<PAGE>
As filed with the Securities And Exchange Commission on January 19, 2000
Registration No. 333-
- -------------------------------------------------------------------------------
- -------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
----------------
FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
----------------
LINUXCARE, INC.
(Exact name of Registrant as specified in its charter)
<TABLE>
<S> <C> <C>
Delaware 7379 94-3315402
(State or other (Primary Standard Industrial (I.R.S. Employer
jurisdiction of
incorporation or Classification Code Number) Identification Number)
organization)
</TABLE>
Linuxcare, Inc.
650 Townsend Street
San Francisco, California 94103
(415) 354-4878
(Address, including zip code, and telephone number, including area code, of
Registrant's principal executive offices)
----------------
Fernand B. Sarrat
President and Chief Executive Officer
Linuxcare, Inc.
650 Townsend Street
San Francisco, California 94103
(415) 354-4878
(Name, address, including zip code, and telephone number, including area code,
of agent for service)
----------------
Copies to:
<TABLE>
<S> <C>
John V. Roos, Esq. William J. Whelan, III, Esq.
Page Mailliard, Esq. Cravath, Swaine & Moore
Jonathan D. Levy, Esq. Worldwide Plaza
James P.A. Shulman, Esq. 825 Eighth Avenue
Deanna M. Butler, Esq. New York, NY 10019
Wilson Sonsini Goodrich & Rosati (212) 474-1000
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
(650) 493-9300
</TABLE>
----------------
Approximate date of commencement of proposed sale to the public: As soon as
practicable after the effective date of this Registration Statement.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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- --------------------------------------------------------------------------------
<CAPTION>
Proposed Maximum
Title of Each Class of Aggregate Amount of
Securities to be Registered Offering Price(1) Registration Fee
- --------------------------------------------------------------------------------
<S> <C> <C>
Common Stock, $0.001 par value.............. $92,000,000 $24,288
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</TABLE>
(1) Estimated pursuant to Rule 457(o) of the Securities Act of 1933 solely for
the purpose of computing the amount of the registration fee.
----------------
The Registrant hereby amends this Registration Statement on such date or
dates as may be necessary to delay its effective date until the Registrant
shall file a further amendment which specifically states that this
Registration Statement shall thereafter become effective in accordance with
Section 8(a) of the Securities Act of 1933 or until the Registration Statement
shall become effective on such date as the Commission, acting pursuant to said
Section 8(a), may determine.
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- -------------------------------------------------------------------------------
<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+The information in this prospectus is not complete and may be changed. We may +
+not sell these securities until the registration statement filed with the +
+Securities and Exchange Commission is effective. This prospectus is not an +
+offer to sell these securities and it is not soliciting an offer to buy these +
+securities in any state where the offer or sale is not permitted. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 19, 2000
Shares
[LOGO OF LINUXCARE]
Common Stock
--------
Prior to this offering, there has been no public market for our common stock.
The initial public offering price of our common stock is expected to be between
$ and $ per share. We have applied to list our common stock on The Nasdaq
Stock Market's National Market under the symbol "LXCR".
The underwriters have an option to purchase a maximum of additional
shares to cover over-allotments of shares.
Investing in our common stock involves risks. See "Risk Factors" on page 4.
<TABLE>
<CAPTION>
Underwriting
Price to Discounts and Proceeds to
Public Commissions Linuxcare
------------ ------------- ------------
<S> <C> <C> <C>
Per Share.................................. $ $ $
Total...................................... $ $ $
</TABLE>
Delivery of the shares of common stock will be made on or about , 2000.
Neither the Securities and Exchange Commission nor any state securities
commission has approved or disapproved of these securities or determined if
this prospectus is truthful or complete. Any representation to the contrary is
a criminal offense.
Credit Suisse First Boston
Chase H&Q
Robertson Stephens
The date of this prospectus is , 2000.
<PAGE>
------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Prospectus Summary.................. 1
Risk Factors........................ 4
Special Note Regarding Forward-
Looking Statements................. 14
Use of Proceeds..................... 15
Dividend Policy..................... 15
Capitalization...................... 16
Dilution............................ 17
Unaudited Pro Forma Combined
Financial Statements............... 18
Selected Financial Data............. 21
Management's Discussion and
Analysis of Financial Condition and
Results of Operations.............. 22
Business............................ 27
</TABLE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
Management......................... 38
Certain Relationships and
Related Transactions.............. 50
Principal Stockholders............. 52
Description of Capital Stock....... 54
Shares Eligible for Future Sale.... 57
United States Tax Consequences to
Non-United States Holders......... 59
Underwriting....................... 62
Notice to Canadian Residents....... 65
Legal Matters...................... 66
Experts............................ 66
Additional Information............. 66
Index to Financial Statements...... F-1
</TABLE>
------------
You should rely only on the information contained in this document or to
which we have referred you. We have not authorized anyone to provide you with
information that is different. This document may only be used where it is legal
to sell these securities. The information in this document may only be accurate
on the date of this document.
Dealer Prospectus Delivery Obligation
Until , 2000 (25 days after the commencement of this offering), all
dealers that effect transactions in these securities, whether or not
participating in this offering, may be required to deliver a prospectus. This
is in addition to the dealer's obligation to deliver a prospectus when acting
as an underwriter and with respect to unsold allotments or subscriptions.
<PAGE>
PROSPECTUS SUMMARY
This summary highlights information described more fully elsewhere in this
prospectus. This summary is not complete and may not contain all the
information you should consider before investing in our common stock. You
should read the entire prospectus, including the financial statements and their
related notes, before making an investment decision. Except as otherwise
indicated, all information in this prospectus reflects the conversion of all
shares of our preferred stock into shares of common stock automatically upon
completion of this offering, and assumes that the underwriters' over-allotment
option will not be exercised.
[LOGO OF LINUXCARE]
We are a recognized leader in providing services for Linux. We offer a
comprehensive range of services spanning the entire software and hardware life
cycle for Linux, leading open-source software packages and related
technologies. We offer services for all leading distributions of Linux on major
hardware platforms. We help our customers choose the best Linux solution,
integrate it with their existing computing infrastructure and provide them with
ongoing support. We have assembled a worldwide team of prominent Linux experts
who actively participate in the Linux and open-source communities and are
significant contributors to leading open-source projects. We are implementing
an advanced Internet-based infrastructure to communicate with and to deliver
services to our global base of customers. This infrastructure is designed to
deliver our services remotely, thereby reducing the need for on-site
professionals. As part of this infrastructure, we have built a knowledge
sharing and management database consisting of information gained from all of
our business units.
Since our inception, we have targeted our services toward large business
customers. We focus our sales and marketing efforts on original equipment
manufacturers, or OEMs, software vendors, Global 1000 companies and Internet
infrastructure providers. As a result of our early leadership in services for
Linux, we have forged strategic relationships with leading technology vendors
including Dell Computer, Hewlett-Packard, IBM Global Services, Motorola, NEC
Software, Oracle, Sun Microsystems and TurboLinux.
Linux is emerging as the leading operating system for the Internet.
According to an April 1999 survey conducted by the Internet Operating System
Counter, Linux ran on approximately 31% of the Web servers polled, more than
any other operating system. Linux offers multiple benefits to businesses
including high quality and reliability, reduced total cost of ownership,
improved interoperability with existing computing infrastructures and greater
customizability.
To enable customers to benefit fully from their Linux investments, we offer
a broad range of services, including:
. professional services--consulting services to help customers
successfully implement Linux solutions;
. technical support--customer support services 24 hours a day, seven days
a week on complex issues ranging from operating system installation to
application usage;
. education--courseware for Linux and other open-source technologies
through Linuxcare University; and
. product certification--vendor-neutral certification of hardware for use
with Linux by Linuxcare Labs.
Our objective is to become the leading provider of Linux-related services
by:
. leveraging our alliances with leading OEMs and software vendors that not
only represent an opportunity to reach a broad customer base, but are
direct consumers of our services as well;
. expanding our sales and marketing efforts towards Global 1000 companies
and Internet infrastructure providers;
1
<PAGE>
. extending our technical leadership to maintain the high quality of our
services, increase the effectiveness of our solutions and attract and
retain world-class Linux experts;
. leveraging our advanced Internet-based infrastructure to deliver the
highest quality and most responsive services to our customers;
. strengthening our brand; and
. continuing to promote the adoption and development of Linux.
We believe it is imperative for us to maintain a close relationship with the
open-source community. Therefore, we actively support open-source initiatives,
dedicating time and resources to projects that improve the Linux operating
system and related applications. We also sponsor and participate in
organizations that foster the development and adoption of Linux. We have
established goodwill in the Linux and open-source communities through our
active involvement, making us an attractive company for Linux experts to join.
We were incorporated in Delaware in December 1998. Our principal executive
offices are located at 650 Townsend Street, San Francisco, California 94103 and
our telephone number is (415) 354-4878. Our corporate website is located at
www.linuxcare.com. Information contained on this website or any other website
referenced elsewhere in this prospectus does not constitute a part of this
prospectus.
The Offering
<TABLE>
<S> <C>
Common stock offered................ shares
Common stock to be outstanding after
this offering...................... shares
Use of proceeds..................... For general corporate purposes, expansion
of our information technology
infrastructure, working capital and
potential acquisitions. See "Use of
Proceeds."
Proposed Nasdaq National Market
symbol............................. LXCR
</TABLE>
The total number of outstanding shares of our common stock above is based
on:
. the assumed conversion of all shares of Series B preferred stock as of
January 18, 2000 into 7,297,901 shares of common stock upon completion
of this offering;
. shares of our common stock outstanding as of , 2000;
. the assumed conversion of all shares of Series A preferred stock
outstanding as of September 30, 1999 into 7,917,536 shares of common
stock upon completion of this offering.
This number excludes the following:
. shares of restricted common stock outstanding as of , 2000;
. 295,265 shares represented by warrants for Series A redeemable
convertible preferred stock;
. shares of common stock available for issuance under our 1999 Stock
Plan;
. 1,000,000 shares of common stock available for issuance under our 2000
Employee Stock Purchase Plan immediately following the offering;
. 300,000 shares of common stock issuable upon exercise of options to be
granted upon the closing of the offering pursuant to the 2000 Director
Option Plan; and
. shares of common stock issuable upon exercise of options
outstanding as of , 2000 with a weighted average price of $0.09
per share.
2
<PAGE>
Summary Financial Information
The statement of operations data presented below has been prepared from the
unaudited pro forma combined financial statements as of and for the nine months
ended September 30, 1999, giving effect to two acquisitions that occurred after
September 30, 1999 as if such transactions had occurred on January 1, 1999. The
pro forma combined summary financial information excludes the effect of the
assumed conversion of all shares of Series A and Series B preferred stock.
<TABLE>
<CAPTION>
Pro forma
combined
nine months ended
September 30,
1999
-----------------
<S> <C>
Statement of Operations Data:
Revenues..................................................... $ 518,111
Cost of revenues............................................. 1,515,998
Gross margin................................................. (997,887)
Loss from operations ........................................ (10,443,563)
Net loss applicable to common stockholders................... (10,643,341)
Basic and diluted net loss per share......................... (5.54)
Weighted average shares used in computing pro forma basic and
diluted net loss
per share .................................................. 1,945,773
</TABLE>
<TABLE>
<CAPTION>
September 30, 1999
------------------------
Actual As adjusted
----------- -----------
<S> <C> <C>
Balance Sheet Data:
Cash and cash equivalents............................ $ 863,459 $
Working capital (deficit)............................ (1,060,193)
Total assets......................................... 3,357,548
Note payable and equipment financing, less current
portion............................................. 1,805,366
Redeemable convertible preferred stock............... 6,326,365
Total stockholders' deficit.......................... (6,955,595)
</TABLE>
See note 1 of notes to financial statements included elsewhere in this
prospectus for an explanation of the determination of the number of shares used
in computing per share data and the complete discussion on unaudited pro forma
earnings per share.
The as adjusted pro forma amounts above give effect to the sale of the
shares of common stock offered hereby at an assumed public offering price of
$ per share (less underwriting discounts and commissions and estimated
offering expenses) and the conversion at the closing of this offering of
shares of preferred stock into shares of common stock as of , 2000. See
"Use of Proceeds" and "Capitalization."
3
<PAGE>
RISK FACTORS
Any investment in our common stock involves a high degree of risk. You
should carefully consider the risks described below and all of the information
contained in this prospectus before deciding whether to purchase our common
stock.
Risks Related to Our Business
We have a limited operating history and operate in a new industry which makes
evaluating our business prospects and results of operations difficult.
We were incorporated in December 1998 and had revenues of $304,591 during
the nine months ended September 30, 1999. It is difficult to evaluate our
business prospects and results of operations because of our limited operating
history. Furthermore, we participate in the Linux services market, which has
only recently begun to exhibit significant growth. Few Linux-based products
have gained widespread acceptance partly due to the lack of service and support
available on commercial terms in the open-source industry. You should consider
the risks and difficulties we may encounter as a development-stage company in
the new and rapidly evolving Linux services market.
Our success will depend on many factors, including:
. the uncertain rate of growth in usage and acceptance of the Linux
operating system and related open-source software and solutions;
. the evolving and unpredictable nature of our business given that our
business is closely linked with open-source software and solutions;
. the uncertain demand for our services;
. our need to expand our professional services, sales and customer support
organizations;
. our need to develop new service offerings; and
. increased competition in the Linux industry as well as the competition
we face from offerings based on proprietary operating systems.
If we fail to address any of these risks or difficulties adequately, our
business strategy may not be successful and our revenues will likely not grow.
We have incurred substantial losses and anticipate future losses.
We incurred losses of approximately $10.2 million in the nine months ended
September 30, 1999 as we expanded our operations and had a stockholders'
deficit accumulated deficit of approximately $7.0 million as of September 30,
1999. As we grow our business, we expect to incur significant expenditures for
marketing, recruiting and hiring additional personnel, upgrading our
information technology infrastructure and expanding into new markets. As a
result, we expect that our operating expenses will increase significantly in
the near term and, consequently, we expect to incur losses in 1999, 2000 and
2001. Although our revenues grew rapidly in 1999, we may not be able to
maintain this revenue growth. In addition, increased competition or slower than
anticipated growth in our market could also affect our revenue growth. We
cannot be certain that we will achieve profitability or that, if we do achieve
profitability, we will be able to sustain it.
We may be unable to attract and retain Linux experts and other personnel to
grow our business.
Our future success depends, in part, on our ability to identify, attract,
retain and motivate highly skilled personnel. We intend to hire a significant
number of additional technical professionals, leading Linux experts, and sales
and marketing and other personnel during fiscal 2000. Competition for these
individuals is intense,
4
<PAGE>
and we may not be able to attract, assimilate or retain sufficient highly
qualified personnel. Our future success and ability to achieve our revenue
growth also depend upon the continued service of our executive officers and
other key marketing and support personnel. Competition for qualified personnel
in our industry and in the San Francisco Bay Area, as well as the other
geographic markets in which we recruit, is extremely intense and characterized
by rapidly increasing salaries, which may increase our operating expenses or
hinder our ability to recruit qualified candidates.
We have historically generated a large part of our revenues from a small number
of customers.
To date, we have derived a significant portion of our revenues from a
limited number of customers. For example, our three largest customers accounted
for 43%, 16% and 13%, respectively, of our revenues during the nine months
ended September 30, 1999. The volume of work performed for these customers may
not be sustained from year to year, and there is a risk that these principal
customers may not retain us in the future. Any cancelation, deferral or
significant reduction in the amount of work performed for these customers could
have a material adverse effect on our business, financial condition and results
of operations. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations--Overview."
We may not be able to achieve high gross margins if we are unable to utilize
our technical staff effectively, if there are fluctuations in work flow or if
our implementation of a new information technology infrastructure does not
result in the efficiencies that we expect from it.
Our success as a service business is highly dependent on our ability to
achieve and retain high gross margins. For the nine months ended September 30,
1999, we had negative gross margin of $ 1.0 million. Our gross margins are
affected by fluctuations in the work flow from our customers as well as the
efficient use of the time of our professional staff. While we continue to
expand our business, some of our highly skilled personnel may have to spend
extensive amounts of time marketing our services or other administrative
matters and not customer solutions. In addition, we are implementing an
advanced information technology infrastructure in order to handle the demands
of our growing business. If we are unable to carry out such implementation or
if our new infrastructure does not result in the efficiencies that we expect
from it, our gross margins may suffer. Our failure to achieve high gross
margins or margins comparable to our competitors' may adversely affect the
market price of our common stock and our ability to achieve profitability.
Our revenues are difficult to predict because they will in part be generated on
a project-by-project basis.
We expect to derive revenues for our professional services offerings
primarily from fees for services generated on a project-by-project basis. These
projects will likely vary in size and scope. Therefore, a customer that
accounts for a significant portion of our revenues in a given period may not
generate a similar amount of revenues, if any, in subsequent periods. In
addition, after we complete a project, we have no assurance that a customer
will retain our services in the future. Furthermore, our existing clients can
generally reduce the scope of an engagement or cancel their use of our services
without penalty and with little or no notice. If clients terminate existing
engagements or if we are unable to enter into new engagements, our revenues in
the relevant period could substantially decline and we may underutilize
existing resources that cannot be quickly redeployed to other client
engagements.
Our ability to accurately forecast our quarterly revenues is made difficult
by our limited operating history and the new and rapidly evolving market for
Linux. In addition, a significant portion of our operating costs are fixed and
based on our revenue expectations. Therefore, if we have a shortfall in
revenues, we may be unable to reduce our expenses quickly enough to avoid lower
quarterly operating results. We do not know whether our business will grow
rapidly enough to absorb these costs. As a result, our quarterly operating
results could fluctuate, and such fluctuation could adversely affect the market
price of our common stock.
See "Management's Discussion and Analysis of Financial Condition and Results
of Operations--Overview" for a more complete description of our sources of
revenues and the impact of the nature of our business on our financial
condition.
5
<PAGE>
If we are unable to implement appropriate systems, procedures and controls to
manage our expected growth, we may not be able to successfully offer our
services and grow our business.
Since we began operations in December 1998, we have significantly increased
the size of our operations. During 1999, we hired approximately 120 employees
and greatly increased our operating expenses. This growth has placed, and we
expect that any future growth we experience will continue to place, a
significant strain on our management, systems and resources. Our management
team has not previously worked together. The quality of the services we render
may be adversely affected if we do not create a highly cooperative environment
within the management team and with employees. To manage growth effectively, we
will need to continue to implement or update our operational and financial
systems, procedures and controls. If we fail to implement appropriate internal
systems, and necessary modifications and improvements to these systems, our
business will suffer.
A failure of our information technology infrastructure to handle the demands of
our current or future business would adversely affect our business.
Our service offerings and business strategy are highly dependent on the
efficient performance of our Internet-based information technology. Although we
divide our information technology infrastructure among various locations in
anticipation of possible system outages or failures, we cannot assure you the
systems operated by us or by outside service providers will be adequate to
handle the demands of our business or will be maintained without any material
interruption. A significant growth of our business could result in an
unexpected increase in the demand for our Internet-based services. Even though
we are implementing an advanced information technology infrastructure that is
designed to handle such increased demand, we cannot assure you that our
infrastructure will be in place when we experience such increased demand, or if
we do, such infrastructure will be able to handle the increased demand. Any
system failure, including network, software or hardware failure, that causes an
interruption in our service or a decrease in our responsiveness to our
customers could harm our reputation and adversely affect our business.
Our customers and competitors may offer their own technical support and
services which could result in a loss of market share.
Currently, we provide education and technical support for large businesses
and major hardware and software vendors. To the extent the Linux operating
system gains broader market acceptance, these companies may develop their own
technical support and services for Linux-based operations. These companies,
which have large customer bases, greater financial resources and better name
recognition than we do, may be able to undertake more extensive promotional
activities, adopt more aggressive pricing policies and offer more attractive
terms to their customers than we can. These companies also may be able to
leverage their existing service organizations and provide a more comprehensive
offering of services and higher levels of support on a more cost-effective
basis than we can. Furthermore, other suppliers of Linux operating systems are
focusing on technical support and services. It is possible that these
businesses will form alliances to enable them to provide more effective
services. Increased competition and the emergence of other Linux-related
services companies may result in price reductions, lower-than-expected gross
margins or our inability to establish a meaningful market share, any of which
may cause our business to fail.
Our management team is new and, if they are unable to work together
effectively, our business could be seriously harmed.
Our business is highly dependent on the ability of our management team to
work together effectively to meet demands of our growth. We grew from five
employees at December 31, 1998 to 122 employees at December 31, 1999. These
individuals have not previously worked together as a management team and have
only had limited experience managing a rapidly growing company.
6
<PAGE>
We face risks related to expanding into new services and business areas.
To increase our revenues, we could expand our operations by promoting new or
complementary services and by expanding into new business areas. These services
could require both modification of existing systems and the creation or
acquisition of new software, systems and other technologies. We may lack the
managerial and technical resources necessary to expand our service offerings.
These initiatives may not generate sufficient revenues to offset their cost. If
we are unable for any reason to expand our services in line with our customer
demands, our reputation and business could suffer.
Attempts to expand by means of business combinations and strategic alliances
may harm our operational efficiency, financial performance and relationships
with employees and third parties.
We may also expand our operations or market presence by making investments
in or entering into business combinations, joint ventures or other strategic
alliances with other businesses both in the United States and internationally.
Our ability to expand in this way may be limited due to the many financial and
operational risks accompanying such transactions. For example:
. these transactions may be time consuming, place strains on our resources
and divert management's attention away from our core, day-to-day
business;
. efficient integration of the acquired businesses or technologies may not
be successful, thereby reducing any anticipated revenues and cost
benefits;
. our stockholders will incur dilution if we issue equity in connection
with these transactions; and
. our relationships with existing employees, customers and business
partners may be weakened or terminated as a result of these
transactions.
If we fail to adequately promote and maintain our brand name or are unable to
continue using "Linux" as part of our brand name, our business may be adversely
affected.
We believe that increasing the recognition of the Linuxcare brand is
critical to our success. To promote and maintain our brand identity and to
attract and retain customers, we plan to increase our spending on advertising
and promotions and to implement new marketing campaigns. We cannot be certain
that these strategies will be successful. If we are unable to design and
implement effective marketing campaigns or otherwise fail to promote and
maintain our brand, our revenues will not grow sufficiently. Our business will
suffer if we incur excessive expenses in an attempt to promote and maintain our
brand without a corresponding increase in revenues. Mr. Linus Torvalds owns the
trademark to "Linux" and has approved our use of the word Linux in our company
name as well as in the title of our websites. This approval may be revoked for
any reason, however, and we may no longer be able to use this trademark in our
brand or in the title of our website. Trademark owners must enforce their
trademarks effectively in order for their trademarks to remain valid. Should
the "Linux" trademark not be enforced adequately, because of lack of resources
or otherwise, or be invalidated through legal action, our business could
suffer. We have no right to police the use of the term "Linux." Lack of
policing could cause the loss of the trademark as well as confusion about the
source, quality, reputation and dependability of Linux, which would harm our
company's reputation. In addition, the trademark "Linux" may become widely used
and diluted. This may, in turn, dilute our brand and decrease the efficacy of
our branding strategy.
We may be unable to execute our business model in international markets.
A key component to our growth strategy is to expand our presence outside the
United States and become recognized as an international leader in the provision
of Linux-related services. To date, we have only limited experience marketing,
selling and supporting our services on an international basis. We have recently
expanded our operations internationally and we are considering further
international expansion. It will be costly to establish international
operations, promote our brand internationally and develop localized websites
and
7
<PAGE>
network support. Revenue from international activities may not offset the
expense of establishing and maintaining these foreign operations. Furthermore,
expanding our international operations subjects us to additional risks,
including the following:
. deliver our services in multiple languages;
. fluctuations in currency exchange rates or recessionary environments in
overseas economies;
. tariffs, duties, price controls or other trade barriers, and compliance
with export and import laws; and
. longer payment cycles and increased difficulties developing and
maintaining credit procedures.
Our failure to address these risks could inhibit or preclude our efforts to
expand our business in international markets.
If we are unable to introduce and scale new services in a timely manner, our
business will be harmed.
The computer systems market is characterized by rapid technological change,
changes in customer demands and evolving industry standards. Our services could
be rendered obsolete if new technologies are introduced or new industry
standards emerge and we are not able to keep up with such innovation.
Computing environments are inherently complex. As a result, we cannot
accurately estimate the long-term need for our services. New environments and
new techniques may require us to hire and retain increasingly scarce,
technically competent personnel. Significant delays or problems in installing
or implementing new services could seriously damage our business.
Our future success depends upon our ability to enhance existing services,
develop new services and scale our business to satisfy customer demands. We may
not be able to successfully identify new service opportunities to grow our
business.
We may not be able to use intellectual property to protect ourselves from
competition.
While we have developed some proprietary techniques and know-how, most of
our activities and knowledge may not be protectable as proprietary intellectual
property. To protect our proprietary intellectual property, we generally enter
into confidentiality or license agreements with our employees, consultants and
corporate partners. In general, however, we have taken only limited steps to
protect our intellectual property to date. Accordingly, we may be unable to use
our intellectual property to prevent other companies from competing with us. In
addition, we are unable to prevent third parties from developing techniques
that are similar or superior to our technology, or from designing around our
intellectual property.
We may be sued as a result of information published on, posted on or accessible
from our websites.
