSQUARE Buys IP Licensing Firm

<%=company1%> will add a range of new product technologies and capabilities to its current arsenal through the acquisition of Mainbrace Corporation. Mainbrace is a leading IP-licensing and enabling software firm delivering product solutions to high volume market segments including set-top boxes, Web-enabled phones, wireless thin clients, and electronic book readers. The deal, which is a cash and stock transaction, is valued at approximately $21 million.

The Mainbrace acquisition represents another strategic component in BSQUARE's approach to providing complete and innovative software solutions to the rapidly expanding intelligent device market. That market has been projected to grow to over $18 billion in 2003 by International Data Corporation.

This acquisition follows the acquisition of BlueWater Systems in January 2000, in which BSQUARE expanded its base of business to offer solutions to developers of devices based on Windows operating systems outside the embedded family of operating systems, Windows CE and Windows NT Embedded. In both moves, BSQUARE strategically expanded its products and service offerings to create a "total solution" position in which it can take full advantage of the opportunity presented in the escalating intelligent device market. BSQUARE's new combined offerings are unmatched in breadth and depth within the industry.

With this acquisition, BSQUARE will add a family of licensable product solutions to its portfolio, including solutions for Pocket PC, Web Telephone, wireless MSN Web Companion, and Microsoft TV. Mainbrace also brings an extensive list of major customers in key target markets. BSQUARE will continue to expand relationships with key Mainbrace customers including Microsoft, Cadence Design Systems, Philips, IPM and Askey Computer, among others.

"Mainbrace's team comes with a proven track record of developing and deploying complete products and have been key contributors to many Windows-based consumer and Internet-related products. In addition, Mainbrace has a large presence in Silicon Valley, and provides key relationships to help BSQUARE maintain its success in the intelligent device development market. We expect great synergies between our personnel and our product lines that will enable us to service our OEM customer needs faster and better than ever before," said William Baxter, president and CEO of BSQUARE. "Together we will be able to provide the industry's leading products for the development of exciting new intelligent devices like electronic books, Internet phones, set-top boxes, and web pads, to name a few. This is an excellent move for both companies."

The transaction will be accounted for as a purchase of stock. Consideration will include the exchange of approximately 460,000 shares of BSQUARE common stock and approximately $10.8 million in cash for all of the issued and outstanding common shares of Mainbrace. In addition, each option to purchase shares of Mainbrace Common Stock outstanding at the effective time of the Merger will be assumed by BSQUARE and will be treated as an option to purchase that number of shares of BSQUARE Common Stock as calculated by the exchange ratio.

The definitive agreement has been signed, and closing of the transaction will occur upon completion of the closing conditions which include obtaining necessary consents and complying with government filing requirements. Mainbrace's revenues and net income were approximately $3.5 million and ($0.3) million in 1999, respectively; and had net equity of approximately $0.4 million at December 31, 1999.

Edited by Bruce A. Bennett