We may be subjected to claims for defamation, negligence, copyright or
trademark infringement (including contributory infringement), or other claims
relating to the information contained on our website, whether written by us or
third parties. These types of claims have been brought against online services
in the past, and can be costly to defend, regardless of the merit of the
lawsuit. Although recent federal legislation protects online services from some
claims when the material is written by third parties, this protection is
limited. Furthermore, the law in this area remains in flux, and varies from
state to state. While no claims have been made against us to date, our business
could be seriously harmed if one were asserted.
The operating performance of our systems is dependent on outside providers.
We rely on outside service providers to help maintain our networks and
systems. For example, we outsource our Web server hosting to an outside co-
location service provider. This provider's failure to maintain its systems and
operations could adversely affect our business. In addition, our technical
support services are
8
<PAGE>
highly dependent on Internet-based technology. Any system failure, including
network, software or hardware failure, that causes an interruption in our
service or a decrease in our responsiveness could harm our reputation.
Increased sales of Linuxcare's services depends upon the expansion of the
Internet as a platform for commerce and communication.
Our success depends on the continued use and expansion of the Internet. If
the Internet does not continue to become a widespread communications medium and
commercial marketplace, the demand for Linuxcare's services could be
significantly reduced. The Internet infrastructure may not be able to support
the demands placed on it by continued growth. The Internet could lose its
viability due to delays in the development or adoption of new equipment,
standards and protocols to handle increased levels of Internet activity,
security, reliability, cost, ease of use, accessibility and quality of service.
Other factors that could inhibit the growth of the Internet and its use by
business as a medium for communication and commerce include:
. concerns about security of transactions conducted over the Internet;
. concerns about privacy and the use of data collected and stored
recording interactions over the Internet; and
. the possibility that federal, state, local or foreign governments will
adopt laws or regulations limiting the use of the Internet or the use of
information collected from communications or transactions over the
Internet.
Risks Related to Linux
If widespread adoption of the Linux operating system does not occur, our
business will be harmed.
Our business depends on the willingness of customers to purchase Linux
systems. For the foreseeable future, we expect to derive most of our revenues
from the provision of Linux-related services and support. The Linux operating
system is still in the early stages of gaining broad market acceptance. To
date, this acceptance has been mostly limited to Internet infrastructure
applications and academic research environments. Our success is dependent upon
the continued and increased rate of adoption of Linux in these and other
markets. If this does not occur, our business will materially suffer.
The Linux operating system is an open-source software product, which users
are licensed to freely copy, use, modify and distribute. Accordingly, anyone
can download or otherwise copy the Linux operating system and numerous related
software applications from the Internet, without cost. Few open-source software
products have gained widespread commercial acceptance partly due to the lack of
viable open source industry participants to offer adequate service and support.
Moreover, open-source vendors are not able to provide standard warranties and
indemnities for their products, because these products have been developed by
independent parties over whom open source vendors exercise no control or
supervision. If open-source software should fail to gain widespread commercial
acceptance, our business could be adversely affected.
If Linux developers fail to enhance the core source code of the Linux operating
system and develop Linux-based applications, our business will suffer.
The core of the Linux operating system, the Linux kernel, is maintained by
third parties. Mr. Linus Torvalds, the original developer of the Linux kernel,
and a group of independent engineers, including some of our employees, are
primarily responsible for the development and evolution of the Linux kernel.
Any failure on the part of the kernel developers to further develop and enhance
the kernel could stifle the development of additional Linux-based applications,
which will affect our ability to expand our business.
9
<PAGE>
Software applications for Linux-based operating systems must proliferate for
our business to succeed.
The growth in our business depends, in part, on the development of
additional third-party software applications. Currently, many widely used
applications have not been made compatible with Linux. Moreover, many standard
applications, such as word processors, databases, accounting packages,
spreadsheets, e-mail programs, graphics software and personal productivity
applications, that have been made compatible with Linux have not achieved
market acceptance. These applications must gain mainstream acceptance in
business and consumer markets for our business to grow. We intend to encourage
the development of additional applications that operate on Linux-based
operating systems by providing services that assist developers in porting
applications to the Linux platform. If we are not successful in achieving these
goals, however, our services and products will not gain mainstream business and
consumer acceptance and we may not be able to grow our business.
If multiple and incompatible versions of Linux achieve sufficient market
acceptance, demand for our services could decline.
Currently, most Linux distributions are compatible and Linux applications
can operate across these distributions. If incompatible versions of Linux
should develop, however, customers may become less likely to purchase Linux
products and our business would suffer. In addition, should multiple and
incompatible versions of Linux achieve sufficient market acceptance, we may be
required to support more distributions, which could result in increased
operating expenses.
We may not succeed if the Linux developer community fails to support us or
reacts negatively to our business strategy.
The Linux developer community may not continue to support us. Some members
of the open-source software community have criticized companies that profit
from open-source software. This type of negative reaction, from either
customers or open source developers, could harm our reputation, diminish the
Linuxcare brand and damage our business. If the Linux community fails to
support us, we may be unable to stay aware of technological developments, which
may harm our revenues.
We could be prevented from selling or developing our services and products if
the GNU General Public License (GPL) and similar licenses under which the
Linux-based systems operate are unenforceable.
The Linux kernel and the Linux operating system have been developed and
licensed under the GPL and similar open source licenses. These licenses require
that any software program licensed under them may be copied, modified and
distributed freely, so long as all modifications are also freely made available
and licensed under the same conditions. We know of no instance in which a party
has challenged the validity of these licenses or in which these licenses have
been interpreted in a legal proceeding.
It is possible that parties may refuse to comply with the restrictions of
these licenses. It is also possible that a court would hold one or more of the
restrictions in these licenses to be unenforceable in the event that someone
were to file a claim asserting proprietary rights in a program developed and
distributed under them. Any ruling by a court that the restrictions in these
licenses are not enforceable, or that Linux-based operating systems, or
modifications to them, may not be copied, modified, or distributed freely,
would have the effect of preventing us from developing our services, unless we
are able to negotiate a license for the use of the software or replace the
affected portions. In the event that we obtain such a license, we would likely
be required to make royalty payments with respect to sales covered by the
license. Any royalty payments would harm our operating results. There can be no
assurance that we can obtain such a license.
Failure of computer systems and software to be year 2000 compliant could
increase our costs, disrupt our services and reduce demand from our customers.
We confront the year 2000 problem in two contexts.
10
<PAGE>
Our customers. The failure of our customers to ensure that their operations
are year 2000 compliant could have an adverse effect on them, which in turn
could limit their ability to retain us as a third-party service provider or
process our invoices in a timely manner. In addition, customers or potential
customers may delay purchasing our services to the extent such customers or
potential customers are required to devote resources to resolving the year 2000
problem.
Our services. The solutions that we provide our customers integrate software
and other technology from different providers. If there is a year 2000 problem
with respect to a solution provided by us, it may be difficult to determine
whether the problem relates to services that we have performed or is due to the
software, technology or services of other providers. As a result, we may be
subjected to year 2000-related lawsuits whether or not the services we have
performed are year 2000 compliant. We cannot be certain what the outcomes of
these types of lawsuits may be.
Risks Related to this Offering
Our stock price may be volatile and you may not be able to resell your shares
at or above the initial public offering price.
There has been no public market for our common stock prior to this offering.
The initial public offering price for our common stock will be determined
through negotiations between the underwriters and us. This initial public
offering price may vary from the market price of our common stock after the
offering. If you purchase shares of common stock, you may not be able to resell
those shares at or above the initial public offering price. The market price of
our common stock may fluctuate significantly in response to factors, some of
which are beyond our control, include the following:
. actual or anticipated fluctuations in our annual and quarterly operating
results;
. changes in market valuations of other technology companies;
. changes in financial estimates by securities analysts;
. variations in our operating results which may cause us to fail to meet
analysts' or investors' expectations;
. announcements by us or our competitors of significant technical
innovations, contracts, acquisitions, strategic partnerships, joint
ventures or capital commitments;
. additions or departures of key personnel;
. future sale of equity or debt securities; and
. general economic, industry and market conditions.
In addition, the stock market has experienced extreme volatility that often
has been unrelated to the performance of particular companies. These market
fluctuations may cause our stock price to fall regardless of our performance.
In the past, companies that have experienced volatility in the market price of
their stock have been the object of securities class action litigation. If we
were the object of securities class action litigation, it could result in
substantial costs and a diversion of management's attention and resources.
You should read the "Underwriting" section for a more complete discussion of
the factors that were considered in determining the initial public offering
price of our common stock.
We may be unable to meet our future capital requirements and stockholders may
experience additional dilution.
We believe that the net proceeds of this offering will be sufficient to meet
our capital requirements through the next 12 months. However, we may be
required, or could elect to seek additional funding prior to
11
<PAGE>
that time, particularly if we elect to acquire complementary businesses,
products or technologies. In the event we are required to raise additional
funds we may not be able to do so on favorable terms, if at all. Further, if we
issue new equity securities, stockholders may experience dilution or the
holders of new equity securities may have rights, preferences or privileges
senior to those of existing holders of common stock. For additional information
on our anticipated future capital requirements, see "Management's Discussion
and Analysis of Financial Condition and Results of Operations--Liquidity and
Capital Resources."
Substantial future sales of our common stock in the public market may depress
our stock price.
Our current stockholders hold a substantial number of shares, which they
will be able to sell in the public market in the near future. Sales of a
substantial number of shares of our common stock after this offering could
cause our stock price to fall. In addition, the sale of these shares could
impair our ability to raise capital through the sale of additional stock. You
should read "Shares Eligible for Future Sale" for a full discussion of shares
that may be sold in the public market in the future.
You will experience immediate and substantial dilution in the book value of
your shares.
The initial public offering price is substantially higher than the book
value per share of our outstanding common stock immediately after the offering.
Accordingly, if you purchase common stock in the offering, you will incur
immediate dilution of approximately in the book value per share of our
common stock from the price you pay for our common stock. For additional
information on this calculation, see "Dilution."
Because some existing stockholders will together own a majority of our stock,
the voting power of other stockholders, including purchasers in this offering,
may be limited.
After this offering, it is anticipated that our officers, directors, and
five percent or greater stockholders will beneficially own or control, directly
or indirectly, a majority of our shares of common stock. As a result, if some
of these existing stockholders choose to act together, they will have the
ability to control all matters submitted to our stockholders for approval,
including the election and removal of directors and the approval of any
business combinations. This may delay or prevent an acquisition or cause the
market price of our stock to decline. Some of these persons or entities may
have interests different from yours. For example, they may be more interested
than other investors in selling our company or pursuing different business
strategies.
The provisions of our charter documents may inhibit potential acquisition bids
that a stockholder may believe are desirable, and the market price of our
common stock may be lower as a result.
Upon completion of this offering, our Board of Directors will have the
authority to issue up to five million shares of preferred stock. Our Board of
Directors can fix the price, rights, preferences, privileges and restrictions
of the preferred stock without any further vote or action by our stockholders.
The issuance of shares of preferred stock may delay or prevent a change in
control transaction. As a result, the market price of our common stock and the
voting and other rights of our stockholders may be adversely affected. The
issuance of preferred stock may result in the loss of voting control to other
stockholders. We have no current plans to issue any shares of preferred stock.
Our charter documents also contain other provisions which may discourage,
delay or prevent a merger or acquisition, including:
. only one of the three classes of directors is elected each year;
. our stockholders have limited rights to remove directors without cause;
. our stockholders have no right to act by written consent;
. our stockholders have limited rights to call a special meeting of
stockholders; and
12
<PAGE>
. stockholders must comply with advance notice requirements to nominate
directors or submit proposals for consideration at stockholder meetings.
These provisions could also have the effect of discouraging others from
making tender offers for our common stock. As a result, these provisions may
prevent the market price of our common stock from increasing substantially in
response to actual or rumored takeover attempts. These provisions may also
prevent changes in our management.
We have broad discretion in how we use the proceeds of this offering, and we
may not use these proceeds effectively.
Our management has broad discretion in the use of the net proceeds of this
offering and could spend the net proceeds in ways that do not yield a favorable
return or to which stockholders object. We may also use the proceeds to acquire
complementary businesses or technologies, although no such acquisitions are
currently planned. Until we need to use the proceeds of this offering, we plan
to invest the net proceeds in investment grade, interest-bearing securities.
13
<PAGE>
SPECIAL NOTE REGARDING FORWARD-LOOKING STATEMENTS
This prospectus contains forward-looking statements that involve risks and
uncertainties. These statements relate to future events or our future financial
performance and include statements about our plans, objectives and services as
well as our expectations and intentions. In some cases, you can identify
forward-looking statements by terminology such as "may," "will," "should,"
"expects," "plans," "anticipates," "believes," "estimates," "predicts,"
"potential" or "continue" or the negative of such terms or other comparable
terminology. These statements are only predictions and involve known and
unknown risks, uncertainties and other factors, including the risks outlined
under "Risk Factors," that may cause our or our industry's actual results,
levels of activity, performance or achievements expressed or implied by any
forward-looking statements.
Although we believe that the expectations reflected in the forward-looking
statements are reasonable, we cannot guarantee future results, levels of
activity, performance or achievements. We are under no duty to update any of
the forward-looking statements after the date of this prospectus to conform
these statements to actual results.
14
<PAGE>
USE OF PROCEEDS
We expect to receive net proceeds from the sale of the shares of
common stock of approximately $ million (approximately $ million
if the underwriters' over-allotment option is exercised in full), at an assumed
initial public offering price of $ per share, after deducting
underwriting discounts and commissions and estimated offering expenses.
We intend to use the net proceeds from this offering primarily for general
corporate purposes, including working capital, funding our operating losses,
expansion of our information technology infrastructure and capital
expenditures. In addition, we may use a portion of the net proceeds to acquire
complementary products, technologies or businesses; however, we currently have
no commitments or agreements and are not involved in any negotiations with
respect to any such transactions. Pending use of the net proceeds of this
offering, we intend to invest the net proceeds in interest-bearing, investment-
grade securities.
DIVIDEND POLICY
We have never declared or paid any dividends on our capital stock. We
currently expect to retain future earnings, if any, for use in the operation
and expansion of our business and do not anticipate paying any cash dividends
in the foreseeable future.
15
<PAGE>
CAPITALIZATION
The following table sets forth our capitalization as of September 30, 1999
on the following two bases:
. on an actual basis; and
. on an as adjusted basis to give effect to the conversion of all shares
of preferred stock into 7,917,536 shares of common stock and the sale of
shares of common stock at an assumed initial offering price of $
per share (less underwriting discounts and commissions and estimated
offering expenses).
You should read this table in conjunction with our financial statements and
the accompanying notes included elsewhere in this prospectus, "Selected
Financial Data" and "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
<TABLE>
<CAPTION>
September 30, 1999
-----------------------------
Actual As Adjusted
------------ -----------
<S> <C> <C> <C>
Note payable and equipment financing, less
current portion................................. $ 1,805,366 $
Redeemable convertible preferred stock........... 6,326,365 --
Preferred stock, $0.001 par value: 18,566,075
shares authorized (actual), 7,917,536 issued
and outstanding (actual)...................... -- --
Stockholders' equity:
Common stock, $0.001 par value: 32,000,000
authorized (actual); 8,748,018 issued and
outstanding (actual).......................... 875 $
Additional paid-in capital..................... 9,335,896
Deferred compensation.......................... (6,138,148) ( )
Stockholder note receivable.................... (116,048) ( )
Accumulated deficit............................ (10,038,170) ( )
------------ -----
Total stockholders' equity (deficit)......... (6,955,595)
------------ -----
Total capitalization......................... $ 1,176,136 $
============ =====
</TABLE>
The data in the table above excludes:
. 468,093 shares issuable upon exercise of outstanding stock options
outstanding as of September 30, 1999;
. 1,517,479 shares of common stock available for issuance at September 30,
1999 under our 1999 Stock Plan;
. 7,082,267 shares of Series B redeemable convertible preferred stock
issued subsequent to September 30, 1999;
. 8,606,838 shares of restricted common stock outstanding as of September
30, 1999; and
. 295,265 shares represented by warrants for Series A redeemable
convertible preferred stock.
For additional information regarding these shares, see "Management--Stock
Plan," "Certain Relationships and Related Transactions," "Description of
Capital Stock" and note 6 of the notes to financial statements included
elsewhere in this prospectus.
16
<PAGE>
DILUTION
(in thousands, except share data)
If you invest in our common stock, your interest will be diluted to the
extent of the difference between the public offering price per share of our
common stock and the pro forma net tangible book value per share of common
stock after this offering. Our pro forma net tangible book value as of ,
1999 was $ or $ per share of common stock. Net tangible book value per
share represents the amount of our total tangible assets less total
liabilities, divided by the pro forma number of shares of common stock
outstanding. Dilution in net tangible book value per share represents the
difference between the amount per share paid by purchasers of shares of common
stock in this offering and the net tangible book value per share of common
stock immediately after the completion of this offering. After giving effect to
the sale of the shares of common stock offered hereby (at an assumed public
offering price of $ per share (less underwriting discounts and commissions
and estimated offering expenses), our pro forma net tangible book value as of
, 1999 would have been $ or approximately $ per share. This represents
an immediate increase in net tangible book value of $ per share to existing
stockholders and an immediate dilution in net tangible book value of $ per
share to new investors, or approximately % of the initial public offering
price of $ per share. The following table illustrates this per share
dilution:
<TABLE>
<S> <C> <C>
Assumed initial public offering price per share...................... $
Pro forma net tangible book value per share at , 2000........... $
Increase per share attributable to this offering................... $
---
Pro forma as adjusted net tangible book value per share after this
offering............................................................ $
----
Dilution per share to new investors.................................. $
====
</TABLE>
The following table shows on a pro forma basis after giving effect to this
offering, based on an assumed initial public offering price of $ per share,
as of , 1999, the differences between the existing holders of common stock
and the new investors with respect to the number of shares of common stock
purchased from us, the total consideration paid to us, and the average price
per share paid, before deducting the underwriting discounts and commissions and
estimated offering expenses:
<TABLE>
<CAPTION>
Shares
Purchased Total Consideration
-------------- --------------------- Average Price
Number Percent Amount Percent Per Share
------ ------- --------- ---------- -------------
<S> <C> <C> <C> <C> <C>
Existing stockholders...... % $ % $
New investors..............
--- ----- --------- ----------
Total.................... 100.0% $ 100.0%
=== ===== ========= ==========
</TABLE>
The foregoing discussion and table are based on actual shares outstanding on
, 1999 and assume no exercise of any stock options outstanding as of
, 1999. As of , 1999, there were options outstanding to purchase
shares of common stock at a weighted average exercise price of $ per share.
To the extent any of these options are exercised, there will be further
dilution to investors. See "Capitalization," "Management--Stock Plans,"
"Description of Capital Stock" and note 8 of notes to financial statements
include elsewhere in this prospectus.
17
<PAGE>
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
The following unaudited pro forma combined financial statements as of and
for the nine months ended September 30, 1999 have been prepared from the
historical financial statements of Linuxcare, Inc., The Puffin Group Inc.
("Puffin") and Prosa Progettazione Sviluppo Aperto s.r.l. ("Prosa"). The
unaudited pro forma combined balance sheet gives effect to the acquisitions of
Puffin and Prosa as if such transactions had occurred on September 30, 1999.
The unaudited pro forma combined statement of operations give effect to the
acquisitions of Puffin and Prosa as if such transactions had occurred on
January 1, 1999.
On October 1, 1999, we purchased all of the outstanding common stock of
Puffin, a company organized under the laws of Canada, for 100,000 shares of our
common stock and options to purchase 325,000 shares of our common stock at an
exercise price of $0.13. The options to purchase 325,000 shares were allocated
between purchase price consideration (25,000 shares) and consideration given to
certain key employees of Puffin, contingent upon employment by us (300,000
shares). On December 30, 1999, we also purchased all of the outstanding common
stock of Prosa, a company organized under the laws of Italy, for $290,000 and
options to purchase 25,000 shares of our common stock. The cash payment was
considered purchase price consideration and the options to purchase 25,000
shares were considered compensation for employment.
The unaudited pro forma combined statements of operations for the periods
from inception to December 31, 1998 for Linuxcare, Puffin and Prosa have not
been presented as the loss related to each company individually was
insignificant. The combined loss for the three entities for the period from
inception to December 31, 1998 was approximately $19,000 and the amortization
of goodwill and deferred compensation was approximately $366,000, leading to a
total pro forma combined loss for the period from inception to December 31,
1998 of $385,000.
The unaudited pro forma combined financial statements should be read in
conjunction with our historical consolidated financial statements and related
notes included elsewhere in this prospectus. The unaudited pro forma combined
financial statements do not purport to be indicative of what our financial
position or results of operations would have been assuming the acquisitions
occurred on the indicated dates nor do they purport to be indicative of our
future results of operations or financial condition.
The unaudited pro forma financial information have been prepared and all
calculations have been based upon assumptions that we believe are reasonable
and necessary to present the information fairly. Each of the acquisitions has
been accounted for using the purchase method of accounting. The purchase method
of accounting allocates the aggregate purchase price to the assets acquired and
liabilities assumed based upon their respective fair market values. The excess
purchase price over the fair market value of the net assets acquired has been
allocated to goodwill.
18
<PAGE>
LINUXCARE, INC.
Unaudited Pro Forma Combined Statement of Operations
For the Nine Months Ended September 30, 1999
<TABLE>
<CAPTION>
Combined Pro Forma Pro Forma
Linuxcare Prosa Puffin Total Adjustments Combined
------------ -------- ------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Revenues................ $ 304,591 $115,785 $97,735 $ 518,111 $ $ 518,111
Cost of revenues........ 1,329,960 91,688 94,350 1,515,998 1,515,998
------------ -------- ------- ------------ ------------
Gross margin........... (1,025,369) 24,097 3,385 (997,887) (997,887)
Operating expenses
Sales and marketing.... 2,235,506 -- 1,381 2,236,887 2,236,887
General and
administrative........ 3,356,701 35,125 1,701 3,393,527 3,393,527
Goodwill amortization.. -- -- -- -- 218,343 (a) 218,343
Amortization of
deferred stock
compensation.......... 3,207,768 -- -- 3,207,768 389,151 (b) 3,596,919
------------ -------- ------- ------------ --------- ------------
Total operating
expenses.............. 8,799,975 35,125 3,082 8,838,182 607,494 9,445,676
(Loss) gain from
operations............. (9,825,344) (11,028) 303 (9,836,069) (607,494) (10,443,563)
Interest expense........ 199,368 410 -- 199,778 199,778
------------ -------- ------- ------------ --------- ------------
Net (loss) gain......... (10,024,712) (11,438) 303 (10,035,847) (607,494) (10,643,341)
Preferred stock
accretion.............. (127,689) -- -- (127,689) (127,689)
------------ -------- ------- ------------ --------- ------------
Net (loss) gain
applicable to common
stockholders........... $(10,152,401) $(11,438) $ 303 $(10,163,536) $(607,494) $(10,771,030)
============ ======== ======= ============ ========= ============
Basic and diluted net
loss per share......... $ (5.50) $ (5.54)
============ ============
Weighted average shares
outstanding............ 1,845,773 1,945,773
============ ============
Pro forma basic and
diluted net loss per
share (unaudited)...... $ (1.35) $ (1.42)
============ ============
Weighted average share
used in computing pro
forma basic and diluted
net loss per share .... 7,403,053 7,503,053 (c)
============ ============
</TABLE>
- --------
(a) Reflects amortization of goodwill in connection with the acquisitions.
(b) Reflects amortization of deferred compensation recorded in connection with
the acquisitions.
(c) Basic and diluted loss per share reflects the issuance of 100,000 shares
issued in connection with the Puffin acquisition as though they were
outstanding for the nine-month period ended September 30, 1999. Options
that were considered compensation for employment were excluded from the per
share calculations as they are antidilutive.
19
<PAGE>
LINUXCARE, INC.
Unaudited Pro Forma Combined Balance Sheet
As of September 30, 1999
<TABLE>
<CAPTION>
Linuxcare, Combined Pro Forma Pro Forma
Inc. Prosa Puffin Total Adjustments Combined
------------ -------- ------- ------------ ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Current assets
Cash and cash
equivalents........... $ 863,459 $ 7,140 $14,335 $ 884,934 $ $ 884,594
Accounts receivable,
net................... 207,664 70,939 40,000 318,603 318,603
Other current assets... 50,096 8,599 4,862 63,557 63,557
------------ -------- ------- ------------ ---------- ------------
Total current assets... 1,121,219 86,678 59,197 1,267,094 1,267,094
Property and equipment,
net................... 990,600 5,547 8,461 1,004,608 1,004,608
Intangibles, net....... -- -- -- -- 655,030 (a) 655,030
Debt issuance costs and
other................. 1,245,729 6,054 -- 1,251,783 1,251,783
------------ -------- ------- ------------ ---------- ------------
Total assets........... $ 3,357,548 $ 98,279 $67,658 $ 3,523,485 $ 655,030 $ 4,178,515
============ ======== ======= ============ ========== ============
Liabilities &
shareholders' (deficit)
equity
Current liabilities
Accounts payable....... $ 1,049,695 $ 90,771 $35,864 $ 1,176,330 $ $ 1,176,330
Accrued liabilities.... 231,073 -- 18,164 249,237 249,237
Deferred revenue....... 316,000 -- -- 316,000 316,000
Note payable........... 487,682 -- -- 487,682 487,682
Current portion of
equipment financing... 96,962 -- -- 96,962 96,962
------------ -------- ------- ------------ ---------- ------------
Total current
liabilities........... 2,181,412 90,771 54,028 2,326,211 2,326,211
Equipment financing,
less current portion... 293,048 9,253 -- 302,301 302,301
Note payable, less
current portion........ 1,512,318 -- -- 1,512,318 1,512,318
Redeemable convertible
preferred stock........ 6,326,365 -- -- 6,326,365 6,326,365
Stockholders' deficit
Common stock........... 875 12,703 16,767 30,345 (29,470)(c) 875
Additional paid-in
capital............... 9,335,896 -- -- 9,335,896 2,326,558 (a)(c) 11,662,454
Currency translation
adjustment............ -- (580) -- (580) 580 (b) --
Deferred stock
compensation.......... (6,138,148) -- -- (6,138,148) (1,052,149)(c) (7,190,297)
Stockholder note
receivable............ (116,048) -- -- (116,048) (116,048)
Accumulated deficit.... (10,038,170) (13,868) (3,137) (10,055,175) (590,489)(a)(b)(c) (10,645,664)
------------ -------- ------- ------------ ---------- ------------
Stockholders'(deficit)
equity................ (6,955,595) (1,745) 13,630 (6,943,710) 655,030 (6,288,680)
------------ -------- ------- ------------ ---------- ------------
Total liabilities &
stockholders'
deficit............... $ 3,357,548 $ 98,278 $67,658 $ 3,523,485 $ 655,030 $ 4,178,515
============ ======== ======= ============ ========== ============
</TABLE>
- --------
(a) Reflects the capitalization of goodwill of $873,373 related to the
acquisitions, net of amortization of $218,343.
(b) Reflects the elimination of stockholder equity accounts in the acquired
companies.
(c) Reflects $1,441,300 of deferred compensation, net of $389,151 in
amortization for the fair value of stock options granted to new employees,
the majority of whom were formerly shareholders of the acquired entities.
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<PAGE>
SELECTED FINANCIAL DATA
In the table below, we provide summary historical financial data of
Linuxcare. We have prepared this information using the financial statements of
Linuxcare as of December 31, 1998 and September 30, 1999 and for the period
from December 9, 1998 (inception) to December 31, 1998 and for the nine months
ended September 30, 1999.
When you read this summary historical financial data it is important that
you read along with it the historical financial statements and related notes
included elsewhere in this prospectus, as well as the section titled
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
<TABLE>
<CAPTION>
Period from Nine months
December 9, 1998 ended
(inception) to September
December 31, 30,
1998 1999
---------------- ------------
<S> <C> <C>
Statement of Operations Data:
Revenues....................................... $ -- $ 304,591
Cost of revenues............................... -- 1,329,960
-------- ------------
Gross margin................................... -- (1,025,369)
Operating expenses:
Sales and marketing.......................... -- 2,235,506
General and administrative................... 13,458 3,356,701
Amortization of deferred stock compensation.. -- 3,207,768
-------- ------------
Total operating expenses................... (13,458) (8,799,975)
-------- ------------
Loss from operations........................... (13,458) (9,825,344)
Interest expense............................... -- 199,368
-------- ------------
Net loss....................................... (13,458) (10,024,712)
Preferred stock accretion...................... -- (127,689)
-------- ------------
Net loss applicable to common stockholders..... $(13,458) $(10,152,401)
======== ============
Basic and diluted net loss per share........... $ -- $ (5.50)
======== ============
Weighted average shares used in computing basic
and diluted net loss per share................ -- 1,845,773
======== ============
Pro forma basic and diluted net loss per share
(unaudited)................................... $ (1.35)
============
Weighted average shares used in computing basic
and diluted net loss per share (unaudited).... 7,403,053
============
Balance Sheet Data (end of period):
Cash and cash equivalents...................... $138,920 $ 863,459
Working capital (deficit)...................... 186,842 (1,060,193)
Total assets................................... 200,300 3,357,548
Notes payable and equipment financing, less
current portion............................... 200,000 1,805,366
Redeemable convertible preferred stock......... -- 6,326,365
Total stockholders' deficit.................... (13,158) (6,955,595)
</TABLE>
See note 1 of notes to financial statements for an explanation of the
determination of the average number of shares of common stock used to compute
net loss per share.
21
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and our financial statements and the related notes
included elsewhere in this prospectus. This discussion contains forward-looking
statements that involve risks and uncertainties. Our actual results could
differ materially from those anticipated in the forward-looking statements as a
result of certain factors including the risks discussed in "Risk Factors" and
elsewhere in this prospectus.
Overview
We are a recognized leader in providing services for Linux. We commenced
operations in December 1998 and offer a comprehensive range of services to
support business customers. We offer our customers professional services,
technical support, education and product certification across all major Linux
distributions and hardware platforms. We are implementing a scalable, Internet-
based infrastructure to enable us to provide high-quality solutions to our
customers in a timely and cost-effective manner.
We expect to derive our revenues from our four principal business units:
professional services, technical support, education and product certification.
We currently provide professional services only on a time-and-materials basis
and recognize these revenues as and when the services are provided. As our
business expands, we expect a portion of our professional services to be
provided on a fixed-fee basis. Fees for technical support are generated on an
hourly basis, a per incident basis or pursuant to long-term service agreements.
We recognize such revenues as services are performed or pro-rata over the term
of the service agreement, as applicable. Our educational materials are licensed
to customers in return for a training fee and a per student royalty. The former
is recognized upon completion of the training while the latter is recognized as
generated. We expect to provide our product certification services either on a
per usage basis or pursuant to long-term, fixed-fee contracts. We recognize
these revenues when the service is completed or pro rata over the term of the
contract. For the nine months ended September 30, 1999, substantially all of
our revenues was derived from technical support and education services. As our
business matures, we expect professional services and technical support to
represent a majority of our revenues.
As of December 31, 1999, we had international operations with sales
personnel located in Canada, the United Kingdom, Germany, The Netherlands,
Sweden and Australia. We also had direct sales coverage in Japan and France.
Through September 30, 1999, 13% of our revenues related to companies outside
North America. We intend to continue to increase our international operations
through new hires and selective acquisitions.
Cost of revenues consist primarily of direct labor costs, including
salaries, employee benefits and incentive compensation, of employees directly
associated with the delivery of our services in client engagements, non-
reimbursed out-of-pocket expenses incurred by such employees and a
proportionate share of certain operating expenses.
We define gross profit as our revenues less our cost of revenues and define
gross margin as gross profit as a percentage of revenues. We expect that our
ability to achieve favorable gross margins will depend on our ability to
improve our efficiencies in the delivery of our services, as measured by
utilization rates and effective billing rates. We define effective billing rate
as our total revenues over total billable employee hours.
Sales and marketing expenses consist primarily of the salaries, commissions
and related expenses for employees dedicated to our sales and marketing
efforts. Additionally, we include in sales and marketing expenses costs
associated with public relations, the expenses associated with the design of
our website, marketing events and promotions. We expect sales and marketing
expenses to substantially increase in the future, primarily as a result of a
significant expansion in our direct sales force and increase in expenses
associated with marketing programs and events.
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General and administrative expenses consist of the salaries, employee
benefits and incentive compensation of employees performing managerial, finance
and administrative functions, depreciation and amortization expenses largely
related to our information technology infrastructure and costs associated with
recruiting and training activities. We expect our general and administrative
expenses to substantially increase in the future as we invest in our support
infrastructure and technology.
Amortization of deferred stock compensation represents the non-cash expense
associated with the amortization of the difference between the deemed fair
value of the common stock for accounting purposes and the option exercise price
over the vesting period or the service period, as applicable. In connection
with the grant of certain stock to employees for the nine months ended
September 30, 1999, we recorded deferred stock compensation of approximately
$5.1 million within stockholders' deficit. During the period from December 9,
1998 (inception) through December 31, 1998, we recorded deferred stock
compensation of approximately $0.3 million for restricted common shares granted
to consultants. For the nine months ended September 30, 1999, we recorded
deferred stock compensation of approximately $4.0 million and amortization of
deferred stock compensation of $1.7 million for consultants and $1.5 million
for employees. The deferred stock compensation is being amortized on an
accelerated basis over the vesting period of the individual award, generally
four years. After giving effect to the remaining deferred stock compensation at
September 1999 of approximately $6.1 million and to the grant of additional
options to employees in the fourth quarter of 1999, which will result in an
additional $16.2 million of deferred stock compensation, we will recognize
amortization of deferred stock compensation over the next four years.
We have completed two acquisitions to date. In December 1999, we acquired
The Puffin Group, a Canadian company, and Prosa, an Italian company. The
acquisition of Puffin adds to Linuxcare's worldwide professional services
capabilities, serving to further accelerate the rapid growth of Linux and open-
source solutions in enterprise environments. The acquisition of Prosa adds to
Linuxcare's embedded systems expertise. While we continue to consider new
acquisitions in the United States and internationally as opportunities arise,
we are not currently party to any acquisition-related agreements. The
outstanding common stock of Puffin was purchased by us for 100,000 shares of
our common stock and options to purchase an additional 325,000 shares. The
options to purchase 325,000 shares were allocated between purchase price
consideration (approximately 25,000 shares) and consideration given to certain
key employees contingent upon employment (approximately 300,000 shares). We
also purchased the outstanding common stock of Prosa for $290,000 and options
to purchase 25,000 shares of our common stock. The cash payment was considered
purchase consideration, and the options to purchase 25,000 shares were
considered employment consideration.
We incurred significant start-up expenses for the first nine months of 1999
in salaries, infrastructure development, marketing and general administration.
We expect to report an operating loss in 1999 and anticipate incurring
operational losses in 2000 and 2001. In particular, we expect that our plans
for increases in expenses and capital expenditures over the next two years to
support our expected growth will adversely affect our operating results. As we
grow our business, we expect to incur significant expenditures for marketing,
recruiting and hiring additional personnel, upgrading our technology
infrastructure and expanding into new markets.
Predicting our future operating performance based on only three reported
quarters is difficult given the uncertainty of our industry and the market as a
whole. Since past results are not necessarily indicative of future outcome, our
revenues and net income (loss) will likely fluctuate significantly from period
to period. The primary factors that may cause our quarterly operating results
to fluctuate include:
. the uncertain rate of growth in the usage and acceptance of the Linux
operating system and related open source software;
. our ability to continue to hire and retain leading Linux experts;
. the uncertain short-term and long-term demand for our services;
. increased competition in the Linux industry as well as the competition
we face from offerings based on proprietary operating systems;
23
<PAGE>
. reductions in the cost of services offered by our competitors;
. our ability to expand our professional services, sales and customer
support organizations and develop new service offerings; and
. general economic conditions and conditions in the particular industries
in which we and our competitors operate.
Results of Operations
Quarterly Results of Operations
The following table presents our unaudited quarterly data for the periods
indicated. We derived these data from our unaudited consolidated interim
financial statements, and, in our opinion, these data include all necessary
adjustments, which consist only of normal recurring adjustments necessary to
present fairly the financial results for the period.
<TABLE>
<CAPTION>
Quarter Ended
-----------------------------
March 31, June 30, Sept. 30,
1999 1999 1999
--------- -------- ---------
(dollars in thousands)
<S> <C> <C> <C>
Statement of Operations Data:
Revenues........................................... $ 10 $ 139 $ 156
Cost of revenues................................... 173 465 692
------- ------- -------
Gross margin....................................... (163) (326) (536)
Operating expenses:
Sales and marketing.............................. 674 654 908
General and administrative....................... 582 1,271 1,504
Amortization of deferred stock compensation...... 84 1,150 1,973
------- ------- -------
Total operating expenses....................... 1,340 3,075 4,385
Loss from operations............................... (1,504) (3,401) (4,921)
Interest expenses.................................. -- -- 199
------- ------- -------
Net loss......................................... $(1,504) $(3,401) $(5,120)
======= ======= =======
</TABLE>
Nine months ended September 30, 1999
Revenues
Revenues of $304,591 were generated primarily from the provision of
technical support and education services.
Cost of Revenues
Costs of revenues were $1.3 million. During the period, we increased
headcount significantly to support anticipated revenue growth.
Sales and Marketing Expenses
Sales and marketing expenses were $2.2 million, primarily attributable to
sales and marketing personnel, launching Linuxcare, implementing public
relations activities and purchasing advertising media.
General and Administrative Expenses
General and administrative expenses were $3.4 million, primarily
attributable to salaries, legal and accounting and recruiting expense.
24
<PAGE>
Amortization of Deferred Stock Compensation
In connection with the grant of restricted stock and stock options to
employees and consultants, we recorded deferred stock compensation of $6.6
million and amortized $3.2 million during the period.
Period from December 9, 1998 (inception) to December 31, 1998
During the period from inception to December 31, 1998, we incurred general
and administrative expenses of $13,458.
Liquidity and Capital Resources
Since inception, our operations have been financed primarily through the
issuance of Series A redeemable convertible preferred stock on February 1, 1999
and April 16, 1999 for approximately $1.6 million and $3.2 million,
respectively. As of September 30, 1999, we had cash of $863,459 and negative
working capital of approximately $1.1 million.
Cash used in operating activities during the nine months ending September
30, 1999 was $5.2 million. This was the result of a net loss of $10.1 million
for the nine months ended September 30, 1999, partially offset by non-cash
expenses including $3.2 million of amortization of deferred stock compensation,
$0.3 million of depreciation and amortization of debt issuance costs, and $1.3
million of other net changes in working capital.
Cash used in investing activities during the nine months ending September
30, 1999 was $1.1 million, consisting of purchases of property and equipment.
We anticipate substantial capital expenditures in 2000 consistent with our
anticipated growth in operations, investments, infrastructure and personnel.
Cash provided by financing activities during the nine months ending
September 30, 1999 was $7.0 million 1999. We raised $4.6 million through the
sale of redeemable convertible preferred stock and $2.4 million through the
sale and leaseback of equipment and leasehold improvements used in the
business.
On July 27, 1999, we entered into a subordinated loan and security agreement
with a financial institution for maximum borrowings of $2.0 million. At
September 30, 1999, we had outstanding $2.0 million in notes payable. This note
payable bears an annual interest rate of 10% and is due in 36 months. We will
be obligated to make interest and principal payments beginning six months after
the issuance date. Until that time, interest accrues but is not payable. If we
default, the note payable will bear an annual interest rate of 15%. This note
payable is secured by certain of our tangible and intangible assets and is
subject to several non-financial covenants.
We also have a line of credit for equipment financing for up to $1.0
million. The annual interest rate on amounts borrowed under the line of credit
is 7.5%. The credit facility contains customary covenants and expires in
December 2002. As of September 30, 1999, we had drawn down $390,010 under the
line of credit. This loan is secured by the equipment purchased.
We are obligated under various non-cancelable operating leases for our
office space. Future annual minimum rental commitments under the leases range
in the aggregate from $0.3 million to $1.1 million over the next five years.
Total future minimum rental commitments are approximately $4.9 million.
In December 1999 and January 2000, we raised an aggregate $33.5 million of
Series B redeemable convertible preferred stock to a variety of private
investors. Our future liquidity and capital requirements will depend upon
numerous factors, including the costs associated with the expansion of our
information technology infrastructure and service offerings, the increases in
our requirements for professionals, our sales and marketing activities and the
amount of working capital and fixed asset investment required in our business.
We do not believe we will generate positive cash flow from operations until
2002. We believe that our current cash and
25
<PAGE>
investment balances and available lines of credit facilities together with the
net proceeds of this offering will be sufficient to meet our operating and
capital requirements for at least the next 12 months. However, it is possible
that we may require additional financing within this period, particularly if we
acquire complementary businesses or technologies. As a result, we may be
required to raise additional funds through public or private financing,
strategic relationships or other arrangements. We cannot assure you that
additional funding, if needed, will be available on reasonable terms, or at
all. Furthermore, any additional equity financing may be dilutive to
stockholders, and debt financing, if available, may involve restrictive
covenants. Our inability to raise capital when needed could seriously harm our
business.
Recent Accounting Pronouncements
In March 1998, the AICPA issued Statement of Position (SOP) No. 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. SOP No. 98-1 requires entities to capitalize certain costs
related to internal-use software once certain criteria have been met. SOP No.
98-1 was adopted by the Company in fiscal 1999. The adoption of SOP No. 98-1
did not have a material effect on the Company's financial position or results
of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133, as recently amended, is effective for
fiscal years beginning after June 15, 2000. We believe that the adoption of
SFAS No. 133 will not have a material effect on the Company's financial
position or results of operations.
Year 2000 Impact
The Year 2000 Issue
The year 2000 issue refers to the potential for disruption to business
activities caused by system failures or miscalculations which are triggered by
advancement of data records past the year 1999. Our business has not been
affected by year 2000 issues. However, we cannot assure you that we will not
experience any disruption related to year 2000 issues in the future. We are not
currently aware of any unresolved year 2000 problems relating to any of our
internal systems, nor do we believe that we have any significant systems that
are not year 2000 compliant. Based on our assessment to date, we do not expect
the total cost of year 2000 remediation to be material to our business. To
date, our preparation and remediation costs have not been material.
We confront the year 2000 risk in two contexts.
Our customers. The failure of our customers to ensure that their operations
are year 2000 compliant could have an adverse effect on them, which in turn
could limit their ability to retain us as a third-party service provider or
process our invoices in a timely manner. In addition, customers or potential
customers may delay purchasing our services to the extent such customers or
potential customers are required to devote resources to resolving the year 2000
problem.
Our services. The solutions that we provide our customers integrate software
and other technology from different providers. If there is a year 2000 problem
with respect to a solution provided by us, it may be difficult to determine
whether the problem relates to services that we have performed or is due to the
software, technology or services of the other providers. As a result, we may be
subjected to year 2000-related lawsuits whether or not the services we have
performed are year 2000 compliant. We cannot be certain what the outcomes of
these types of lawsuits may be.
26
<PAGE>
BUSINESS
Overview
We are a recognized leader in providing services for Linux. We offer a
comprehensive range of services, including professional services, technical
support, education and product certification for Linux, leading open-source
software packages and other related technologies. We deliver rapid, cost-
effective, customized and expert solutions to our customers' Linux-related
service needs. We are implementing an advanced Internet-based infrastructure
that enhances our knowledge management and customer service delivery. We
support all major variations, or distributions, of Linux on a variety of
hardware platforms.
Since our inception, we have focused on customer services for large
businesses. We focus our sales and marketing efforts on original equipment
manufacturers, or OEMs, software vendors, Global 1000 companies and Internet
infrastructure providers. As a result of our early leadership in Linux-related
services, we have forged strategic relationships with leading technology
vendors including Dell Computer, Hewlett-Packard, IBM Global Services,
Motorola, NEC Software, Oracle, Sun Microsystems and TurboLinux. Through these
strategic relationships, we also provide services to end-users.
Industry Background
The Growth of the Internet
Companies are increasingly using the Internet to build cost-effective,
reliable, highly efficient channels of communication and commerce with their
global base of customers, suppliers and distribution partners. In addition,
companies are adopting Internet-based business models to address the rapidly
growing, global base of online consumers. According to International Data
Corporation, or IDC, the number of worldwide Internet users is expected to grow
from 142 million in 1998 to 502 million in 2003 and worldwide e-commerce
revenues are projected to increase from approximately $50 billion to more than
$1.3 trillion during the same period.
To remain competitive, companies must implement more sophisticated, reliable
and flexible Internet solutions. As a result, companies are rapidly deploying
and integrating new technologies as their Internet information technology
infrastructure needs grow. According to IDC, spending on Internet information
technology infrastructure will grow from approximately $110 billion in 1998 to
approximately $592 billion in 2003.
The Emergence of Open-source Software
Open source refers to software distributed under a legal license that
permits free distribution and requires open availability of the source code.
The best known open-source software is the Linux operating system, or Linux.
Linux can be downloaded from the Internet free of charge and used with few
restrictions. Open-source licenses such as those governing the use of Linux and
related applications permit the public the right to read, modify, redistribute
and use the software freely. Furthermore, because developers have access to the
underlying source code, they are able to customize it for their specific needs.
Developers can then submit their changes and enhancements for inclusion in
future Linux releases. As a result, Linux is continuously improved by a
worldwide community of software developers. The Internet's growth has enhanced
the development of Linux, enabling large communities of independent developers
to collaborate more effectively. This growth has accelerated development cycles
and increased product quality. Businesses are increasingly adopting Linux and
other open-source technologies for their Internet infrastructures. For example,
the survey by Netcraft Web Server Survey (netcraft.com/survey) shows that,
based on responses received during December 1999, Apache, an open-source Web
server, commanded a 54% market share, as compared to 22% for Microsoft's
Internet Information Server.
27
<PAGE>
Linux is Becoming the Leading Operating System for the Internet
Companies are increasingly adopting Linux as a platform for applications and
for file, print, Web and e-mail servers. According to IDC, Linux server
shipments grew at an annual rate of 181% in 1998 and are expected to grow at a
compound annual growth rate of approximately 27% through 2003. In addition,
several technology industry leaders, including Hewlett-Packard, IBM and
Motorola, have recently announced support for Linux. Linux offers multiple
benefits to businesses, including:
. high quality and reliability;
. reduced total cost of ownership;
. improved interoperability with other operating systems, applications and
networks; and
. ease of customization due to the open availability of the source code.
Linux is particularly well suited for the Internet where highly reliable,
secure, low-cost and customizable solutions are essential. As a result, Linux
is emerging as the leading operating system for the Internet. According to an
April 1999 survey conducted by the Internet Operating System Counter
(leb.net/hzo/ioscount), Linux ran on approximately 31% of the Web servers
polled, more than any other single system.
Market Opportunity
Despite the various benefits and initial market acceptance of Linux, a
number of challenges exist to the widespread adoption of Linux. We believe that
the greatest obstacle impeding this adoption is the lack of professional
services, technical support, education and product certification comparable to
those available for traditional, proprietary operating systems such as
Microsoft's Windows NT. According to a June 1999 Miller-Freeman survey, 33% of
the respondents cited the lack of commercial support and services as the
largest obstacle to buying open-source products. This study revealed that 79%
of the respondents considered service and support to be an important factor in
their buying decision.
The open-source nature of Linux enables companies to market variations, or
distributions, of Linux. Other Linux vendors have begun to bundle Linux
distributions with hardware systems. However, these Linux software and hardware
vendors generally provide services limited to their distributions and systems.
In addition, other technology vendors and information technology services
providers have focused neither on building the depth of expertise nor on
providing the full range of services necessary to support Linux for business
customers.
We believe an opportunity exists for a vendor-neutral Linux services
provider to emerge with the reputation and skills necessary to provide Linux-
based solutions for enterprises. This provider must have:
. the ability to provide a full service offering, including professional
services, technical support, education and product certification;
. knowledge of all major Linux distributions and compatible hardware
platforms, and the ability to integrate Linux with existing computing
environments;
. leading-edge technical expertise;
. a scalable technology infrastructure to efficiently serve an expanding
customer base; and
. the active support of and involvement in the Linux and open-source
communities.
Solution
To address the need for comprehensive services for Linux, we offer the
following solutions:
Complete Software and Hardware Life Cycle Support
We offer a comprehensive range of services spanning the entire software and
hardware life cycle. We help customers evaluate Linux, select Linux hardware
and software solutions, implement and maintain Linux
28
<PAGE>
solutions and receive ongoing education. Our service offerings consist of
business analysis, systems implementation, application porting, device driver
development, security audits, performance analysis, technical support,
education and product certification. Our engineers' in-depth knowledge of major
operating systems, applications and networks enables us to effectively
integrate Linux and other open-source solutions with existing computing
infrastructures. As an example of our broad-based services, Linuxcare provides
Motorola with technical support for its engineering group, courseware for
Motorola University and engineering support for Motorola's embedded systems
group. We believe that our comprehensive range of services will help us develop
long-term customer relationships.
In-depth Linux and Open-source Expertise
We have assembled a worldwide team of leading Linux experts who actively
participate in the open-source community. As of December 31, 1999, we employed
65 prominent Linux and open-source hardware and software technologists. Many of
these professionals are significant contributors to open-source projects, such
as:
. the Linux kernel, the fundamental part of the operating system;
. SAMBA, a file and print server;
. Apache, a Web server;
. Professional Home Page, or PHP, a solution that allows Internet servers
to connect with back-end resources such as databases and scripting
engines;
. EMACS, a text editing tool;
. ET-Linux, a leading Linux distribution for embedded systems;
. Majordomo, a mailing list management program; and
. the development of Linux for chipsets from Hewlett-Packard, Intel and
Motorola.
We believe that the involvement of our professionals in these projects and
our investment in Linux expertise make us an integral member of the Linux and
open-source development communities. Our involvement in these communities
enables us to maintain our leading-edge technical expertise and react quickly
to new developments.
Internet-based Delivery Model
We are implementing a scalable, Internet-based infrastructure to help us
more efficiently and effectively serve our expanding customer base. We are able
to deliver services such as installation, diagnostics and maintenance remotely
over the Internet, reducing the need for on-site personnel. As part of our
infrastructure, we have implemented a knowledge sharing and management database
consisting of information gained from all of our business units. We use our
knowledge database to efficiently provide solutions to our customers. We also
provide our customers Internet-based access to our knowledge database, which
delivers automated responses to their questions. Our advanced infrastructure
and knowledge database enable us to provide high-quality solutions to our
customers in a timely and cost-effective manner.
Vendor-neutral Services Offerings
Our service offerings are distribution and hardware platform independent. We
currently support 21 different Linux distributions and nine hardware platforms.
Our vendor neutrality has helped us develop a comprehensive knowledge database
that enables our experts to respond to our customers' diverse needs. We can
help our customers choose the best Linux distribution and hardware platform for
their needs, and integrate these technologies with their existing computing
infrastructures. Furthermore, some customers with global operations, such as
IBM Global Services, use multiple distributions of Linux. We can provide
worldwide support to these customers under a single contract, eliminating the
need to contract with multiple vendors.
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<PAGE>
Support of the Open-source Community
Linuxcare actively supports open-source initiatives, dedicating time and
resources to projects that improve the Linux operating system and related
applications. Our staff of recognized experts continues to contribute to the
development of Linux. We also promote and participate in organizations such as
Linux International, a Linux advocacy organization, the Linux Professional
Institute, which establishes Linux skills certification standards, and the
Linux Standards Base, which establishes design standards for Linux.
Additionally, our website, linuxcare.com, provides a repository of technical
information and resources about Linux and open-source solutions for developers
and information technology professionals. We leverage expertise gained through
our strong relationships with the Linux community to serve our customers more
effectively. We believe that our active involvement in the Linux community,
combined with the fact that we do not package and resell a Linux distribution,
make us a well-respected member of the community and an attractive company for
Linux experts to join.
Strategy
Our objective is to become the leading provider of services for Linux. The
key elements of our strategy are:
Leverage Alliances with Leading Vendors
We have selectively established alliances with leading OEMs and software
vendors, including Dell, Oracle and Sun Microsystems. These relationships
provide us with a range of benefits, including sales leads, co-marketing
initiatives and the opportunity to provide services to their customers. In
addition to representing an opportunity to reach a broad customer base, many of
these OEMs and software vendors are also direct consumers of our services. They
use our professional services to help formulate their Linux strategies, our
certification services to validate their hardware platforms, Linuxcare
University courseware to train their engineers and our technical support to
assist their Linux engineering groups. We intend to further expand our existing
alliances and establish new alliances with leading technology vendors. For
example, we are establishing relationships with software and hardware vendors
to port their applications to Linux.
Focus on the Enterprise
We intend to focus additional sales and marketing efforts toward Global 1000
companies and Internet infrastructure providers. We believe these companies
require stable and cost-effective platforms such as Linux to run their
increasingly complex software applications and take full advantage of the
Internet. These companies require in-depth expertise in the integration of
Linux and open-source solutions with existing computing environments. We have
started working with Global 1000 companies and Internet infrastructure
providers and we intend to leverage our experience with these customers to
market and sell our services to new customers.
Extend Technical Leadership
To maintain the high quality of our services, increase the effectiveness of
our solutions and attract and retain world-class Linux experts, we believe it
is imperative for us to remain an active member of the Linux community and stay
involved with the latest Linux developments. We continually research, test and
evaluate new Linux-related technologies, which we incorporate into our
solutions to better serve our existing and future customers. These efforts
allow us to address quickly the growing demand for Linux porting, device driver
development and Linux-based embedded systems.
Leverage Scalable Internet-based Infrastructure
We are implementing an advanced Internet-based infrastructure, rather than
the more labor-intensive model of traditional service providers, to deliver the
highest quality and most responsive services to our customers. We are replacing
the traditional geographically-oriented service model with virtual
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work groups, which we refer to as Global Centers of Expertise. These Global
Centers of Expertise are designed to allow technical experts of similar
disciplines to work together regardless of their geographical locations. In
addition, our knowledge database is a key component of our service model,
providing our business units with ready access to valuable technical
information. We believe that our technology infrastructure will allow us to
grow our business in a cost-effective manner.
Strengthen Our Brand
Continuing to build our brand is essential to attracting new customers,
strengthening our relationships with OEMs and software vendors, and enhancing
our presence in the Linux and open-source communities. We intend to build our
brand through a variety of strategies, including the promotion of
linuxcare.com, public relations activities, co-marketing initiatives, direct
marketing and focused advertising campaigns. Through our Linuxcare Labs
business unit, we have developed a branding program that encourages vendors of
products that have been awarded certification status to display the "Certified
by Linuxcare Labs" logo on their products and websites. This program is
designed to give end-users the assurance that certified products have been
fully tested by Linuxcare for compliance with the Linux kernel and major
distributions of Linux. To maintain the goodwill of the Linux community, a
foundation of our brand, we will continue to contribute resources to open-
source development projects.
Promote the Adoption and Development of Linux
We have partnered with a variety of technology vendors to encourage the
development of commercial applications for Linux. We have a team of Linux
experts who work on open-source projects and continue to support the
development of Linux. We also actively support and sponsor the Linux
Professional Institute, Linux International and the Linux Standards Base. We
have developed a half-day session, "Linux for the Executive," which is
currently available in a tutorial and will be made available via the Internet.
We believe that our efforts to improve Linux and educate customers on its
benefits encourage the adoption of Linux.
Linuxcare Services
We offer a broad range of services for Linux, including professional
services, technical support, education and product certification. We support
all major Linux distributions and hardware platforms, giving customers choice
and customization options to meet their needs.
Professional Services
Linuxcare Professional Services offers customers consulting services to help
them fully benefit from their Linux investments. Linuxcare Professional
Services uses Global Centers of Expertise to effectively deliver services on a
worldwide basis. Each Global Center of Expertise is a team of experts with
extensive skills in a technology area who work together independent of
geographical location. These collaborative methods promote rapid solution
development, allowing us to execute large, complex projects with high quality
and enabling us to scale for increased business volume. We have established
Global Centers of Expertise in the following areas:
. application porting . security audits
. parallel computing and clustering . performance optimization
. device driver development . Web and e-mail servers
. network management . open-source strategy consulting
. customized Linux solutions
To ensure successful project management and delivery of our professional
services, we have established consistent, company-wide procedures for each
client engagement. These procedures consist of project analysis and proposal,
engagement and contracting, development, testing and delivery. This project
life cycle is also used to manage changes in project scope. Knowledge gained
throughout a project is captured in the knowledge database for use in future
client engagements.
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Customized Linux Solutions. As a service to our customers, we can customize
Linux and Linux-based solutions to offer full compliance and optimized
performance with their hardware or software products. A standard Linux
distribution, typically sold through the retail channels, is designed to run on
as many hardware configurations as possible, and must be suitable for a wide
range of computing solutions. Customized Linux-based solutions from Linuxcare
are streamlined and tuned for optimal performance, reliability, ease of use and
security with a specific hardware or software configuration. As part of our
customization service, we use the most current Linux kernel and driver versions
available, perform a full security audit and certify the solution through
Linuxcare Labs. In a test completed for one of our OEM customers, we
demonstrated that our customized Linux solution performed as much as five times
faster than a leading Linux distribution.
Embedded Systems. We have recently established a group to focus on providing
engineering support for our customers' embedded systems efforts. Embedded
systems are operating systems that are built into equipment such as mobile
phones, medical devices and industrial control systems. We believe that the
cost-effective, portable, compact and robust characteristics of Linux are well
suited to the rapidly expanding market for embedded systems. We employ Linux
experts who are largely responsible for the development of one of the leading
embedded Linux distributions, ET-Linux.
Technical Support
We offer customer support services 24 hours a day, seven days a week through
our global network of customer service centers. Our technical support
professionals provide customers with ongoing support on complex issues ranging
from operating system installation to application usage. We support the
installation and maintenance of all major Linux distributions as well as
database products from IBM, Informix, Oracle and Sybase that run on Linux. In
addition, we support numerous software applications, including StarOffice,
Sendmail, Apache and SAMBA. Customer questions are typically received via e-
mail, Web submission, telephone or fax and are routed to the appropriate
technical resource. When appropriate, complex questions are referred to our
Linux experts. We typically respond to customer questions by e-mail to provide
efficient, accurate instructions.
Our technical support services business unit has grown rapidly since its
inception. We handled 140 incidents in the second quarter of 1999, increasing
to approximately 15,000 incidents in the fourth quarter of 1999. We capture the
knowledge gained in resolving these incidents in the knowledge database,
increasing our level of automation and improving our service quality.
Linuxcare University
We offer educational materials for Linux and other open source technologies
through our Linuxcare University business unit. Our courseware is designed by
expert Linux developers and open source engineers in conjunction with
professional courseware developers. We license our courseware to professional
training centers in return for training fees and a per-student royalty. In
addition, we have formed a partnership to deliver our courseware via the
Internet.
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Our current courseware covers all major Linux distributions and includes:
. Linux Fundamentals . Network Protocols
. Linux for Managers . Network Operating Systems
. Extreme SAMBA . Network Design, Implementation
and Maintenance
. Linux Programming
. Networking Essentials
. Linux System Administration
. Local Area Network Implementation
. Linux System Administration for and Maintenance
NT Professionals
. LANs, WANs and the Internet
. Internetworking with Linux and
TCP/IP
. Internet Fundamentals
. Apache Web Server . Internet and Internet Security
. Architecture and Design of . Intranet Design and Migration
Enterprise Systems
. Using the TCP/IP Protocol
. IT Infrastructure Implementation
and Management
. Enterprise-wide Communications
and Networking
Linuxcare Labs
Linuxcare Labs is a vendor-neutral testing facility that certifies hardware
for use with the Linux operating system. Certification by Linuxcare Labs gives
Linux users the assurance that all components of the tested product operate at
full functionality with the Linux kernel and successfully run all major Linux
distributions. Once certified, products earn the Linuxcare Labs certification
mark, signifying that the product is "Linux-ready." We can certify hardware on
a per usage basis or through an on-going service contract.
Linuxcare Labs also certifies written material for Macmillan USA. Our
engineers review this material for technical accuracy and completeness.
Information Technology
We are implementing an advanced Internet-based infrastructure to communicate
with to deliver applications and services to our global base of employees,
customers and partners. Through the use of technology, we provide our customers
with services that would traditionally require on-site professional staffing.
We can perform remote Linux system installation, software updates, software
distribution, diagnostics, maintenance, monitoring and automated recovery
services by connecting to our customers' computers securely over the Internet.
Distributed Infrastructure
Our distributed infrastructure facilitates low-cost, rapid scalability while
effectively protecting us from system failures or network outages. Through an
outside service provider, we are hosting our Web servers in California, Hong
Kong, London and New York to provide redundancy, enhanced disaster recovery
protection and the ability to deliver electronic services to customers globally
with fast response times.
Our information technology infrastructure is designed to enable us to form
virtual work groups, or Global Centers of Expertise, regardless of the
geographical location of individual team members. We believe these tightly
integrated teams will provide significant economies of scale as we expand our
operations and customer base.
We expect the distributed nature of this infrastructure will facilitate our
expansion. Through our Internet infrastructure, we will be able to support
offices in remote locations with the following capabilities: sales and
marketing automation, customer relationship management, human resources,
financial management, project accounting, order entry, video conferencing,
Internet and e-mail.
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Knowledge Accumulation and Management
We have built a central knowledge database that serves as a repository for
open-source software information. The knowledge database stores corrective
instructions for our customers' service requests derived from multiple sources
and is continuously improved as we respond to questions from our customers. We
use a natural language search engine to analyze e-mail requests and rapidly
find responses in our knowledge database. Our knowledge database is available
to our staff and customers. Customers continually help us to refine the
accuracy of the knowledge database by providing feedback on the relative
usefulness of responses received. We believe that our knowledge database is a
cost-effective method for providing high-quality responses to our customers'
questions.
Our knowledge database is also used internally by all of our business units
to deliver services. For example, a professional services consultant can
capitalize on solutions previously developed by Linuxcare Labs to help a new
customer.
Engineering Talent
To offer the most comprehensive and highest quality Linux services, we
recruit and employ accomplished engineering talent, including some of the best
known developers in the worldwide Linux and open-source communities. By
encouraging participation in open-source projects, we strive to foster a
corporate culture that attracts and nurtures technical talent. As we
successfully attract and retain leading Linux and open source experts, we
extend our internal base of engineering talent and create momentum to attract
other Linux engineers.
Our employees have contributed and continue to contribute to a variety of
significant ongoing Linux projects. The following highlights some of our
employees and their participation in core Linux and open-source projects:
<TABLE>
<CAPTION>
Project Description Employees
- ------- ----------- ---------
<S> <C> <C>
Linux kernel The fundamental part of the operating Christopher Beard
system
Alex deVries
Paul Mackerras
Paul Russell
Andrew Tridgell
Joshua Uziel
David Welton
Matthew Wilcox
SAMBA A file and print server Andrew Tridgell
Apache A Web server Rasmus Lerdoff
David Welton
Secure Networking Virtual private networking tools Paul Russell
David Sifry
Advanced Power Powersaving features for laptop computers David Mandala
Management
Stephen Rothwell
InterMezzo A highly available, distributed file system Phil Schwan
IPChains/Netfilters Tools for security and firewalling Jim Dennis
Paul Russell
Salvatore Sanfilippo
David Sifry
</TABLE>
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Customers
The following is a list of some of our customers in 1999:
Adaptec IBM Global Services
Alpha Informix
Alexa (a division of Amazon.com)
Inktomi
Amdahl KPMG
Cobalt Networks Macmillan USA
Dell Computer Motorola
Hewlett-Packard NEC
DTT'S (a subsidiary of Hitachi)Sun Microsystems
TurboLinux
For the period ended September 30, 1999, we had three major customers,
representing 43%, 16% and 15%, respectively, of our revenues. The following
customer case studies demonstrate the range of services we provide for our
customers:
Dell Computer. Dell is the largest direct seller of desktop computer systems
and a leading supplier of enterprise servers. Dell has outsourced its warranty
support under a one-year contract with Linuxcare for installation and ongoing
support of Linux and related software. Linuxcare Labs provides certification of
Dell hardware across five major Linux distributions.
Densa Techno Tokyo's (DTT'S). DTT'S, a wholly owned subsidiary of Hitachi,
provides support for Hitachi's mainframes. DTT'S has recently started to
provide service and support for Linux and has established a call center in
Tokyo for basic support. DTT'S has contracted with Linuxcare for a one-year
term to provide in-depth technical support to enhance its basic support
services.
Hewlett-Packard. Hewlett-Packard is a global provider of computing and
imaging solutions and services. Hewlett-Packard's Business Desktop division,
based in France, has contracted with Linuxcare for a one-year term to provide
Linux distribution certification for their Kayak, Vectra and Brio models. We
ensure that these model configurations work optimally with specific Linux
distributions.
Macmillan USA. Macmillan USA is the computer book and trade reference
publishing division of Viacom. Macmillan USA distributes Mandrake Linux and
other Linux utilities, and publishes popular Linux books. Our engineers review
Macmillan USA's books for technical accuracy and completeness prior to
publication. Under a one-year contract with Macmillan USA, we also provide
technical support to customers of Macmillan's Linux distribution and utilities
and have handled over 4,000 customer incidents since October 1999.
Motorola. Motorola is a global leader in providing integrated communications
and embedded electronic solutions. Motorola has contracted with Linuxcare to
provide engineering support to Motorola Computer Group's support and
development organizations. Linuxcare will work with the Motorola Computer
Group's product engineering and customer support services on product
customization and application development. Linuxcare University will provide
worldwide courseware licensing and instructor technical support for Motorola
Computer Group's training programs.
Sun Microsystems. Sun Microsystems is a leading provider of computer
hardware, software and services. Sun has contracted us to provide technical
support services for its StarOffice(TM) product suite. We are also in
discussions to provide professional services to Sun Microsystems regarding
device driver development and other open-source projects.
TurboLinux. TurboLinux sells a leading Linux distribution in Asia. To
accommodate its growth in North America, TurboLinux has contracted with
Linuxcare to provide all of the North American technical support for its
flagship product, TurboCluster.
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Sales and Marketing
We sell our services primarily through our direct sales organization. We
also employ indirect sales professionals to leverage our strategic
relationships with our OEM and software vendor customers. As of December 31,
1999, we employed 36 sales and marketing professionals located in the United
States, Canada, the United Kingdom, Germany, The Netherlands, Sweden and
Australia. We also have direct sales coverage in Japan and France. We employ
resellers in certain geographic locations where a direct sales organization has
not yet been established. In addition, our senior executives and key technology
personnel, many of whom are well recognized in the Linux community, frequently
participate in building relationships with potential customers and business
partners as well as in securing engagements. We also generate sales leads
through our involvement in the open-source community.
To date, we have generated the majority of our revenues from OEMs and
software vendors. We sell our services to OEMs and software vendors as well as
to their end-users. Some of our OEM and software vendor customers provide our
services in conjunction with their products and services. We are also expanding
our worldwide sales and marketing efforts that focus on Global 1000 companies
and Internet infrastructure providers.
Our marketing strategy is to build the Linuxcare brand to enhance our
position as a leading provider of Linux-related services. We build our brand,
market our services and generate sales leads through our linuxcare.com website,
public relations activities, co-marketing initiatives, direct marketing and
targeted advertising. We have retained outside public relations and advertising
firms to assist us with our marketing efforts.
Competition
We compete in the emerging market for Linux-based professional services and
support. This market is highly competitive. Many of our competitors have longer
operating histories, better name recognition, larger client bases and greater
financial, technical, marketing and public relations resources than we. Because
the Linux-based solutions market has relatively low barriers to entry, we
believe competition will intensify as the market evolves.
Our current and potential competitors include:
. Linux distribution and services firms such as Caldera Systems, Red Hat
and VA Linux Systems;
. Hardware systems vendors such as Dell, Hewlett-Packard and Sun
Microsystems;
. Systems integrators and professional services providers such as Andersen
Consulting, IBM Global Services and the big five accounting firms; and
. Internal information technology departments of our prospective clients.
We believe that the key competitive factors relevant to our business are an
ability to provide integrated solutions that span the entire hardware and
software life cycle, reputation for in-depth Linux expertise across all major
distributions and hardware platforms and high quality of professional services
and customer support. We believe that we compete successfully with respect to
each of these factors.
Employees
As of December 31, 1999, we had a total of 122 employees, of which 101 were
located in the United States, eight in Europe, seven in Canada and six in
Australia.
None of our employees is subject to a collective bargaining agreement, and
we believe that our relationship with our employees is satisfactory.
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Facilities
Our headquarters is located in a leased facility in San Francisco,
California consisting of 10,500 square feet of office space. The lease for this
office expires December 31, 2003. Additionally, we plan to occupy 30,000 square
feet of office space currently under construction in the second quarter of
2000. The lease for this office space expires on October 31, 2004. We also
lease office space in Canberra, Australia, Ottawa, Canada, Berkshire, England,
and Amsterdam, The Netherlands.
We do not own any real estate. We do not consider any specific leased
location to be material to our operations, and we believe that equally suitable
alternative locations are available in all areas where we currently operate.
Legal Proceedings
We are not currently a party to any material legal proceedings. We may in
the future be party to litigation arising in the course of our business.
Intellectual Property
While we have developed some proprietary techniques and know-how, most of
our knowledge is not protectable as proprietary intellectual property. To
protect our intellectual property, we generally enter into confidentiality or
license agreements with our employees, consultants and corporate partners. We
have also entered into non-competition agreements with some of our key
employees. In addition, we have an agreement with Linus Torvalds, owner of the
"Linux" trademark registration, allowing us to use Linux as part of our company
name.
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MANAGEMENT
Executive Officers and Directors
The following table sets forth certain information with respect to our
executive officers and directors.
<TABLE>
<CAPTION>
Name Age Position
- ---- --- --------
<S> <C> <C>
Fernand B. Sarrat(1)....... 49 President, Chief Executive Officer and Director
Arthur F. Tyde III......... 35 Executive Vice President and Director
David LaDuke............... 39 Vice President, Marketing
Patricia Lambs............. 51 Vice President, Service Solutions
Thomas W. Phillips......... 48 Vice President, Worldwide Sales
Robert V. Walters.......... 42 Vice President, Business Development
Christian A. Paul.......... 39 Chief Financial Officer
David L. Sifry............. 31 Chief Technology Officer
Douglas C. Nassaur......... 33 Chief Information Officer
Ted E. Schlein(1)(2)(3).... 35 Chairman of the Board of Directors and Director
Regis McKenna.............. 60 Director
John Drew(1)(2)............ 43 Director
Paul Vais(2)(3)............ 40 Director
Ernest von Simson(3)....... 61 Director
</TABLE>
- --------
(1) Member of the executive committee.
(2) Member of the audit committee.
(3) Member of the compensation committee.
Fernand B. Sarrat has served as President and Chief Executive Officer of
Linuxcare since May 1999. Prior to joining the company, Mr. Sarrat held the
positions of President and Chief Executive Officer of Cylink Corporation, a
California-based security and cryptography firm. Before leading Cylink, Mr.
Sarrat spent 23 years as an executive at IBM where, among other achievements,
he and his team put in place IBM's e-Commerce initiative. His career at IBM
culminated as General Manager of Network-Centric Computing Marketing and
Services. Mr. Sarrat received an M.B.A. from the Wharton School of Business and
dual B.A. degrees in economics and psychology from Stanford University.
Arthur F. Tyde III, one of our founders, has served as Executive Vice
President since May 1999, and prior to that was acting Chief Executive Officer
from the inception of the company. Before co-founding Linuxcare, Mr. Tyde held
senior consulting and management positions at Gap, Inc. from December 1996, in
addition to his post as president and founder of the Bay Area Linux User Group.
Prior to working at Gap, Inc., Mr. Tyde held senior consulting and management
positions at Fireman's Fund Insurance Company from November 1995 until December
1996, and at California State Automobile Association from June 1993 to November
1995. Mr. Tyde earned his B.A. from Michigan State University.
David LaDuke, one of our founders, has served as Vice President of Marketing
since December 1998. Prior to Linuxcare, Mr. LaDuke was an independent
marketing consultant, working with companies such as Apple Computer, I/PRO,
Netscape, Oracle and Silicon Graphics from March 1993 to August 1998. From 1989
to 1993, Mr. LaDuke was a marketing manager at NeXT Computer. Before this, from
1986 to 1989, he worked in marketing at Apple Computer where he participated in
the launch of desktop publishing. Mr. LaDuke received an M.B.A. from the Tuck
Graduate School of Business at Dartmouth College with a concentration in
marketing, and a B.A. and M.F.A. from Columbia University.
Patricia Lambs has served as our Vice President of Service Solutions since
August 1999. For five years prior to joining Linuxcare, Mrs. Lambs served as
Executive Vice President and Chief Operating Officer at Ascent Logic
Corporation, where she built a world wide sales and service delivery
organization and managed the Central Engineering Group. In this role, Mrs.
Lambs served as Chairman of the Board for Ascent Logic
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Norway and Ascent Logic Ltd. in the United Kingdom. Prior to joining Ascent
Logic, Mrs. Lambs spent 18 years in management positions of Integration Service
for Digital Equipment. Mrs. Lambs attended Temple University.
Thomas W. Phillips has served as our Vice President of Worldwide Sales since
September 1999. Prior to Linuxcare, Mr. Phillips served as Vice President,
North American Sales for Baystone Software/Remedy Corporation from October 1998
to September 1999. He also served as Vice President of North American Sales for
Wayfarer Communications/Vantive Corporation, from October 1997 to September
1998. Previously, Phillips spent several years at Sterling Software, from June
1987 to September 1997, attaining the position of Vice President, North
American Sales. Mr. Phillips earned a B.A. in Sales and Marketing from
California State University.
Robert V. Walters has served as our Vice President of Business Development
since December 1999. Before joining Linuxcare, Mr. Walters was Vice President
of Corporate Strategy for Informix Software where he worked from March 1998 to
November 1999. Previously, Mr. Walters worked at Red Brick Systems, Inc, a data
warehouse software vendor, from April 1996 to February 1998, where he served as
Director of Strategic Marketing. Prior to that, Mr. Walters was a principal
technical consultant at Dynasty Technologies, Inc., an object-oriented software
development start-up, from January 1995 to March 1996. Mr. Walters holds a B.S.
in Systems Engineering from the U.S. Naval Academy.
Christian A. Paul has served as our Chief Financial Officer since December
1999. Prior to joining Linuxcare, Mr. Paul was Vice President and Chief
Financial Officer of Cloudscape, Inc., a provider of Java-based data management
systems, from October 1998 to December 1999. Before that, Mr. Paul was Vice
President and Chief Financial Officer of ICVERIFY, an e-commerce company from
July 1996 to August 1998, where he directed the finance and administration
functions and also served as Vice President and Chief Financial Officer of
Integral Systems Inc. from January 1994 to June 1996. Mr. Paul holds an M.A. in
Accounting and Taxation from the University of Cape Town, and is also a
Chartered Accountant.
David L. Sifry, one of our founders, has served as Chief Technical Officer
since December 1998 and is a recognized expert in open source development and
the Linux operating system. Prior to co-founding Linuxcare, he ran an Internet
technology consulting business, Sifry Consulting, from January 1995 to August
1998. His client list included Advanced Portfolio Technologies, Bindco, Metcal
and The Netherlands Office of Science and Technology. Mr. Sifry holds a B.S. in
Computer Science from Johns Hopkins University.
Douglas C. Nassaur has served as our Chief Information Officer since
November 1999. Previously, Mr. Nassaur was Vice President, Technical
Operations, for E*TRADE Technologies from September 1998 to October 1999. Prior
to E*TRADE, Mr. Nassaur directed the daily engineering, operation, and support
of distributed systems for Holiday Inn Worldwide/BASS PLC from August 1997 to
September 1998. Previously, at BellSouth.net, Mr. Nassaur led the management of
the company's Internet/intranet services, help-desk operations, corporate
service delivery, and billing systems from July 1996 to August 1997. Before
working for Bellsouth.net, Mr. Nassaur held a senior-level technology
management position at GTE Mobilnet from May 1994 to July 1996. Mr. Nassaur
earned a B.S. in Computer Science from the University of Kentucky.
Ted E. Schlein has served as Chairman of our Board of Directors since May
1999. Mr. Schlein is a partner in the venture capital firm Kleiner Perkins
Caufield & Byers which he joined in November 1996. Mr. Schlein also serves on
the board of directors for Corio, Inc., Extensity, Inc., NONSTOP Solutions,
Inc., Portera Systems and WineShopper. Prior to Kleiner Perkins Caufield &
Byers, Mr. Schlein worked at Symantec Corporation, most recently as Vice
President of Networking and Client Server Technology. Mr. Schlein holds a B.S.
in Economics from the University of Pennsylvania.
Regis McKenna has served on our Board of Directors since September 1999. He
is also Chairman of The McKenna Group, an international consulting firm
specializing in the application of information and telecommunications
technologies to business strategies, which he founded in 1970. In his capacity
as Chairman
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of The McKenna Group, Mr. McKenna advised many high-tech start-up companies
such as America On Line, Apple, Compaq, Electronic Arts, Genentech, Intel,
Linear Technology, Lotus, Microsoft, National Semiconductor, Silicon Graphics
and 3COM. Mr. McKenna also serves as director on the following companies'
boards: Caliper "Lab on A chip," bio-information systems; Cybergold Incentive,
management software for Internet transactions systems; Cylink Encryption and
security systems software; Diabeteswell.com, E-medicine diabetes portal and
management systems; Graham Technologies Live video and audio servers for
distance monitoring, surveillance and broadcast via the Internet. Mr. McKenna
attended Saint Vincent College and Duquesne University.
John Drew has served on our Board of Directors since November 1999. Mr. Drew
also serves as executive vice president and CEO of Lucent Technologies' NetCare
Professional Services group, a portfolio of network professional services and
software solutions. Mr. Drew was president and chief executive officer of
International Network Services, the world's largest independent network
consulting and software provider, prior to its acquisition by Lucent in October
1999. Mr. Drew joined International Network Services in 1994 as vice president
of operations and became president in 1996. Mr. Drew holds a B.S. degree in
Engineering from West Point and an M.S. in Business Policy from Columbia
University.
Paul Vais has served on our Board of Directors since November 1999. Mr. Vais
is also a managing director with Patricof & Co. Ventures, Inc., an
international private equity investment firm, which he joined in 1997.
Previously, Mr. Vais was a vice president with Enterprise Partners Venture
Capital, and also served as CEO of Xatrix Entertainment, a digital
entertainment company. Mr. Vais also serves on the Boards of Directors of
Icarian, Oblix, and Quadrant International. Mr. Vais holds a B.S. in Computer
Science from the University of California.
Ernest von Simson has served on our Board of Directors since October 1999.
Mr. von Simson is a senior partner at Ostriker von Simson, Inc., which assists
Fortune 200 enterprises in developing partnerships with Web solution providers.
Previously, Mr. von Simson was the co-founder, chairman and research director
of the Research Board, a private sector think tank that serves the chief
information officers of Fortune 200 enterprises in Europe and North America.
Mr. von Simson holds a B.A. from Brown University, and an M.B.A. from New York
University.
Board of Directors
Our Board of Directors currently consists of seven members. Each director
holds office until his term expires or until his successor is duly elected and
qualified. Upon completion of this offering, our amended and restated
certificate of incorporation and bylaws will provide for a classified Board of
Directors. Our Board of Directors will be divided into three classes whose
terms will expire at different times. The three classes will be comprised of
the following directors:
. Class I consists of Messrs. Tyde and von Simson, who will serve until
the annual meeting of stockholders to be held in 2001;
. Class II consists of Messrs. Vais, Schlein and Drew, who will serve
until the annual meeting of stockholders to be held in 2002; and
. Class III consists of Messrs. Sarrat and McKenna, who will serve until
the annual meeting of stockholders to be held in 2003.
At each annual meeting of stockholders beginning with the 2001 annual
meeting, the successors to directors whose terms will then expire will be
elected to serve from the time of election and qualification until the third
annual meeting following election and until their successors have been duly
elected and qualified. Any additional directorships resulting from an increase
in the number of directors will be distributed among the three classes so that,
as nearly as possible, each class will consist of an equal number of directors.
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Committees
Our Board of Directors has an executive committee, an audit committee and a
compensation committee. The executive committee consists of Messrs. Sarrat,
Schlein and Drew. The executive committee approves acquisitions of businesses
in amounts up to $5 million and takes such other actions as may be delegated by
the Board from time to time. The audit committee consists of Messrs. Vais,
Schlein and von Simson. The audit committee reviews our internal accounting
procedures, consults with and reviews the services provided by our independent
accountants and makes recommendations to the Board of Directors regarding the
selection of independent accountants. The compensation committee consists of
Messrs. Vais, Schlein and Drew. The compensation committee reviews and
recommends to the Board of Directors the salaries, incentive compensation and
benefits of our officers and employees and administers our stock plans and
employee benefit plans.
Compensation Committee Interlocks and Insider Participation
Our Board of Directors established the compensation committee in January
2000. No member of our compensation committee has served as a member of the
Board of Directors or compensation committee of any entity that has one or more
executive officers serving as a member of our Board of Directors or
compensation committee. Since the formation of the compensation committee, none
of its members has been our officer or employee.
Compensation
In January 2000, our Board of Directors approved compensation guidelines for
directors who are not our officers or employees. The compensation guidelines
provide that these directors will be reimbursed for expenses incurred in
attending any Board of Directors or committee meeting. Directors who are also
our officers or employees will not receive reimbursement for expenses incurred
in attending Board of Directors or committee meetings.
Effective upon the closing of this offering, our non-employee directors also
will be eligible to participate in our 2000 Director Option Plan. Each non-
employee director who joins our Board of Directors after this offering will
automatically receive a grant of an option to purchase 20,000 shares of our
common stock on the date on which such person becomes a director. The shares
subject to each of these options will vest and become fully exercisable over
four years as follows: 25% on the first anniversary of the date of grant and
1/48th per month thereafter in equal monthly installments over a four year
period following the date of grant. Additionally, beginning at our annual
meeting of stockholders to be held in 2001 and at each successive annual
stockholder meeting, each non-employee director who has previously served at
least six consecutive months prior thereto will receive an option to purchase
5,000 shares of our common stock. The shares subject to each of these options
will fully vest and become fully exercisable over four years as follows: 25% on
the first anniversary of the date of grant and 1/48th per month thereafter. The
exercise price per share for all options automatically granted to directors
under our 2000 Director Option Plan will be equal to the market price of our
common stock on the date of grant and will have a ten year term, but will
generally terminate within a specified time, as defined in the 2000 Director
Option Plan, following the date the option holder ceases to be a director or
consultant. Employee directors are eligible to participate in our 2000 Employee
Stock Purchase Plan and to receive discretionary grants under our Restated and
Amended 1999 Stock Plan.
Executive Officers
Our executive officers are appointed by and serve at the discretion of our
Board of Directors.
41
<PAGE>
Compensation
The following table sets forth all compensation paid or accrued during our
fiscal 1999 to our President and Chief Executive Officer, and each of our four
other most highly compensated officers whose annual compensation exceeded
$100,000 for the period. Mr. Sarrat, Mr. Nassaur, Mr. Phillips, Mrs. Lambs and
Mr. Pollace joined us during fiscal 1999, therefore their annual compensation
does not reflect their full base salary.
<TABLE>
<CAPTION>
Long Term
Compensation
------------
Annual Compensation Securities
------------------------- Underlying
Name and Principal Positions Salary Bonus Other(3) Options
- ---------------------------- -------- ------- -------- ------------
<S> <C> <C> <C> <C>
Fernand B. Sarrat........ $200,000 $41,667 -- 1,865,112
President and Chief
Executive Officer
Arthur F. Tyde III (1)... 150,000 -- -- --
Executive Vice President
Douglas C. Nassaur....... 41,667 70,000 -- 415,049
Chief Information
Officer
Thomas W. Phillips....... 63,697 42,000 15,098 290,533
Vice President,
Worldwide Sales
Patricia Lambs........... 75,000 15,000 -- 415,049
Vice President, Service
Solutions
Anthony Pollace (2)...... 59,118 25,000 -- 450,000
Former Chief Financial
Officer
</TABLE>
- --------
(1) Mr. Tyde served as our Chief Executive Officer until May 1999.
(2) Mr. Pollace resigned his position as our Chief Financial Officer in
December 1999.
(3) Pursuant to the terms of his employment agreement, Mr. Phillips received
$12,500 as a non-recoverable draw. Mr. Phillips also received $3,098 as a
recoverable draw which may be recoverable from his annual bonus should he
fail to meet certain specified criteria.
Option Grants in Fiscal Year 1999
The following table sets forth information concerning grants of stock
options to each of the executive officers named in the table above during
fiscal year 1999. All options granted to these executive officers in the last
fiscal year were granted under the 1999 Stock Plan. One-quarter of the shares
subject to each option vests and becomes exercisable on the first anniversary
of the date of grant, and an additional one-forty-eighth of the shares subject
to each option vests each month thereafter. In addition, options granted to
each of the individuals set forth below may be early exercised, provided that
such individual enters into a restricted stock purchase agreement. The shares
thus acquired remain subject to a right of repurchase by the Company. The
percentage of the total options set forth below is based on an aggregate of
6,126,405 options granted during 1999. All options were granted at a fair
market value as determined by our Board of Directors on the date of grant.
Potential realizable value represents hypothetical gains that could be
achieved for the options if exercised at the end of the option term assuming
that the initial public offering price of our common stock appreciates at 5%
and 10% over the option term. The assumed 5% and 10% rates of stock price
appreciation are provided in accordance with rules of the SEC and do not
represent our estimate or projection of our future common stock price.
42
<PAGE>
<TABLE>
<CAPTION>
Potential Realizable
Individual Grants Value at Assumed
----------------------------------------------------------- Annual Rates of
Number of % of Total Stock Appreciation
Securities Options Granted to Exercise for Option Term
Underlying Employees Price Expiration --------------------
Name Options Granted During the Fiscal Year Per Share Date 5% 10%
---- --------------- ---------------------- --------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C> <C>
Fernand B. Sarrat (1)... 1,660,194 27.1% $ 0.07 05/02/09 $ 73,086 $ 185,215
Fernand B. Sarrat (1)... 204,918 3.3 0.13 10/21/09 16,753 42,456
Arthur F. Tyde III...... -- -- -- -- -- --
Douglas C. Nassaur...... 415,049 6.8 0.13 11/01/09 33,933 85,993
Thomas W. Phillips...... 290,533 4.7 0.13 10/21/09 23,753 60,195
Patricia Lambs.......... 415,049 6.8 0.13 10/21/09 33,933 85,993
Anthony Pollace (2)..... 450,000 7.4 0.13 10/21/09 9,095 23,050
</TABLE>
- --------
(1) Such options are subject to a change in control provision. Fifty percent
(50%) of the unvested shares subject to the option shall vest and become
immediately exercisable upon the occurrence of a change in control (as that
term is explained in the section "Employment Agreements and Change in
Control Arrangements" below) and twenty-five percent (25%) of the total
option shares shall vest upon the constructive termination of service with
us or the termination of service with us without cause (as that term is
explained in the section "Employment Agreements and Change in Control
Arrangements" below).
(2) Mr. Pollace was granted options to purchase 450,000 shares of common stock,
however options to purchase 338,750 shares were forfeited and returned to
the plan when Mr. Pollace resigned. The "Potential Realizable Value"
amounts are calculated based on the remaining options to purchase 111,250
shares.
Aggregate Option Exercises in Fiscal Year 1999 and Values at December 31,
1999
The following table sets forth information concerning exercisable and
unexercisable stock options held by the executive officers named in the summary
compensation table at December 31, 1999. The value of unexercised in-the-money
options is based on a value of $ per share, the fair market value of our
common stock as of December 31, 1999 as determined by our Board of Directors,
minus the actual per share exercise prices, multiplied by the number of shares
underlying the option. All options were granted under our 1999 Stock Plan.
<TABLE>
<CAPTION>
Number of Securities
Underlying Unexercised Value of Unexercised
Options at In-the-Money Options
Shares December 31, 1999 at December 31, 1999
Acquired Value ------------------------- -------------------------
On Exercise Realized Exercisable Unexercisable Exercisable Unexercisable
----------- -------- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C> <C> <C>
Fernand B. Sarrat....... 1,865,112 $ -- -- -- $ -- $ --
Douglas C. Nassaur...... -- -- 415,049 -- --
Thomas W. Phillips...... -- -- 290,533 -- --
Patricia Lambs.......... -- -- 415,049 -- --
Anthony Pollace......... -- -- 111,250 -- --
</TABLE>
Employment Agreements and Change in Control Arrangements
We have entered into the following employment agreements with our current
officers:
Employment Agreements with Messrs. Tyde, Sifry and LaDuke. In April 1999, we
entered into letter agreements with each of Messrs. Tyde, Sifry and LaDuke
regarding their employment. These agreements, as amended, provide that Messrs.
Tyde, Sifry and LaDuke will each be employed "at will" and paid an annual base
salary of $150,000. The agreements provide that if the respective officer's
employment is terminated without cause (as defined below), such officer will
become vested in a number of shares of our common stock as if such officer
provided services to us for an additional twelve months. In addition, the stock
purchase
43
<PAGE>
agreements, as amended, pursuant to which each of Messrs. Tyde, Sifry and
LaDuke purchased 1,000,000 shares of our common stock, give us a right to
repurchase those shares, which right shall lapse with respect to 25% of such
shares if a change in control (as defined in the stock purchase agreements)
occurs.
Under the employment agreements of Messrs. Tyde, Sifry and LaDuke, cause
means the commission of:
. any act of fraud, embezzlement or dishonesty,
. any unauthorized use or disclosure of our confidential information or
trade secrets (or any parent or subsidiary), or
. any other intentional misconduct adversely affecting our business or
affairs (or any parent or subsidiary) in a material manner.
Provided, however, that no cause shall exist unless our Board of Directors
has delivered to the respective officer a written demand for the performance
of specific, measureable tasks and the performance of such tasks has not been
improved within 30 days; and provided, further that no termination for cause
may occur until the respective officer has been afforded an opportunity to
appear in person before our Board of Directors and present evidence on his
behalf regarding the existence of cause.
Employment Agreement of Fernand Sarrat. In April 1999, we entered into an
employment agreement with Mr. Sarrat. This agreement provides that Mr. Sarrat
will be paid an annual base salary of $300,000 and a bonus payment of $100,000
in the first year of his employment. After the first year of his employment,
the amount of his salary and bonus will be determined by our Board of
Directors; however, he will be guaranteed a bonus of at least $50,000 a year.
Under his employment agreement, Mr. Sarrat was granted options to purchase
shares of our common stock, which will vest over a four-year period beginning
on May 3, 2000. If Mr. Sarrat's employment is terminated before all of his
options vest, we will have the right to repurchase any unvested shares at
cost. If Mr. Sarrat's employment is involuntarily terminated, other than for
cause, or is constructively terminated (as such terms are defined below)
within the first year of his employment, he is entitled to receive, as
severance, nine months of continuation of his salary, employee benefits and a
pro-rated target bonus for such year. He will also be entitled to 1/48 vesting
of stock option shares each month through the termination date. If such
termination occurs within the second year of Mr. Sarrat's employment, he is
entitled to receive, as severance, 12 months of continuation of his salary,
employee benefits and a pro-rated target bonus. He will also be entitled to
1/48 vesting of his stock options shares for an additional 12 months after his
termination date. If such termination occurs after the second year of Mr.
Sarrat's employment, he is entitled to receive as severance, six months of
continuation of his salary, employee benefits, a pro-rated target bonus and
the continuation of the vesting of his stock option shares for an additional
12 months after his termination date.
Upon a change in control (as this term is defined below), 50% of Mr.
Sarrat's option shares that remain unvested will vest on the closing date of
such change in control. Following such acceleration, the remaining unvested
options shall continue to vest at the same monthly rate that applied prior to
the acceleration. Also, following a change in control, if Mr. Sarrat does not
execute a new employment agreement with the successor corporation and if the
successor corporation terminates his employment (other than for cause), or if
his employment is constructively terminated, then Mr. Sarrat will be entitled
to receive the severance benefits described above (excluding any additional
acceleration of vesting).
Pursuant to the terms of Mr. Sarrat's employment agreement and stock option
agreements, a change in control is defined as:
. The consummation of a merger or consolidation with or into another
entity or any other corporate reorganization if persons who are not our
stockholders immediately prior to such merger, consolidation or other
reorganization own immediately after such merger, consolidation or other
reorganization 50% or more of the voting power of the outstanding
securities of each of (A) the continuing or surviving entity and (B) any
direct or indirect parent corporation of such continuing or surviving
entity; or
44
<PAGE>
. The sale, transfer or other disposition of all or substantially all of
our assets.
Involuntary termination is defined as:
. Termination other than for cause.
Cause is defined as:
. demonstrably willful misconduct which is materially injurious to us
which is not cured within 60 days following receipt of written notice
specifying such misconduct from our Board of Directors;
. conviction of a felony (other than traffic-related offenses); or
. gross negligence in the performance of duties.
Constructive termination is defined as voluntary resignation following:
. the assignment of duties and responsibilities that are incommensurate
with the duties and responsibilities immediately before resignation, or
any material reduction of the duties, authority, or responsibilities;
. a reduction by the company in the base salary or annual target bonus as
in effect immediately before such reduction; or
. Mr. Sarrat's relocation to a facility that is more than 50 miles from
Los Altos Hills, California.
Employment Agreements of Messrs. Paul, Walters, Phillips and Mrs. Lambs.
During 1999, we entered into letter agreements with Messrs. Paul, Walters,
Phillips and Mrs. Lambs regarding their employment. According to these
agreements, Messrs. Paul, Walters, Phillips and Mrs. Lambs will be employed "at
will" and paid an annual salary of $175,000, $250,000, $300,000 and $400,000,
respectively. Each will also be entitled to an annual performance-based bonus
targeted to be $25,000, $50,000, $125,000 and $50,000, respectively. According
to their agreements, Messrs. Paul, Walters, Phillips and Mrs. Lambs will be
granted options to purchase 340,000, 300,000, 290,533 and 415,049,
respectively, shares of our common stock at an exercise price equal to the fair
market value of such shares on the date their employment begins. The options
that are granted to each are also subject to the provisions of their stock
option agreements with us and our 1999 stock plan that was in effect on the
date of the grant of the options. These options will vest proportionally over a
four-year period beginning on the first anniversary of their employment. If the
employment of any officer is terminated before all of such officer's options
vest, we will have the right to repurchase any unvested shares at the exercise
price.
Limitations on Directors' and Officers' Liability and Indemnification
Our amended and restated certificate of incorporation limits the liability
of our directors to the maximum extent permitted by Delaware law. Delaware law
provides that directors of a corporation will not be personally liable for
monetary damages for breach of their fiduciary duties as directors, except
liability associated with any of the following:
. any breach of their duty of loyalty to the corporation or its
stockholders;
. acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of law;
. unlawful payments of dividends or unlawful stock repurchases or
redemption; or
. any transaction from which the director derived an improper personal
benefit.
The limitation of our director's liability does not apply to liabilities
arising under the federal securities laws and does not affect the availability
of equitable remedies such as injunctive relief or rescission.
45
<PAGE>
misconduct of a culpable nature), to reimburse their expenses as incurred as a
result of any proceeding against them as to which they could be indemnified,
and to cover our directors and officers under any of our liability insurance
policies applicable to our directors and officers. We believe that these
provisions and agreements are necessary to attract and retain qualified persons
as directors and executive officers.
Our amended and restated certificate of incorporation and bylaws also
provide that we shall indemnify our directors and executive officers and may
indemnify our other officers and employees and other agents to the fullest
extent permitted by law. We believe that indemnification under our bylaws
covers at least negligence on the part of indemnified parties. Our bylaws also
permit us to secure insurance on behalf of any officer, director, employee or
other agent for any liability arising out of his or her actions in such
capacity, regardless of whether our bylaws would permit indemnification.
We have entered into indemnification agreements with each of our officers
and directors containing provisions that require us to, among other things,
indemnify such officers and directors against liabilities that may arise by
reason of their status or service as directors or officers (other than
liabilities arising from willful will generally remain exercisable for three
months. However, an option may never be exercised later than the expiration of
its term.
Stock Plans
Amended and Restated 1999 Stock Plan
Our 1999 Stock Plan was amended and restated by our Board of Directors on
January 18, 2000 and our stockholders are expected to approve the plan in
January 18, 2000. This stock plan provides for the grant of incentive stock
options to our employees and nonstatutory stock options and stock purchase
rights to our employees, directors and consultants. As of January 2000, we have
issued 2,707,062 shares of our common stock pursuant to the exercise of options
granted under our stock plan and we have outstanding options to purchase
shares of common stock at a weighted average exercise price of $ per share.
Number of Shares of Common Stock Available under our 1999 Stock Plan. As of
January 18, 2000, a total of 9,302,738 shares of our common stock have been
reserved for issuance pursuant to our stock plan plus an annual increase
beginning in 2001 equal to the lesser of 5% of the outstanding shares of our
common stock on the first day of our fiscal year, 4,000,000 shares or such
lesser amount as our board of directors may determine.
Administration of the 1999 Stock Plan. Our Board of Directors or a committee
of our Board of Directors administers the stock plan. The committee may consist
of two or more "outside directors" to satisfy certain tax and securities
requirements. The administrator has the power to determine the terms of the
options or stock purchase rights granted, including the exercise price, the
number of shares subject to each option or stock purchase right, the
exercisability of the options and the form of consideration payable upon
exercise.
Options. The administrator determines the exercise price and term of options
granted under our stock plan. With respect to incentive stock options, however,
the exercise price must at least be equal to the fair market value of our
common stock on the date of grant and its term may not exceed ten years.
No optionee may be granted an option to purchase more than 3,000,000 shares
in any fiscal year. In connection with his or her initial service, an optionee
may be granted an option to purchase up to an additional 3,000,000 shares of
our common stock.
After termination of one of our employees, directors or consultants, he or
she may exercise his or her option for the period of time stated in the option
agreement. If termination is due to death, the option will generally remain
exercisable for 12 months following such termination. If termination is due to
disability, the option will generally remain exercisable for 6 months following
such termination. In all other cases, the option will generally remain
exercisable for three months. However, an option may never be exercised later
than the expiration of its term.
46
<PAGE>
Stock Purchase Rights. The administrator determines the exercise price of
stock purchase rights granted under our stock plan. Unless the administrator
determines otherwise, the restricted stock purchase agreement that an optionee
will enter into upon the exercise of options will grant us a repurchase option
that we may exercise upon the voluntary or involuntary termination of the
purchaser's service with us for any reason (including death or disability). The
purchase price for shares we repurchase will generally be the original price
paid by the purchaser. The administrator determines the rate at which our
repurchase option will lapse.
Transferability of Options and Stock Purchase Rights. Our stock plan
generally does not allow for the transfer of options or stock purchase rights
and only the optionee may exercise an option and stock purchase right during
his or her lifetime.
Adjustments upon Merger or Asset Sale. Our stock plan provides that in the
event of our merger with or into another corporation or a sale of substantially
all of our assets, the successor corporation will assume or substitute an
equivalent option or right for each outstanding option or stock purchase right.
If the outstanding options or stock purchase rights are not assumed or
substituted for, all outstanding options and stock purchase rights will vest
and become exercisable and terminate as of the closing of such merger or sale
of assets.
Amendment and Termination of our stock plan. Our stock plan will
automatically terminate in 2009, unless we terminate it sooner. In addition,
our Board of Directors has the authority to amend, suspend or terminate the
stock plan provided that it does not adversely affect any option previously
granted under our stock plan.
2000 Employee Stock Purchase Plan
Our Board of Directors adopted the 2000 Employee Stock Purchase Plan on
January 18, 2000 and our stockholders are expected to approve the plan in
January 2000.
Number of Shares of Common Stock Available under the Employee Stock Purchase
Plan. A total of 1,000,000 shares of our common stock will be made available
for sale. In addition, the plan provides for annual increases in the number of
shares available for issuance under the purchase plan beginning in 2001, equal
to the lesser of 2% of the outstanding shares of our common stock on the first
day of our fiscal year, 1,000,000 shares, or such other lesser amount as may be
determined by our Board of Directors.
Administration of the Employee Stock Purchase Plan. Our Board of Directors
or a committee of our board administers the plan. Such administrator has full
and exclusive authority to interpret the terms of the plan and determine
eligibility.
Eligibility to Participate. All of our employees are eligible to participate
if they are customarily employed by us or any participating subsidiary for at
least 20 hours per week and more than five months in any calendar year.
However, an employee may not be granted an option to purchase stock under the
plan if such employee:
. immediately after grant owns stock possessing 5% or more of the total
combined voting power or value of all classes of our capital stock, or
. whose rights to purchase stock under all of our employee stock purchase
plans accrues at a rate that exceeds $25,000 worth of stock for each
calendar year.
Offering Periods and Contributions. Our plan is intended to qualify for
special tax treatment and contains consecutive, overlapping 24-month offering
periods. Each offering period includes four 6-month purchase periods. The
offering periods generally start on the first trading day on or after November
1 and May 1 of each year, except for the first such offering period which will
commence on the first trading day on or after the effective date of this
offering and will end on the last trading day on or before April 30, 2002.
The plan permits participants to purchase common stock through payroll
deductions of up to 10% of their eligible compensation which includes a
participant's base straight time gross earnings and commissions but
47
<PAGE>
excluding all other compensation paid to our employees. A participant may
purchase no more than 5,000 shares during any 6-month purchase period.
Purchase of Shares. Amounts deducted and accumulated by the participant are
used to purchase shares of our common stock at the end of each 6-month purchase
period. The price is 85% of the lower of the fair market value of our common
stock at the beginning of an offering period or after a purchase period ends.
If the fair market value at the end of a purchase period is less than the fair
market value at the beginning of the offering period, participants will be
withdrawn from the current offering period following their purchase of shares
on the purchase date and will be automatically re-enrolled in a new offering
period. Participants may end their participation at any time during an offering
period, and will be paid their payroll deductions to date. Participation ends
automatically upon termination of employment with us.
Transferability of Rights. A participant may not transfer rights granted
under the plan other than by will, the laws of descent and distribution or as
otherwise provided under the plan.
Adjustments upon Merger or Asset Sale. In the event of our merger with or
into another corporation or a sale of all or substantially all of our assets, a
successor corporation may assume or substitute each outstanding option. If the
successor corporation refuses to assume or substitute for the outstanding
options, the offering period then in progress will be shortened, and a new
exercise date will be set.
Amendment and Termination of the Employee Stock Purchase Plan. The plan will
terminate by its terms in 2010. Our Board of Directors has the authority to
amend or terminate our plan, except that, subject to certain exceptions
described in the plan, no such action may adversely affect any outstanding
rights to purchase stock under our plan.
2000 Director Option Plan
Our Board of Directors adopted the 2000 Director Option Plan on January 18,
2000 and our stockholders are expected to approve it in January 2000. The
director plan provides for the periodic grant of nonstatutory stock options to
our non-employee directors.
Number of Shares Available under the Director Plan. As of January 2000, a
total of 300,000 shares were reserved for issuance under our director option
plan, of which options to acquire 40,000 shares were issued and outstanding as
of this date.
Options. Each non-employee director who joins our Board of Directors after
the offering will automatically receive a grant of an option to purchase 20,000
shares on the date on which such person becomes a director. All non-employee
directors who have been directors for at least 6 months receive an option to
purchase 5,000 shares each year on the date of our annual stockholders meeting.
All options granted under our director option plan have a term of ten years
and an exercise price equal to fair market value on the date of grant. The
option granted initially to non-employee directors becomes exercisable over
four years as follows: 25% on the first anniversary of the date of grant and
1/48th per month thereafter, provided that the non-employee director remains a
director on such dates. The option granted to non-employee directors on the
date of our annual stockholders meeting becomes exercisable as to 100% of the
shares subject to the option on the first anniversary of the date of grant.
After termination as a non-employee director with us, an optionee must
exercise an option at the time set forth in his or her option agreement. If
termination is due to death or disability, the option will remain exercisable
for 12 months. In all other cases, the option will remain exercisable for a
period of 3 months. However, an option may never be exercised later than the
expiration of its term.
Transferability of Options. A non-employee director may not transfer options
granted under our director option plan other than by will or the laws of
descent and distribution. Only the non-employee director may exercise the
option during his or her lifetime.
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<PAGE>
Adjustments upon Merger or an Asset Sale. In the event of our merger with or
into another corporation or a sale of substantially all of our assets, the
successor corporation will assume or substitute an equivalent option for each
outstanding option. If such assumption or substitution occurs, the options will
continue to be exercisable according to the same terms as before the merger or
sale of assets. Following such assumption or substitution, if a non-employee
director is terminated other than by voluntary resignation, the option will
become fully exercisable and generally will remain exercisable for a period of
three months. If the outstanding options are not assumed or substituted for,
our Board of Directors will notify each non-employee director that he or she
has the right to exercise the option as to all shares subject to the option for
a period of 30 days following the date of the notice. The option will terminate
upon the expiration of the 30-day period.
Amendment and Termination of the Director Option Plan. Unless terminated
sooner, our director plan will automatically terminate in 2010. Our Board of
Directors has the authority to amend, alter, suspend, or discontinue the
director option plan, but no such action may adversely affect any grant made
under the director option plan.
401(k) Plan
We adopted a 401(k) Plan effective January 1999 covering our employees who
are 21 years old as of the effective date of the 401(k) Plan. Employees become
eligible to participate in the 401(k) Plan on the first day of the month
following their date of hire. The 401(k) Plan excludes nonresident alien
employees. The 401(k) Plan is intended to qualify under Section 401(k) of the
United States Internal Revenue Code, so that contributions to the 401(k) Plan
by employees or by us and the investment earnings thereon are not taxable to
the employees until withdrawn. If our 401(k) Plan qualifies under Section
401(k) of the United States Internal Revenue Code, our contributions will be
deductible by us when made. Our employees may elect to reduce their current
compensation by up to the statutorily prescribed annual limit of $10,500 in
2000 and to have those funds contributed to the 401(k) Plan. The 401(k) Plan
permits us, but does not require us, to make additional matching contributions
on behalf of all participants. To date, we have not made any contributions to
the 401(k) Plan.
49
<PAGE>
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Preferred Stock
On February 1, 1999, and April 15,1999 we sold an aggregate of 2,636,916
shares and 5,246,008 shares, respectively, of our Series A Preferred Stock at a
purchase price of $0.61625 per share (as adjusted for a two-for-one stock split
which occurred in April 1999). On December 17, 1999 and January 18, 2000 we
sold an aggregate of 6,870,761 shares and 211,506 shares, respectively, of our
Series B Preferred Stock at a purchase price of $4.728 per share. The following
officers, directors and 5% stockholders purchased shares in these financings:
<TABLE>
<CAPTION>
Shares of Shares of
Purchaser Series A Stock Series B Stock
- --------- -------------- --------------
<S> <C> <C>
Patricof & Co. Entities: (1)
APA Excelsior V, L.P............................. 0 1,671,742
Patricof Private Investment Club II, L.P......... 0 20,305
Apax Europe IV-A, L.P. .......................... 0 423,012
KPCB Holdings, Inc. (2)........................... 4,381,340 1,057,529
McKenna Ventures L.P. (3)......................... 0 52,876
John Drew......................................... 0 423,011
Ernest von Simson................................. 0 52,876
</TABLE>
- --------
(1) APA Excelsior V, L.P., Patricof Private Investment Club II, L.P. and Apax
Europe IV-A, L.P. are affiliated entities and together are considered a 5%
stockholder. Mr. Vais, one of our directors, is a general partner of
Patricof & Co., an entity affiliated with APA Excelsior V, L.P., Patricof
Private Investment Club II, L.P. and Apax Europe IV-A, L.P. Mr. Vais
disclaims beneficial ownership of the securities held by such entities,
except for his proportional interest in the entities.
(2) KPCB Holdings, Inc. is considered a 5% stockholder and Mr. Schlein, one of
our directors, is a general partner of Kleiner Perkins Caufield & Byers, an
entity affiliated with KPCB Holdings, Inc. Mr. Schlein disclaims beneficial
ownership of the securities held by KPCB Holdings, Inc., except for his
proportional interest in the entity.
(3) Regis McKenna, one of our directors, is a general partner of The McKenna
Group, an entity affiliated with McKenna Ventures L.P. Mr. McKenna shares
voting control of the securities held by such entity.
Other Material Transactions
Investor Rights Agreement
We have entered into an agreement with the preferred stockholders described
above pursuant to which these and other preferred stockholders will have
registration rights with respect to their shares of common stock following this
offering. For a description of these registration rights, see "Description of
Capital Stock." Upon the completion of this offering, all shares of our
outstanding preferred stock will be automatically converted into an equal
number of shares of common stock.
50
<PAGE>
Stock Option Grants to Certain Officers and Directors
During 1999, we granted the following options to purchase our common stock
to our officers, directors and stockholders who beneficially own 5% or more of
our common stock.
<TABLE>
<CAPTION>
Exercise Price
Name Date of Grant Options Per Share
- ---- ------------- --------- --------------
<S> <C> <C> <C>
Fernand B. Sarrat........................ 5/3/99 1,660,194 $0.07
Fernand B. Sarrat........................ 10/21/99 204,918 $0.13
Patricia Lambs........................... 10/21/99 415,049 $0.13
Thomas W. Phillips....................... 10/21/99 290,533 $0.13
Robert V. Walters........................ 12/9/99 300,000 $1.00
Christian A. Paul........................ 12/9/99 340,000 $1.00
Douglas C. Nassaur....................... 11/16/99 415,049 $0.13
Regis McKenna............................ 10/21/99 50,000 $0.13
Ernest von Simson........................ 10/21/99 50,000 $0.13
John Drew................................ 11/24/99 100,000 $1.00
</TABLE>
Indemnification and Employment Agreements
We have entered into indemnification agreements with each of our directors
and officers. Such indemnification agreements require us to indemnify our
directors and officers to the fullest extent permitted by Delaware law. For a
description of the limitation of our directors' liability and our
indemnification of such officers, see "Management--Limitation on Directors' and
Officers' Liability and Indemnification."
For a description of employment agreements we entered into with our
officers, see "Management--Employment Agreements and Change in Control
Arrangements."
Agreements with Directors or Executive Officers
In May 1999, Mr. Sarrat was granted options to purchase 1,660,194 shares of
common stock at an exercise price of $.07 per share. Mr. Sarrat exercised the
options by paying cash for the par value of the shares and executed a full-
recourse promissory note for $116,048, the balance of the purchase price. The
note is secured by a stock pledge agreement which pledges the underlying shares
of common stock as collateral. The note bears interest at a rate of 5.22%.
In December 1999, Mr. Paul was granted options to purchase 340,000 shares of
common stock at an exercise price of $1.00 per share. Mr. Paul exercised the
options by paying cash for the par value of the shares and executed a full-
recourse promissory note for $339,966, the balance of the purchase price. The
note is secured by a stock pledge agreement which pledges the underlying shares
of common stock as collateral. The note bears interest at a rate of 6.2%.
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<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth information known to us with respect to the
beneficial ownership of our common stock as of January 18, 2000, and as
adjusted to reflect the sale of common stock offered hereby by the following:
. each stockholder known by us to own beneficially more than 5% of our
common stock;
. each of our executive officers named in the compensation table above;
. each of our directors; and
. all directors and executive officers as a group.
As of January 18, 2000, there were 25,081,323 shares of our common stock
outstanding, assuming that all outstanding preferred stock has been converted
into common stock. Except as otherwise indicated, we believe that the
beneficial owners of the common stock listed below, on the information
furnished by such owners, have sole voting power and investment power with
respect to such shares. Beneficial ownership is determined in accordance with
the rules of the Securities and Exchange Commission. In computing the number of
shares beneficially owned by a person and the percent ownership of that person,
shares of common stock subject to options or warrants held by that person that
are currently exercisable or will become exercisable within 60 days after
January 18, 2000 are deemed outstanding, while such shares are not deemed
outstanding for purposes of computing percent ownership of any other person.
The address for those individuals for which an address is not otherwise
indicated in the table below is Linuxcare, Inc., 650 Townsend Street, San
Francisco, California 94103.
<TABLE>
<CAPTION>
Percentage of
Shares Shares Outstanding
Beneficially -----------------------
Owned Prior to Prior To
Name or group of beneficial owners Offering Offering After Offering
---------------------------------- -------------- -------- --------------
<S> <C> <C> <C>
Directors And Executive Officers
Ted E. Schlein(1)....................... 5,471,068 21.8%
Kleiner Perkins Caufield & Byers
2750 Sand Hill Road
Menlo Park, CA 94025
Paul Vais(2)............................ 2,179,456 8.7
Patricof & Co.
2100 Geng Road
Palo Alto, CA 94303
John Drew(3)............................ 535,890 2.1
Regis McKenna(4)........................ 104,486 *
The McKenna Group
1409 Galloway Court
Sunnyvale, CA 94087
</TABLE>
52
<PAGE>
<TABLE>
<CAPTION>
Percentage of
Shares Shares Outstanding
Beneficially -----------------------
Owned Prior to Prior To
Name or group of beneficial owners Offering Offering After Offering
---------------------------------- -------------- -------- --------------
<S> <C> <C> <C>
Ernest von Simson(5).................... 104,486 *
Arthur Tyde III(6)...................... 2,000,000 8.0%
Fernand Sarrat(7)....................... 1,865,112 7.4
Christian Paul(8)....................... 340,000 1.4
David LaDuke(6)......................... 2,000,000 8.0
David L. Sifry(6)....................... 2,000,000 8.0
Robert V. Walters(9).................... 300,000 1.2
Thomas W. Phillips(9)................... 290,533 1.2
Douglas C. Nassaur(9)................... 415,049 1.6
Patricia Lambs(9)....................... 415,049 1.6
All Officers and Directors (14
persons)(10)........................... 18,021,129 67.7
5% Stockholders
KPCB Holdings, Inc.(1).................. 5,471,068 21.8
Patricof & Company(2)................... 2,179,456 8.7
David LaDuke(6)......................... 2,000,000 8.0
David Sifry(6).......................... 2,000,000 8.0
Arthur F. Tyde III(6)................... 2,000,000 8.0
Fernand Sarrat(7)....................... 1,865,112 7.4
</TABLE>
- --------
* Less than 1% of the outstanding shares of common stock.
(1) Includes 5,471,068 shares held by KPCB Holdings, Inc. Mr. Schlein is a
general partner of Kleiner Perkins Caufield & Byers and has signature
authority for KPCB Holdings, Inc. Mr. Schlein disclaims beneficial
ownership of shares held by KPCB Holdings, Inc. except to the extent of
his pecuniary interest in it.
(2) Includes 1,722,642 shares held by APA Excelsior V, L.P., 435,891 shares
held by Apax Europe IV-A, L.P. and 20,923 Patricof Private Investment Club
II, L.P. Mr. Vais is the managing director of Patricof & Company, and has
signature authority for APA Excelsior V, L.P., Apax Europe IV-A, L.P., and
Patricof Private Investment Club II, L.P. Mr. Vais disclaims beneficial
ownership of shares held by these entities except to the extent of his
pecuniary interest in it.
(3) Includes 100,000 shares subject to our right of repurchase, which lapses
over time.
(4) Includes 54,486 shares held by McKenna Ventures, L.P. Mr. McKenna is the
chairman of The McKenna Group and has signature authority for McKenna
Ventures. Mr. McKenna disclaims beneficial ownership of shares held by
this entity except to the extent of his pecuniary interest in this entity.
Mr. McKenna also holds an option exercisable for 50,000 shares, of which
all 50,000 shares may be exercised by Mr. McKenna and upon exercise will
become subject to our right of repurchase, which lapses over time.
(5) Includes an option exercisable for 50,000 shares, of which all 50,000
shares may be exercised by Mr. von Simson and upon exercise will become
subject to our right of repurchase, which lapses over time.
(6) Includes 1,500,000 shares subject to our right of repurchase, which lapses
over time.
(7) Includes 1,398,834 shares subject to our right of repurchase, which lapses
overtime.
(8) Includes 255,000 shares subject to our right of repurchase, which lapses
overtime.
(9) The number of shares shown represents shares subject to options that are
currently exerciseable and upon exercise will become subject to our right
of repurchase, which lapses over time.
(10) Includes the shares beneficially owned by the persons and entities
described in footnotes (1) through (9).
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<PAGE>
DESCRIPTION OF CAPITAL STOCK
Upon the completion of this offering, we will be authorized to issue
205,000,000 shares, $0.0001 par value per share, to be divided into two classes
to be designated common stock and preferred stock. Of the shares authorized,
200,000,000 shares shall be designated as common stock and 5,000,000 shares
shall be designated as preferred stock. The following description of our
capital stock is only a summary. You should refer to our certificate of
incorporation and bylaws as in effect upon the closing of this offering, which
are included as exhibits to the registration statement of which this prospectus
forms a part, and by the provisions of applicable Delaware law.
Common Stock
As of January 18, 2000, and assuming the conversion of all outstanding
shares of preferred stock into common stock, there were 25,081,323 shares of
common stock outstanding which were held of record by approximately 60
stockholders. There will be shares of common stock outstanding
(assuming no exercise of the underwriters' over-allotment option and no
exercise of outstanding options after ) after giving effect to the
sale of our common stock in this offering. In addition to shares issuable
upon exercise of outstanding options under our 1999 Stock Plan and shares
issuable upon exercise of outstanding stock purchase rights outside the plan,
there are an aggregate of 1,300,000 shares reserved for issuance under our 2000
Employee Stock Purchase Plan and 2000 Director Option Plan. See "Management--
Stock Plans" for a description of our stock plans.
The holders of our common stock are entitled to one vote per share held of
record on all matters submitted to a vote of the stockholders. Our amended and
restated certificate of incorporation to be filed concurrently with completion
of this offering, does not provide for cumulative voting in the election of
directors. Subject to preferences that may be applicable to any outstanding
preferred stock, the holders of common stock are entitled to receive ratably
such dividends, if any, as may be declared from time to time by our Board of
Directors out of funds legally available for that purpose. In the event of our
liquidation, dissolution or winding up, holders of our common stock are
entitled to share ratably in all assets remaining after payment of liabilities,
subject to prior distribution rights of preferred stock, if any, then
outstanding. Holders of our common stock have no preemptive or other
subscription or conversion rights. There are no redemption or sinking fund
provisions applicable to our common stock. All outstanding shares of common
stock are fully paid and non-assessable, and the shares of common stock to be
issued upon the completion of this offering will be fully paid and non-
assessable.
Preferred Stock
Upon the completion of this offering and filing of our amended and restated
certificate of incorporation, our Board of Directors will be authorized,
without action by the stockholders, to issue 5,000,000 shares of preferred
stock in one or more series and to fix the rights, preferences, privileges and
restrictions thereof. These rights, preferences and privileges may include
dividend rights, conversion rights, voting rights, terms of redemption,
liquidation preferences, sinking fund terms and the number of shares
constituting any series or the designation of any series, all or any of which
may be greater than the rights of the common stock.
The issuance of preferred stock could adversely affect the voting power of
holders of common stock and the likelihood that the holders of common stock
will receive dividend payments and payments upon liquidation. In addition, the
issuance of preferred stock could have the effect of delaying or preventing a
change in our control without further action by the stockholders. We have no
present plans to issue any shares of preferred stock.
Registration Rights
Pursuant to a registration rights agreement we entered into with holders of
shares of our common stock (assuming conversion of all outstanding shares
of preferred stock), the holders of these shares are entitled to
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<PAGE>
certain registration rights regarding these shares. The registration rights
provide that if we propose to register any securities under the Securities Act,
either for our own account or for the account of other security holders
exercising registration rights, they are entitled to notice of the registration
and are entitled to include shares of their common stock in the registration.
This right is subject to conditions and limitations, including the right of the
underwriters in an offering to limit the number of shares included in the
registration. The holders of these shares may also require us to file up to two
registration statements under the Securities Act at our expense with respect to
their shares of common stock. We are required to us our best efforts to effect
this registration, subject to conditions and limitations. Furthermore, the
holders of these shares may require us to file additional registration
statements on Form S-3, subject to conditions and limitations. These rights
terminate on the earlier of five years after the effective date of this
offering or the date on which a holder is able to sell all its shares pursuant
to Rule 144 under the Securities Act in any 90-day period.
Delaware Anti-Takeover Law and Certain Charter and Bylaw Provisions
Certain provisions of Delaware law and our certificate of incorporation and
bylaws could make our acquisition more difficult by means of a tender offer, a
proxy contest or otherwise and could also make the removal of incumbent
officers and directors more difficult. These provisions, summarized below, are
expected to discourage certain types of coercive takeover practices and
inadequate takeover bids and to encourage persons seeking to acquire control of
us to first negotiate with us. We believe that the benefits of increased
protection of our potential ability to negotiate with the proponent of an
unfriendly or unsolicited proposal to acquire or restructure us outweighs the
disadvantages of discouraging such proposals because, among other things,
negotiation of such proposals could result in an improvement of their terms.
The amendment of any of the following provisions would require approval by
holders of at least 66 2/3% of our outstanding common stock.
Board of Directors
Effective with the first annual meeting of stockholders following completion
of this offering, our amended and restated bylaws provide for the division of
our Board of Directors into three classes, as nearly equal in number as
possible, with the directors in each class serving for a three-term, and one
class being elected each year by our stockholders. This system of electing and
removing directors may tend to discourage a third party from making a tender
offer or otherwise attempting to obtain control of us and may maintain the
incumbency of the Board of Directors, as it generally makes it more difficult
for stockholders to replace a majority of the directors. Further, our amended
and restated certificate of incorporation and restated bylaws do not provide
for cumulative voting in the election of directors.
Stockholder Meetings
Under our amended and restated certificate of incorporation and amended and
restated bylaws, only our Board of Directors, Chairman of the Board, Chief
Executive Officer or the holders of a majority of the outstanding stock may
call special meetings of stockholders. Our restated bylaws establish advance
notice procedures with respect to stockholder proposals and the nomination of
candidates for election as directors, other than nominations made by or at the
direction of the Board of Directors or a committee thereof. In addition, our
amended and restated certificate of incorporation eliminates the right of
stockholders to act by written consent without a meeting and eliminates
cumulative voting.
Undesignated Preferred Stock
The authorization of undesignated preferred stock makes it possible for the
Board of Directors to issue preferred stock with voting or other rights or
preferences that could impede the success of any attempt to change control of
us. These and other provisions may have the effect of deferring hostile
takeovers or delaying changes in control or management.
55
<PAGE>
Section 203
We are subject to Section 203 of the Delaware General Corporation Law. In
general, the statute prohibits a Delaware corporation from engaging in any
business combination with any interested stockholder for a period of three
years following the date that the stockholder became an interested stockholder
unless:
. prior to the date, the board of directors of the corporation approved
either the business combination or the transaction that resulted in the
stockholder becoming an interested stockholder;
. upon consummation of the transaction that resulted in the stockholder's
becoming an interested stockholder, the interested stockholder owned at
least 85% of the voting stock of the corporation outstanding at the time
the transaction commenced, excluding those shares owned by persons who
are directors and also officers, and employee stock plans in which
employee participants do not have the right to determine confidentially
whether shares held subject to the plan will be tendered in a tender or
exchange offer; or
. on or subsequent to the date, the business combination is approved by
the board of directors and authorized at an annual or special meeting of
stockholders, and not by written consent, by the affirmative vote of at
least two-thirds of the outstanding voting stock that is not owned by
the interested stockholder.
Section 203 defines "business combination" to include:
. any merger or consolidation involving the corporation and the interested
stockholder;
. any sale, transfer, pledge or other disposition involving the interested
stockholder of 10% or more of the assets of the corporation;
. subject to exceptions, any transaction that results in the issuance or
transfer by the corporation of any stock of the corporation to the
interested stockholder; or
. the receipt by the interested stockholder of the benefit of any loans,
advances, guarantees, pledges or other financial benefits provided by or
through the corporation.
In general, Section 203 defines an interested stockholder as any entity or
person beneficially owning 15% or more of the outstanding voting stock of the
corporation and any entity or person affiliated with or controlling or
controlled by the entity or person.
Transfer Agent and Registrar
The transfer agent and registrar for the common stock is Norwest Bank
Minnesota, N.A.
Nasdaq Stock Market National Market Listing
We will apply to list our common stock on The Nasdaq Stock Market's National
Market under the symbol "LXCR."
56
<PAGE>
SHARES ELIGIBLE FOR FUTURE SALE
Prior to this offering, there has been no public market for our stock.
Future sales of substantial amounts of our common stock in the public market
following this offering or the possibility of such sales occurring could
adversely affect market prices for our common stock or could impair our ability
to raise capital through an offering of equity securities. Furthermore, since
no shares will be available for sale shortly after this offering because of
contractual and legal restrictions on resale as described below, sales of
substantial amounts of our common stock in the public after these restrictions
lapse could adversely affect the prevailing market price and our ability to
raise equity capital in the future.
Upon completion of this offering, we will have shares of common stock
outstanding (assuming conversion of all of the currently outstanding shares of
preferred stock) based on shares outstanding as of January 18, 2000 and
assuming no exercise of the underwriters' over-allotment option and no exercise
of outstanding options. Of these shares, all of the shares sold in this
offering will be freely transferable without restriction under the Securities
Act of 1933, unless these shares are purchased by "affiliates" as that term is
used under the Securities Act and the Regulations promulgated thereunder.
Of these shares, the remaining 25,081,315 shares as of January 18, 2000,
which were sold by us in reliance on exemptions from the registration
requirements of the Securities Act, are restricted securities within the
meaning of Rule 144 under the Securities Act and become eligible for sale in
the public market as follows:
. no shares will be eligible for immediate sale on the date the
registration statement of which this prospectus is a part is declared
effective;
. no shares will be eligible for sale prior to 180 days from the date the
registration statement of which this prospectus is a part is declared
effective; and
. beginning 181 days after the effective date, 25,081,315 shares will
become eligible for sale, subject to the provisions of Rules 144 or 701,
upon the expiration of agreements not to sell such shares entered into
between the underwriters and such stockholders.
Beginning 180 days after the date of this prospectus, approximately
additional shares subject to vested options as of the date of completion of
this offering will be available for sale subject to compliance with Rule 701
and upon the expiration of agreements not to sell such shares entered into
between the underwriters and such stockholders. Any shares subject to lock-up
agreements may be released at any time without notice by the underwriters.
In general, under Rule 144 as currently in effect, a person (or group of
persons whose shares are aggregated), including an affiliate, who has
beneficially owned restricted shares for at least one year is entitled to sell,
within any three-month period commencing 90 days after the date of completion
of this offering, a number of shares that does not exceed the greater of 1% of
the then outstanding shares of common stock (approximately shares
immediately after this offering), or the average weekly trading volume in the
common stock during the four calendar weeks preceding such sale, subject to the
filing of a Form 144 with respect to such sale and certain other limitations
and restrictions. In addition, a person who is not deemed to have been our
affiliate at any time during the 90 days preceding a sale and who has
beneficially owned the shares proposed to be sold for at least two years, would
be entitled to sell such shares without regard to the requirements described
above.
Any of our employees, officers or directors of or consultant who purchased
his or her shares prior to the date of completion of this offering or who holds
vested options as of that date pursuant to a written compensatory plan or
contract is entitled to rely on the resale provisions of Rule 701, which
permits non-affiliates to sell their Rule 701 shares without having to comply
with the public-information, holding-period, volume-limitation or notice
provisions of Rule 144 and permits affiliates to sell their Rule 701 shares
without having to comply with Rule 144's holding-period restrictions, in each
case commencing 90 days after the date
57
<PAGE>
of completion of this offering. However, we and our officers, directors and
stockholders have agreed not to sell or otherwise dispose of any shares of our
common stock for the 180-day period after the date of this prospectus without
the prior written consent of the underwriters. See "Underwriting."
As soon as practicable after the effective date of the registration
statement of which this prospectus is a part, we intend to file a registration
statement on Form S-8 under the Securities Act to register shares of common
stock issuable under our 1999 Stock Plan our 2000 Director Option Plan, and our
2000 Employee Stock Purchase Plan, thus permitting the resale of such shares by
non-affiliates in the public market without restriction under the Securities
Act. Such registration statement will become effective immediately upon filing.
Prior to this offering, there has been no public market for our common
stock, and any sale of substantial amounts in the open market may adversely
affect the market price of our common stock offered hereby.
58
<PAGE>
UNITED STATES TAX CONSEQUENCES TO NON-UNITED STATES HOLDERS
The following is a general discussion of the principal U.S. federal income
and estate tax consequences of the ownership and disposition of our common
stock by a Non-U.S. Holder. As used in this prospectus, the term "Non-U.S.
Holder" is a person other than:
. a citizen or individual resident of the United States,
. a corporation or other entity taxable as a corporation that is created
or organized in or under the laws of the United States or of any
political subdivision of the United States,
. an estate whose income is includible in gross income for U.S. federal
income tax purposes regardless of its source, or
. a trust, the administration of which is subject to the primary
supervision of a court within the United States and for which one or
more U.S. persons have the authority to control all substantial
decisions.
If a partnership holds our common stock, the tax treatment of a partner
generally will depend upon the status of the partner and upon the activities of
the partnership. Partners of partnerships holding our common stock should
consult their tax advisors.
This discussion does not consider:
. U.S. state and local or non-U.S. tax consequences,
. the tax consequences for the shareholders, partners or beneficiaries of
a Non-U.S. Holder,
. special tax rules that may apply to certain Non-U.S. Holders, including
without limitation, banks, insurance companies, dealers in securities
and traders in securities, or
. special tax rules that may apply to a Non-U.S. Holder that holds our
common stock as part of a "straddle," "hedge" or "conversion
transaction."
The following discussion is based on provisions of the U.S. Internal Revenue
Code of 1986, applicable Treasury regulations, and administrative and judicial
interpretations, all as of the date of this prospectus, and all of which may
change, retroactively or prospectively. The following summary is for general
information. Accordingly, each Non-U.S. Holder should consult a tax advisor
regarding the U.S. federal, state, local and non-U.S. income and other tax
consequences of acquiring, holding and disposing of shares of our common stock.
Dividends
We do not anticipate paying cash dividends on our common stock in the
foreseeable future. See "Dividend Policy." In the event, however, that
dividends are paid on shares of common stock, dividends paid to a Non-U.S.
Holder of common stock generally will be subject to withholding of U.S. federal
income tax at a 30% rate, or such lower rate as may be provided by an
applicable income tax treaty. Non-U.S. Holders should consult their tax
advisors regarding their entitlement to benefits under a relevant income tax
treaty.
Dividends that are effectively connected with a Non-U.S. Holder's conduct of
a trade or business in the United States or, if an income tax treaty applies,
attributable to a permanent establishment, or in the case of an individual, a
"fixed base," in the United States, as provided in that treaty ("U.S. trade or
business income"), are generally subject to U.S. federal income tax on a net
income basis at regular graduated rates, but are not generally subject to the
30% withholding tax if the Non-U.S. Holder files the appropriate U.S. Internal
Revenue Service form with the payor. Any U.S. trade or business income received
by a Non-U.S. Holder that is a corporation may also, under certain
circumstances, be subject to an additional "branch profits tax" at a 30% rate
or such lower rate as specified by an applicable income tax treaty.
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<PAGE>
Dividends paid prior to 2001 to an address in a foreign country are
presumed, absent actual knowledge to the contrary, to be paid to a resident of
such country for purposes of the withholding discussed above and for purposes
of determining the applicability of a tax treaty rate. For dividends paid after
2000, a Non-U.S. Holder of common stock who claims the benefit of an applicable
income tax treaty rate generally will be required to satisfy applicable
certification and other requirements.
A Non-U.S. Holder of common stock that is eligible for a reduced rate of
U.S. withholding tax under an income tax treaty may obtain a refund or credit
of any excess amounts withheld by filing an appropriate claim for a refund with
the IRS.
Gain on disposition of common stock
A Non-U.S. Holder generally will not be subject to U.S. federal income tax
in respect of gain recognized on a disposition of common stock unless:
. the gain is U.S. trade or business income, in which case, the branch
profits tax described above may also apply to a corporate Non-U.S.
Holder;
. the Non-U.S. Holder is an individual who holds the common stock as a
capital asset within the meaning of Section 1221 of the Internal Revenue
Code, is present in the United States for more than 182 days in the
taxable year of the disposition and meets certain other requirements;
. the Non-U.S. Holder is subject to tax pursuant to the provisions of the
U.S. tax law applicable to certain U.S. expatriates; or
. we are or have been a "U.S. real property holding corporation" for
federal income tax purposes at any time during the shorter of a five-
year period ending on the date of disposition or the period that the
Non-U.S. Holder held our common stock.
Generally, a corporation is a "U.S. real property holding corporation" if
the fair market value of its "U.S. real property interests" equals or exceeds
50% of the sum of the fair market value of its worldwide real property
interests plus its other assets used or held for use in a trade or business. We
believe that we have not been, are not currently, and do not anticipate
becoming, a "U.S. real property holding corporation" for U.S. federal income
tax purposes. The tax relating to stock in a "U.S. real property holding
corporation" will not apply to a Non-U.S. Holder whose holdings, direct and
indirect, at all times during the applicable period, constituted 5% or less of
the common stock, provided that the common stock was regularly traded on an
established securities market.
Federal estate tax
Common stock owned or treated as owned by an individual who is a Non-U.S.
Holder at the time of death will be included in the individual's gross estate
for U.S. federal estate tax purposes, unless an applicable estate tax or other
treaty provides otherwise and, therefore, may be subject to U.S. federal estate
tax.
Information reporting and backup withholding tax
We must report annually to the IRS and to each Non-U.S. Holder the amount of
dividends paid to that holder and the tax withheld with respect to those
dividends. Copies of the information returns reporting those dividends and
withholding may also be made available to the tax authorities in the country in
which the Non-U.S. Holder is a resident under the provisions of an applicable
income tax treaty or agreement.
Under certain circumstances, U.S. Treasury Regulations require information
reporting and backup withholding at a rate of 31% on certain payments on common
stock. Under currently applicable law, Non-U.S. Holders of common stock
generally will be exempt from these information reporting requirements and from
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<PAGE>
backup withholding on dividends paid prior to 2001 to an address outside the
United States. For dividends paid after 2000, however, a Non-U.S. Holder of
common stock that fails to certify its Non-U.S. Holder status in accordance
with U.S. Treasury Regulations may be subject to backup withholding at a rate
of 31% on payments of dividends.
The payments of the proceeds of the disposition of common stock by a holder
to or through the U.S. office of a broker or through a non-U.S. broker
generally will be subject to information reporting and backup reporting at a
rate of 31% unless the holder either certifies its status as a Non-U.S. Holder
under penalties of perjury or otherwise establishes an exemption. The payment
of the proceeds of the disposition by a Non-U.S. Holder of common stock to or
through a non-U.S. office of a non-U.S. broker will not be subject to backup
withholding or information reporting unless a non-U.S. broker is a "U.S.
related person." In the case of the payment of proceeds from the disposition of
common stock by or through a non-U.S. office of a broker that is a U.S. person
or a "U.S. related person," information reporting, but currently not backup
withholding, on the payment applies unless the broker receives a statement from
the owner, signed under penalty of perjury, certifying its non-U.S. status or
the broker has documentary evidence in its files that the holder is a Non-U.S.
Holder and the broker has no actual knowledge to the contrary. For this
purpose, a "U.S. related person" is:
. a "controlled foreign corporation" for U.S. federal income tax purposes;
. a foreign person 50% or more of whose gross income from all sources for
the three-year period ending with the close of its taxable year
preceding the payment, or for such part of the period that the broker
has been in existence, is derived from activities that are effectively
connected with the conduct of a U.S. trade or business; or
. effective after 2000, a foreign partnership if, at any time during the
taxable year, (A) at least 50% of the capital or profits interest in the
partnership is owned by U.S. persons, or (B) the partnership is engaged
in a U.S. trade or business.
Effective after 2000, backup withholding may apply to the payment of
disposition proceeds by or through a non-U.S. office of a broker that is a U.S.
person or a "U.S. related person" unless certain certification requirements are
satisfied or an exemption is otherwise established and the broker has no actual
knowledge that the holder is a U.S. person. Non-U.S. Holders should consult
their own tax advisors regarding the application of the information reporting
and backup withholding rules to them, including changes to these rules that
will become effective after 2000.
Any amounts withheld under the backup withholding rules from a payment to a
Non-U.S. Holder will be refunded, or credited against the holder's U.S. federal
income tax liability, if any, provided that the required information is
furnished to the IRS.
61
<PAGE>
UNDERWRITING
Under the terms and subject to the conditions contained in an underwriting
agreement dated , 2000, we have agreed to sell to the underwriters named
below, for whom Credit Suisse First Boston Corporation, FleetBoston Robertson
Stephens Inc. and Hambrecht & Quist LLC are acting as representatives, the
following respective numbers of shares of common stock:
<TABLE>
<CAPTION>
Number
Underwriter of Shares
----------- ---------
<S> <C>
Credit Suisse First Boston Corporation.............................
FleetBoston Robertson Stephens Inc. ...............................
Hambrecht & Quist LLC..............................................
----
Total............................................................
====
</TABLE>
The underwriting agreement provides that the underwriters are obligated to
purchase all the shares of common stock in the offering if any are purchased,
other than those shares covered by the over-allotment option described below.
The underwriting agreement also provides that if an underwriter defaults, the
purchase commitments of non-defaulting underwriters may be increased or the
offering of common stock may be terminated.
We have granted to the underwriters a 30-day option to purchase on a pro
rata basis up to additional shares at the initial public offering price less
the underwriting discounts and commissions. The option may be exercised only to
cover any over-allotments of common stock.
The underwriters propose to offer the shares of common stock initially at
the public offering price on the cover page of this prospectus and to selling
group members at that price less a concession of $ per share. The
underwriters and selling group members may allow a discount of $ per share on
sales to other broker/dealers. After the initial public offering, the public
offering price and concession and discount to broker/dealers may be changed by
the representatives.
The following table summarizes the compensation and estimated expenses we
will pay.
<TABLE>
<CAPTION>
Per Share Total
----------------------------- -----------------------------
Without With Without With
Over-allotment Over-allotment Over-allotment Over-allotment
-------------- -------------- -------------- --------------
<S> <C> <C> <C> <C>
Underwriting Discounts
and Commissions
paid by us............. $ $ $ $
Expenses payable by us.. $ $ $ $
</TABLE>
The underwriters have informed us that they do not expect discretionary
sales to exceed 5% of the shares of common stock being offered.
We have agreed that we will not offer, sell, contract to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Securities and
Exchange Commission a registration statement under the Securities Act of 1933
relating to, any additional shares of our common stock or securities
convertible into or exchangeable or exercisable for any of our common stock, or
publicly disclose the intention to make any such offer, sale, pledge,
disposition or filing, without the prior written consent of Credit Suisse First
Boston Corporation for a period of 180 days after the date of this prospectus.
Our officers, directors and certain other of our security holders have
agreed that they will not offer, sell, contract to sell, pledge or otherwise
dispose of, directly or indirectly, any shares of our common stock or
62
<PAGE>
securities convertible into or exchangeable or exercisable for any shares of
our common stock, enter into a transaction which would have the same effect, or
enter into any swap, hedge or other arrangement that transfers, in whole or in
part, any of the economic consequences of ownership of our common stock,
whether any such aforementioned transaction is to be settled by delivery of our
common stock or such other securities, in cash or otherwise, or publicly
disclose the intention to make any such offer, sale, pledge or disposition, or
to enter into any such transaction, swap, hedge or other arrangement without,
in each case, the prior written consent of Credit Suisse First Boston
Corporation for a period of 180 days after the date of this prospectus.
The underwriters have reserved for sale, at the initial public offering
price, up to shares of the common stock for employees, directors and certain
other persons associated with us who have expressed an interest in purchasing
common stock in the offering. The number of shares available for sale to the
general public in the offering will be reduced to the extent such persons
purchase such reserved shares. Any reserved shares not so purchased will be
offered by the underwriters to the general public on the same terms as the
other shares.
We have agreed to indemnify the underwriters against liabilities under the
Securities Act of 1933, or contribute to payments which the underwriters may be
required to make in that respect.
We will apply to list the shares of common stock on The Nasdaq Stock
Market's National Market under the symbol "LXCR."
Prior to this offering, there has been no public market for our common
stock. The initial public offering price for our common stock will be
determined by negotiation between us and the representatives and may not
reflect the market price for the common stock following the offering. We will
consider, among others, the following principal factors in determining the
initial public offering price:
. the information in this prospectus and otherwise available to the
representatives;
. the history of and the prospects for the industry in which we will
compete;
. the capability of our management;
. our past and present operations;
. our past and present earnings;
. the prospects for our future earnings;
. the present state of our development and our current financial
condition;
. the general condition of the securities markets at the time of this
offering;
. and the recent market prices of, and the demand for, publicly traded
common stock of generally comparable companies.
We can offer no assurances that the initial public offering price will
correspond to the price at which our common stock will trade in the public
market subsequent to the offering or that an active trading market for our
common stock will develop and continue after this offering.
The representatives may engage in over-allotment, stabilizing transactions,
syndicate covering transactions, and penalty bids in accordance with Regulation
M under the Securities Exchange Act of 1934.
. Over-allotment involves syndicate sales in excess of the offering size,
which creates a syndicate short position.
. Stabilizing transactions permit bids to purchase the underlying security
so long as the stabilizing bids do not exceed a specified maximum.
. Syndicate covering transactions involve purchases of the common stock in
the open market after the distribution has been completed in order to
cover syndicate short positions.
63
<PAGE>
. Penalty bids permit the representatives to reclaim a selling concession
from a syndicate member when the common stock originally sold by such
syndicate member is purchased in a stabilizing transaction or a
syndicate covering transaction to cover syndicate short positions.
These stabilizing transactions, syndicate covering transactions and penalty
bids may cause the price of the common stock to be higher than it would
otherwise be in the absence of these transactions. These transactions may be
effected on The Nasdaq National Market or otherwise and, if commenced, may be
discontinued at any time.
64
<PAGE>
NOTICE TO CANADIAN RESIDENTS
Resale Restrictions
The distribution of the common stock in Canada is being made only on a
private placement basis exempt from the requirement that we prepare and file a
prospectus with the securities regulatory authorities in each province where
trades of common stock are effected. Accordingly, any resale of the common
stock in Canada must be made in accordance with applicable securities laws
which will vary depending on the relevant jurisdiction, and which may require
resales to be made in accordance with available statutory exemptions or
pursuant to a discretionary exemption granted by the applicable Canadian
securities regulatory authority. Purchasers are advised to seek legal advice
prior to any resale of the common stock.
Representations of Purchasers
Each purchaser of common stock in Canada who receives a purchase
confirmation will be deemed to represent to us and the dealer from whom such
purchase confirmation is received that (i) such purchaser is entitled under
applicable provincial securities laws to purchase such common stock without the
benefit of a prospectus qualified under such securities laws, (ii) where
required by law, that such purchaser is purchasing as principal and not as
agent, and (iii) such purchaser has reviewed the text above under "Resale
Restrictions".
Rights of Action (Ontario Purchasers)
The securities being offered are those of a foreign issuer and Ontario
purchasers will not receive the contractual right of action prescribed by
Ontario securities law. As a result, Ontario purchasers must rely on other
remedies that may be available, including common law rights of action for
damages or rescission or rights of action under the civil liability provisions
of the U.S. federal securities laws.
Enforcement of Legal Rights
All of the issuer's directors and officers as well as the experts named
herein may be located outside of Canada, and, as a result, it may not be
possible for Canadian purchasers to effect service of process within Canada
upon the issuer or such persons. All or a substantial portion of the assets of
the issuer and such persons may be located outside of Canada, and, as a result,
it may not be possible to satisfy a judgment against the issuer or such persons
in Canada or to enforce a judgment obtained in Canadian courts against the
issuer or such persons outside of Canada.
Notice to British Columbia Residents
A purchaser of common stock to whom the Securities Act (British Columbia)
applies is advised that such purchaser is required to file with the British
Columbia Securities Commission a report within ten days of the sale of any
common stock acquired by such purchaser in this offering. Such report must be
in the form attached to British Columbia Securities Commission Blanket Order
BOR #95/17, a copy of which may be obtained from us. Only one such report must
be filed in respect of common stock acquired on the same date and under the
same prospectus exemption.
Taxation and Eligibility for Investment
Canadian purchasers of common stock should consult with their own legal and
tax advisors with respect to the tax consequences of an investment in the
common stock in their particular circumstances and with respect to the
eligibility of the common stock for investment by the purchaser under relevant
Canadian legislation.
65
<PAGE>
LEGAL MATTERS
The validity of the shares of common stock offered by this prospectus will
be passed upon for us by Wilson Sonsini Goodrich & Rosati, Professional
Corporation, Palo Alto, California. The underwriters are being represented by
Cravath, Swaine & Moore, New York, New York. As of the date of this prospectus,
WS Investment Company 99B, an investment partnership composed of certain
current and former members of and persons associated with Wilson Sonsini
Goodrich & Rosati, Professional Corporation, beneficially owns an aggregate of
10,897 shares of Linuxcare, Inc. common stock.
EXPERTS
Ernst & Young LLP, independent auditors, have audited our financial
statements at December 31, 1998 and September 30, 1999, and for the period from
December 9, 1998 (inception) to December 31, 1999 and for the nine months ended
September 30, 1999 and the financial statements of The Puffin Group Inc. at
December 31, 1998 and September 30, 1999, and for the period from December 9,
1998 (inception) to December 31, 1998 and for the nine months ended September
30, 1999, as set forth in their reports. We have included our financial
statements and the financial statements of The Puffin Group Inc. in the
prospectus and elsewhere in the registration statement in reliance on Ernst &
Young LLP's report, given upon the authority of such firm as experts in
accounting and auditing.
ADDITIONAL INFORMATION
This prospectus is part of a registration statement on Form S-1 that we
filed with the SEC. This prospectus does not contain all of the information
contained in the registration statement and all of its exhibits and schedules.
For further information about us, please see the complete registration
statement. Summaries of agreements or other documents referred to in this
prospectus are not necessarily complete. Please refer to the exhibits to the
registration statement for complete copies of these documents.
You may read and copy our registration statement and all of its exhibits and
schedules at the following SEC public reference rooms:
<TABLE>
<S> <C> <C>
450 Fifth Street, N.W. Seven World Trade Center Citicorp Center
Judiciary Plaza Suite 1300 500 West Madison Street
Room 1024 New York, NY 10048 Suite 1400
Washington, D.C. 20549 Chicago, IL 60661
</TABLE>
You may obtain information on the operation of the SEC public reference room
in Washington, D.C. by calling the SEC at 1-800-SEC-0330. The registration
statement is also available from the SEC's website at http://www.sec.gov, which
contains reports, proxy and information statements and other information
regarding issuers that file electronically.
We intend to furnish our stockholders with annual reports containing
financial statements audited by an independent public accounting firm and make
available to our stockholders quarterly reports for the first three quarters of
each fiscal year containing interim unaudited financial information.
66
<PAGE>
LINUXCARE, INC.
INDEX TO FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................. F-2
Balance Sheets............................................................. F-3
Statements of Operations................................................... F-4
Statements of Stockholders' Deficit........................................ F-5
Statements of Cash Flows................................................... F-6
Notes to Financial Statements.............................................. F-7
THE PUFFIN GROUP
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................. F-17
Balance Sheets............................................................. F-18
Statement of Operations.................................................... F-19
Statement of Stockholders' Equity (Deficit)................................ F-20
Notes to Financial Statements.............................................. F-22
PROSA PROGETTAZIONE SVILUPPO APERTO S.R.L
INDEX TO FINANCIAL STATEMENTS
<CAPTION>
Page
----
<S> <C>
Report of Independent Auditors............................................. F-
Balance Sheets............................................................. F-
Statement of Operations.................................................... F-
Statement of Stockholders' Equity (Deficit)................................ F-
Notes to Financial Statements.............................................. F-
</TABLE>
F-1
<PAGE>
Report of Independent Auditors
To The Board of Directors and Stockholders of
Linuxcare, Inc.
We have audited the accompanying balance sheets of Linuxcare, Inc. as of
December 31, 1998 and September 30, 1999, and the related statements of
operations, stockholders' deficit and cash flows for the period from December
9, 1998 (inception) to December 31, 1998 and for the nine months ended
September 30, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards 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. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Linuxcare, Inc. at December
31, 1998 and September 30, 1998, and the results of its operations and its cash
flows for the period from December 9, 1998 (inception) to December 31, 1998 and
for the nine months ended September 30, 1999 in conformity with accounting
principles generally accepted in the United States.
Palo Alto, California
January 4, 2000, except with respect
to the matters referred to in
paragraph 7 of Note 9, as to which
the date is January 19, 2000
F-2
<PAGE>
LINUXCARE, INC.
BALANCE SHEETS
<TABLE>
<CAPTION>
Pro Forma
-------------
December 31, September 30, September 30,
1998 1999 1999
------------ ------------- -------------
(unaudited)
<S> <C> <C> <C>
Assets
Current assets:
Cash and cash equivalents........... $ 138,920 $ 863,459
Accounts receivable, net of
allowances of $0 in 1998 and
$31,000 in 1999.................... -- 207,664
Prepaid expenses and other assets... 61,380 50,096
--------- ------------
Total current assets.............. 200,300 1,121,219
Property and equipment, net........... -- 990,600
Debt issuance costs................... -- 1,245,729
--------- ------------
$ 200,300 $ 3,357,548
========= ============
Liabilities and Stockholders' Deficit
Current liabilities:
Accounts payable.................... $ -- $ 1,049,695
Accrued liabilities................. 13,458 231,073
Deferred revenue.................... -- 316,000
Note payable........................ -- 487,682
Current portion of equipment
financing.......................... -- 96,962
--------- ------------
Total current liabilities......... 13,458 2,181,412
Equipment financing, less current
portion.............................. -- 293,048
Note payable, less current portion.... 200,000 1,512,318
Redeemable convertible preferred
stock................................ -- 6,326,365
Stockholders' deficit:
Common stock, $.0001 par value:
32,000,000 authorized; 7,058,824
and 8,748,018 issued and
outstanding in 1998 and in 1999,
respectively (16,665,554 pro
forma)............................. 706 875 $ 1,667
Additional paid-in capital.......... 327,829 9,335,896 15,661,469
Deferred stock compensation......... (328,235) (6,138,148) (6,138,148)
Stockholder note receivable......... -- (116,048) (116,048)
Accumulated deficit................. (13,458) (10,038,170) (10,038,170)
--------- ------------ ------------
Total stockholders' deficit....... (13,158) (6,955,595) $ (629,230)
--------- ------------ ============
$ 200,300 $ 3,357,548
========= ============
</TABLE>
See accompanying notes.
F-3
<PAGE>
LINUXCARE, INC.
STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
Period from
December 9,
1998 Nine months
(inception) to ended
December 31, September 30,
1998 1999
-------------- -------------
<S> <C> <C>
Revenues.......................................... $ -- $ 304,591
Cost of revenues.................................. -- 1,329,960
-------- ------------
Gross margin.................................... -- (1,025,369)
Operating expenses:
Sales and marketing............................. -- 2,235,506
General and administrative...................... 13,458 3,356,701
Amortization of deferred stock compensation..... -- 3,207,768
-------- ------------
Total operating expenses...................... (13,458) (8,799,975)
-------- ------------
Loss from operations.............................. -- (9,825,344)
Interest expense.................................. -- 199,368
-------- ------------
Net loss.......................................... (13,458) (10,024,712)
Preferred stock accretion......................... -- (127,689)
-------- ------------
Net loss applicable to common stockholders........ $(13,458) $(10,152,401)
======== ============
Basic and diluted net loss per share.............. $ -- $ (5.50)
======== ============
Weighted average shares used in computing basic
and diluted
net loss per share............................... -- 1,845,773
======== ============
Pro forma basic and diluted net loss per share
(unaudited)...................................... $ (1.35)
============
Weighted average share used in computing pro forma
basic and diluted net loss per share
(unaudited)...................................... 7,403,053
============
</TABLE>
See accompanying notes.
F-4
<PAGE>
LINUXCARE, INC.
STATEMENTS OF STOCKHOLDERS' DEFICIT
<TABLE>
<CAPTION>
Common Stock Additional Deferred Stockholder
---------------- Paid-in Stock Note Accumulated
Shares Amount Capital Compensation Receivable Deficit Total
--------- ------ ---------- ------------ ----------- ------------ ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Issuance of common stock
to founders............ 6,000,000 $300 $ -- $ -- $ -- $ -- $ 300
Issuance of common stock
to consultants for
future services........ 1,058,824 406 327,829 (328,235) -- -- --
Net loss................ -- -- -- -- -- (13,458) (13,458)
--------- ---- ---------- ----------- --------- ------------ ------------
Balances at December 31,
1998................... 7,058,824 706 327,829 (328,235) -- (13,458) (13,158)
Exercise of stock
options for cash and a
note receivable........ 1,689,194 169 5,185,657 (5,067,582) (116,048) -- 2,196
Deferred stock
compensation........... -- -- 3,950,099 (3,950,099) -- -- --
Amortization of deferred
stock compensation to
consultants............ -- -- -- 1,681,319 -- -- 1,681,319
Amortization of deferred
stock compensation..... -- -- -- 1,526,449 -- -- 1,526,449
Preferred stock
accretion.............. -- -- (127,689) -- -- -- (127,689)
Net loss................ -- -- -- -- -- (10,024,712) (10,024,712)
--------- ---- ---------- ----------- --------- ------------ ------------
Balances at September
30, 1999............... 8,748,018 $875 $9,335,896 $(6,138,148) $(116,048) $(10,038,170) $ (6,955,595)
========= ==== ========== =========== ========= ============ ============
</TABLE>
See accompanying notes.
F-5
<PAGE>
LINUXCARE, INC.
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Period from
December 9,
1998 Nine months
(inception) to ended
December 31, September 30,
1998 1999
-------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net loss......................................... $ (13,458) $(10,024,712)
Adjustments to reconcile net loss to net cash
used in operating activities
Depreciation and amortization.................. -- 134,680
Amortization of debt issuance costs............ -- 136,111
Amortization of deferred stock compensation.... -- 3,207,768
Provision for doubtful accounts................ -- 31,000
Changes in assets and liabilities:
Accounts receivable.......................... -- (238,664)
Prepaid expenses and other assets............ (61,380) 11,284
Accounts payable............................. -- 1,049,695
Accrued liabilities.......................... 13,458 217,615
Deferred revenue............................. -- 316,000
--------- ------------
Net cash used in operating activities............ (61,380) (5,159,223)
Cash flows from investing activities:
Purchase of property and equipment, less non-cash
equipment financing items....................... -- (1,110,420)
--------- ------------
Net cash used in investing activities............ -- (1,110,420)
Cash flows from financing activities:
Exercise of stock options........................ -- 2,196
Proceeds from borrowings on note and equipment
financing....................................... 200,000 2,375,150
Proceeds from issuance of redeemable preferred
stock, net...................................... -- 4,616,836
Proceeds from issuance of common stock........... 300 --
--------- ------------
Net cash provided by financing activities........ 200,300 6,994,182
--------- ------------
Net increase in cash and cash equivalents........ 138,920 724,539
Cash and cash equivalents, beginning of year..... -- 138,920
--------- ------------
Cash and cash equivalents, end of year........... $ 138,920 $ 863,459
========= ============
Supplemental disclosures of cash flow
information:
Deferred stock compensation...................... $ 328,235 $ 9,017,681
Warrants issued for financing commitments........ -- 1,381,840
Notes issued to employees to exercise stock
options......................................... -- 116,048
Preferred stock compensation..................... -- 127,689
Notes payable canceled for issuances of preferred
stock........................................... -- 200,000
</TABLE>
See accompanying notes.
F-6
<PAGE>
LINUXCARE, INC.
NOTES TO FINANCIAL STATEMENTS
SEPTEMBER 30, 1999
1. Summary of Significant Accounting Policies
Description of Business
Linuxcare, Inc. ("the Company") was incorporated in Delaware on December 9,
1998 and is a provider of customer services for Linux. The Company offers a
comprehensive range of services including professional services, technical
support, education and product certification for Linux, leading open source
software packages and other related technologies. The Company supports all
major variations, or distributions, of Linux on a variety of hardware
platforms.
Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
Revenue Recognition
Revenues are derived primarily through the performance of services to third
parties. Revenues are billed and recognized as services are performed or, in
instances where the Company has a service agreement, pro-rata over the term of
the service agreement.
Concentrations of Credit Risk
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of cash and cash equivalents and trade
receivables. The Company performs ongoing credit evaluations of its customers
and generally does not require collateral. For the nine months ended September
30, 1999, three significant customers individually accounted for approximately
43%, 16%, and 13% of revenues. The customer representing 13% of the revenues is
a foreign customer.
Advertising Costs
Advertising costs are expensed as incurred. Advertising expenses were
$230,672 for the nine months ended September 30, 1999.
Cash and Cash Equivalents
Cash and cash equivalents consist principally of cash deposited in money
market and checking accounts, which amounts approximate fair value. The Company
considers all highly liquid debt instruments or money-market type funds with an
original maturity of three months or less to be cash equivalents.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives (three to five years) of
the assets. Assets acquired pursuant to capital lease obligations are amortized
over the assets' estimated useful lives. Leasehold improvements are amortized
over the corresponding lease term.
F-7
<PAGE>
LINUXCARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Property and equipment consists of the following at September 30, 1999:
<TABLE>
<S> <C>
Computer and office equipment.................................... $ 603,223
Furniture and fixtures........................................... 160,083
Leasehold improvements........................................... 80,841
Software......................................................... 284,839
----------
Total property and equipment..................................... 1,128,986
Less: accumulated depreciation and amortization.................. 138,386
----------
Property and equipment, net...................................... $ 990,600
==========
</TABLE>
Property and equipment includes $390,010 of financed equipment at September
30, 1999. Accumulated depreciation for such equipment for the nine months ended
September 30, 1999 was $10,833. Upon completion of certain equipment financing
terms, the Company has the option to purchase the equipment at 15% of original
cost.
Impairment of Long-lived Assets
In accordance with Statement of Financial Accounting Standards (SFAS) No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-lived
Assets to be Disposed Of, the Company reviews long-lived and intangible assets
for impairment whenever events or circumstances indicate the carrying value of
an asset may not be recoverable.
Debt Issuance Costs
Debt issuance costs related to stock warrants issued in connection with
certain loan arrangements are amortized over the term of the debt to the
interest rate method.
Income Taxes
The Company provides for income taxes based on the liability method, which
requires recognition of deferred tax assets and liabilities based on
differences between financial reporting and tax bases of assets and liabilities
measured using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.
Stock Split
Effective April 8, 1999, the Company completed a 2-for-1 stock split. As a
result of the stock split, outstanding and reserved common shares increased.
The rights of the holders of these securities were not otherwise modified. The
financial statements have been restated for all periods to reflect this stock
split.
Stock Options and Equity Instruments Exchanged for Services
The Company has elected to follow Accounting Principles Board Opinion (APB)
No. 25, Accounting for Stock Issued to Employees and related Interpretations in
accounting for its employee stock options rather than adopting the alternative
fair value accounting provided for under SFAS No. 123, Accounting for Stock-
based Compensation. Under APB No. 25, when the exercise price of the Company's
stock options equals the deemed fair value of the underlying stock on the date
of grant, no compensation expense is recognized.
F-8
<PAGE>
LINUXCARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
The value of options, warrants, and restricted stock exchanged for services
rendered or assets acquired are valued using the Black-Scholes option pricing
model. To calculate the expense or asset value, the Company uses either the
fair value of the consideration received or the fair value of the equity
instruments issued, whichever is more reliably measurable.
Comprehensive Income
In June 1998, the Financial Accounting Standards Board issued SFAS No. 130,
Reporting Comprehensive Income, which established new standards for reporting
and displaying comprehensive income and its components in a full set of general
purpose financial statements. There is no difference in the Company's
historical net losses as reported and the comprehensive net losses under the
provisions of SFAS No. 130 for all periods presented. Accordingly, the adoption
of SFAS No. 130 had no effect on the Company's reported results of operations.
Net Loss Per Share
Basic and diluted net loss per share information for all periods is
presented under the requirement of SFAS No. 128, Earnings per Share. Basic
earnings per share has been computed using the weighted-average number of
common shares outstanding during the period, less shares subject to repurchase,
and excludes any dilutive effects of stock options, warrants, and convertible
securities. Potentially dilutive securities have been excluded from the
computation of diluted net loss per share as their inclusion would be
antidilutive.
Pro forma net loss per share has been computed as described above and also
gives effect, under Securities and Exchange Commission guidance, to the
conversion of preferred shares not included above that will automatically
convert upon completion of the Company's initial offering, using the if-
converted method.
The calculation of historical and pro forma basic and diluted net loss per
share is as follows:
<TABLE>
<CAPTION>
Period from
December 9,
1998
(inception) Nine Months
to ended
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Historical:
Net loss............................................ $ (13,458) $(10,152,401)
=========== ============
Weighted average shares of common stock
outstanding........................................ 6,529,412 7,986,953
Less: weighted average shares of common stock that
may be repurchased................................. (6,529,412) (6,141,180)
----------- ------------
Weighted average shares of common stock outstanding
used in computing basic and diluted net loss per
share.............................................. -- 1,845,773
=========== ============
Basic and diluted net loss per share................ $ -- $ (5.50)
=========== ============
Pro forma (unaudited):
Net loss before preferred stock accretion.......... $(10,024,712)
============
Weighted average shares used in computing basic and
diluted net loss per share (from above)............ 1,845,773
Adjustment to reflect the effect of the assumed
conversion of preferred stock to common stock from
the date of issuance............................... 5,557,280
------------
Weighted average shares used in computing pro forma
basic and diluted net loss per share............... 7,403,053
============
Pro forma basic and diluted net loss per share...... $ (1.35)
============
</TABLE>
F-9
<PAGE>
LINUXCARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
If the Company had reported net income, the calculation of historical and
pro forma diluted earnings per share would have included approximately an
additional 0 and 520,000 common equivalent shares related to the outstanding
stock options and warrants not included above (determined using the treasury
stock method) for the period from December 9, 1998 (inception) to December 31,
1998 and for the nine months ended September 30, 1999, respectively.
Impact of Recent Accounting Pronouncements
In March 1998, the AICPA issued Statement of Position (SOP) No. 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. SOP No. 98-1 requires entities to capitalize certain costs
related to internal-use software once certain criteria have been met. SOP No.
98-1 was adopted by the Company in fiscal 1999. The adoption of SOP No. 98-1
did not have a material effect on the Company's financial position or results
of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133, as recently amended, is effective for
fiscal years beginning after June 15, 2000. Management believes the adoption of
SFAS No. 133 will not have a material effect on the Company's financial
position or results of operations.
2. Note Payable and Equipment Financing
In December 1998, the Company issued promissory notes for total
consideration of $200,000. These notes were subsequently converted into 324,544
shares of Series A preferred stock on February 1, 1999 at the offering price of
$.61625 per share.
On July 27, 1999, the Company entered into a subordinated loan and security
agreement ("Note Payable") with a financial institution ("Lender") for maximum
borrowings of $2,000,000. The Note Payable bears interest at ten percent (10%)
per annum and is due in 36 months. Payments of principal and interest begin six
months after the Note Payable's issuance. For that six-month period, interest
is accrued but not paid. In the event of default by the Company, the Note
Payable shall bear interest at a rate of 15% per annum. The Note Payable is
secured by certain tangible and intangible assets of the Company and is subject
to certain non financial covenants. At September 30, 1999, the Company has
outstanding $2,000,000 in notes payable.
On July 27, 1999, the Company entered into an equipment financing agreement
for a maximum loan amount of $1,000,000 with the above lender. As of September
30, 1999, the Company has drawn $390,010 on the equipment financing agreement.
The loan is secured by equipment purchased, bears interest at a stated rate of
7.5% and is due in December 2002.
In connection with the Note Payable and equipment financing agreement, the
Company extended to the Lender warrants to purchase 295,265 shares of preferred
stock at an exercise price of $1.4902 per share. These warrants expire the
earlier of ten years from the date of the above agreements or five years from
the date of an initial public offering. As of September 30, 1999, these
warrants remained outstanding. The value attributable to these warrants was
calculated using the Black-Scholes valuation model with the following weighted-
average assumptions: risk-free interest rate of approximately 6.2%, expected
life of 5 years, 150% volatility, and no expected dividends. The fair value
associated with these warrants was calculated at $1,381,840 and is recorded as
a debt issuance cost and an increase to redeemable convertible preferred stock.
This discount is being amortized over the life of the notes payable as
additional interest cost.
F-10
<PAGE>
LINUXCARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
4. Commitments
The Company leases its facilities under operating leases that expire at
various dates through December 31, 2004.
Future minimum equipment financing and operating lease payments as of
September 30, 1999 are as follows for the twelve-month periods ended September
30:
<TABLE>
<CAPTION>
Equipment Operating
Financing Leases
--------- ----------
<S> <C> <C>
2000................................................. $133,075 $1,142,094
2001................................................. 133,075 1,142,094
2002................................................. 122,215 1,142,094
2003................................................. 50,925 1,142,094
2004................................................. -- 285,522
-------- ----------
Future minimum lease payments........................ 439,290 $4,853,898
==========
Amounts representing interest........................ 49,280
--------
Present value of future minimum lease obligations.... 390,010
Amounts due within one year.......................... 96,962
--------
Amounts due after one year........................... $293,048
========
</TABLE>
Rent expense for the nine months ended September 30, 1999 was $140,104.
5. Retirement Savings Plan
The Company maintains an employee savings and retirement plan that is
intended to be qualified under Section 401(k) of the Internal Revenue Code and
is available to substantially all full-time employees of the Company. The plan
provides for tax deferred salary deductions and after-tax employee
contributions. Contributions include employee salary deferral contributions and
discretionary employer contributions. To date, there have been no employer
discretionary contributions.
6. Income Taxes
There has been no provision for U.S. federal, state, or foreign income taxes
for any period as the Company has incurred operating losses in all periods and
for all jurisdictions.
Deferred income taxes reflect the net tax effects of temporary differences
between the carrying amounts of assets and liabilities for financial reporting
purposes and the amounts used for income tax purposes. Significant components
of the Company's deferred tax assets are as follows:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Deferred tax assets:
Net operating loss carryforwards................ $ -- $ 2,615,533
Stock option compensation....................... -- 736,028
Other........................................... -- 56,800
---- -----------
3,408,361
Valuation allowance............................. -- (3,408,361)
---- -----------
Net deferred tax assets......................... $ -- $ --
==== ===========
</TABLE>
F-11
<PAGE>
LINUXCARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Realization of deferred tax assets is dependent upon future earnings, if
any, the timing and amount of which are uncertain. Accordingly, the net
deferred tax assets have been fully offset by a valuation allowance. The
valuation allowance increased by $3,408,361 during the nine months ended
September 30, 1999.
As of September 30, 1999, the Company had net operating loss carryforwards
for federal income tax purposes of approximately $6,539,000 which expire in the
years 2018 to 2019. The Company also had net operating loss carryforwards for
state income tax purposes of approximately $6,539,000 expiring in the year
2006. Utilization of the Company's net operating loss may be subject to
substantial annual limitation due to the ownership change limitations provided
by the Internal Revenue Code and similar state provisions. Such an annual
limitation could result in the expiration of the net operating loss before
utilization.
7. Redeemable Convertible Preferred Stock
On February 1, 1999 and April 16, 1999, the Company issued 2,636,916 and
5,246,008 shares, respectively, of Series A redeemable convertible preferred
stock ("Series A") at a price of $.61625 per share. There are 18,566,075 shares
authorized of Series A at a par value of $.0001. The balance of Series A is
comprised of the following:
<TABLE>
<CAPTION>
Number of
Shares Amount
--------- ----------
<S> <C> <C>
Issuance of preferred stock for cash and promissory
notes totaling $200,000, net of financing costs..... 7,882,924 $4,795,506
Exercise of warrant related to Series A legal
services............................................ 34,612 21,330
Preferred stock accretion............................ -- 127,689
Warrants issued for financing commitments............ -- 1,381,840
--------- ----------
Balance in redeemable convertible preferred stock at
September 30, 1999.................................. 7,917,536 $6,326,365
========= ==========
</TABLE>
Significant terms of the outstanding Series A preferred stock, as amended,
are as follows:
. In the event of any liquidation, dissolution or winding up of the
Company, the holders of Series A are entitled to receive proceeds equal
to $.61625 per share, plus all declared but unpaid dividends, prior and
in preference to any distribution to holders of common stock. If the
assets available for distribution are insufficient to pay the preferred
stockholders in full, the assets will be distributed ratably among the
preferred stockholders.
. Each share of Series A is redeemable in three annual installments from
and after December 14, 2004. Each share is redeemable at a sum equal to
$.61625, plus five percent (5%) of the original issue price compounded
annually.
. Each share of Series A is convertible at the option of the holder into
one share of common stock, subject to certain adjustments. Each share of
preferred stock converts automatically into common stock at the earlier
of (1) the closing of an underwritten public offering of the Company's
common stock at an aggregate offering price of greater than $10,000,000
or (2) the date specified by affirmative consent or agreement of a
majority of the holders of Series A outstanding.
. Each share of Series A has voting rights equivalent to the number of
shares of common stock into which it is convertible.
. Dividends may be declared at the discretion of the Board of Directors
and are non-cumulative. Dividends of $.0308 per share on Series A must
be declared and paid prior and in preference to any cash dividend
declarations or distributions to holders of common stock.
F-12
<PAGE>
LINUXCARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
8. Stockholders' Deficit
Stockholder Note Receivable
In May 1999, the Board of Directors approved the issuance of options to
purchase 1,660,194 shares of common stock to a key officer at an exercise price
of $.07 per share. In exchange for a full recourse note receivable in the
amount of $116,048, the officer exercised the options subject to the terms of a
stock repurchase agreement. The note receivable has been recorded as a
reduction of stockholders' equity in the balance sheet at September 30, 1999.
The note is full recourse and bears interest at 5.22%. The deemed fair market
value of the underlying option grant of $4,980,582 was recorded as deferred
compensation.
Common Stock Subject to Repurchase
In connection with the issuance of common stock to founders and the exercise
of options pursuant to the Company's 1999 Stock Option Plan, employees entered
into restricted stock purchase agreements with the Company. Under the terms of
these agreements, the Company has a right to repurchase any unvested shares up
to 60 days after the termination of the employee's service at the original
exercise price of the shares. With continuous employment by the company, the
repurchase rights lapse at a rate of 25% of the purchased shares on October 31,
1999, and at a rate of 1/48th of the purchased shares for each continuous month
of service thereafter. The right of repurchase lapses with respect to 50% of
the purchased shares upon a change in control. All repurchase rights lapse in
the event of a change in control when the repurchase rights are not assigned to
the new control entity. As of September 30, 1999, 7,689,194 shares were subject
to repurchase by the Company.
On December 23, 1998, the Company issued a total of 1,058,824 shares of
common stock to two consultants in exchange for future business strategy
consulting services and a nominal cash amount. The fair value of the stock as
of the date the services are being provided and is charged to deferred stock
compensation. Each consultant is required to provide approximately 32 hours per
month of services through December 15, 1999. The consultants vest in the shares
over the service period. All unvested shares are subject to repurchase by the
Company at the consultant's original purchase price. The Company records
compensation expense in the period the services are performed at the fair value
of the Company's common stock. During the periods ended December 31, 1998 and
September 30, 1999, amounts recorded to deferred stock compensation related to
consultants were $328,235 and $2,416,884 and to amortization of deferred stock
compensation were $0 and $1,681,319, respectively. As of September 30, 1999,
approximately 141,180 shares remained unvested.
Stock Option Plan
On April 5, 1999, the Company adopted and the Board of Directors approved
the 1999 Stock Plan (the "1999 Plan"). The number of shares reserved for
issuance under the 1999 Plan is 3,674,766. Under the 1999 Plan, the Board of
Directors may grant to employees, outside directors, and consultants options
and/or stock awards. The term and price of options is determined by the Board
of Directors. The Plan will terminate in 2009. Nonqualified options granted
under the 1999 Plan must be issued at a price equal to at least 85% of the fair
market value of the Company's common stock at the date of grant. All options
may be exercised at any time within 10 years of the date of grant or within
three months of termination of employment, or such shorter time as may be
provided in the stock option agreement, and vest over a vesting schedule
determined by the Board of Directors, which generally is four years.
Pro forma information regarding net loss and net loss per share is required
by SFAS No. 123, and has been determined as if the Company had accounted for
its employee stock options under the fair value method of that Statement. The
fair value of these options was estimated at the date of grant using a Minimum
Value option pricing model with the following weighted average assumptions for
1999: risk-free interest rates of 6.2%; dividend yield of 0%; and a weighted-
average expected life of the options of 8 years.
F-13
<PAGE>
LINUXCARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
A summary of stock option activity and related information follows:
<TABLE>
<CAPTION>
Outstanding Stock Options Weighted-
Shares --------------------------- Average
Available Number of Price Exercise
for Grant Shares Per Share Price
---------- ------------- ------------ ---------
<S> <C> <C> <C> <C>
Original authorization.. 3,674,766 -- -- --
Options granted......... (2,212,287) 2,212,287 $ .07-.10 $.07
Options exercised....... -- 1,689,194 .07 .07
Options canceled........ 55,000 (55,000) .07-.10 .07
---------- ------------- ------------ ----
Balance at September 30,
1999................... 1,517,479 468,093 $ .07-.10 $.09
========== ============= ============ ====
</TABLE>
The weighted-average fair value of options granted for the nine months
ended September 30, 1999 was $3.06 as reflected in the Company's deferred
stock compensation balance. The weighted-average remaining contractual life of
the options outstanding at September 30, 1999 was 9.6 years.
As of September 30, 1999, there were no shares issuable upon the exercise
of options under the 1999 Plan.
Warrants
On January 21, 1999, the Company issued a warrant to a partnership for the
purchase of 34,612 shares of Series A at an exercise price of $.61625 per
share in connection with Series A legal services. In September 1999, this
warrant was exercised. As the consulting services were directly related to the
first round of Series A financing, the fair value of the warrant was
considered an issuance cost. As of September 30, 1999, this warrant was
exercised (see Note 7--Redeemable Convertible Preferred Stock).
On July 27, 1999, the Company issued warrants in connection with a Note
Payable and equipment financing agreement to purchase 295,265 shares of Series
A preferred stock at an exercise price of $1.4902 per share. As of September
30, 1999, these warrants remain outstanding (see Note 2--Note Payable).
Shares Reserved for Future Issuance
As of September 30, 1999, the Company had reserved shares of its common
stock for future issuance as follows:
<TABLE>
<S> <C>
Conversion of Series A preferred stock.......................... 7,917,536
1999 Stock Plan................................................. 1,985,572
Exercise of Outstanding Warrants................................ 295,265
----------
10,198,373
==========
</TABLE>
Deferred Stock Compensation
In connection with the grant of certain stock options to employees and
consultants for the nine months ended September 30, 1999, the Company recorded
deferred stock compensation within stockholders' deficit of approximately $6.6
million, representing the difference between the deemed fair value of the
common stock for accounting purposes and the option exercise price of these
options at the date of grant. The Company recorded amortization of deferred
compensation of approximately $3.2 million, including $1.7 million related to
consultants as described below, for the nine months ended September 30, 1999.
In connection with the grant of options to employees in October, November and
December 1999, the Company will record an additional
F-14
<PAGE>
LINUXCARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
$16.2 million of deferred stock compensation during the fourth quarter of 1999.
The deferred stock compensation expense is being amortized on an accelerated
basis over the vesting period of the individual award, generally four years.
This method is in accordance with Financial Accounting Standards Board
Interpretation No. 28. Accordingly, at September 30, 1999, the remaining
deferred compensation of approximately $6.3 million will be amortized as
follows: $2.2 million during the remaining three months of fiscal 1999, $2.6
million during fiscal 2000, $1.1 million during fiscal 2001, $.4 million during
fiscal 2002 and $0 during fiscal 2003. The amortization expense relates to
options awarded to employees in all operating expense categories. The
amortization of deferred stock compensation has not been separately allocated
to these categories. The amount of deferred compensation expense to be recorded
in future periods could decrease if options for which accrued but unvested
compensation has been recorded are forfeited.
As previously mentioned, in December 1998, the Company issued 1,058,824
shares of common stock to two consultants in exchange for future business
strategy consulting services. The Company recorded deferred stock compensation
of approximately $.3 million and $2.4 million for the period from December 9,
1998 (inception) to December 31, 1999 and the nine months ended September 30,
1999, respectively. For the nine months ended September 30, 1999, the Company
recorded amortization of deferred stock compensation of $1.7 million. The
residual amortization of $1.0 million will be recorded in the fourth quarter of
1999.
9. Subsequent Events
Acquisitions
On October 1, 1999, the Company purchased the outstanding common stock of
The Puffin Group, Inc. a Canadian company, for 100,000 shares of the Company's
common stock and an option to purchase 325,000 shares of the Company's common
stock at an exercise price of $.13 per share. The option to purchase additional
shares vests over three years. The Puffin Group transaction was accounted for
as a purchase and, accordingly, will be consolidated in the fourth quarter of
1999.
On December 30, 1999, the Company purchased the outstanding shares of the
common stock of Prosa Progettazione Sviluppe Aparto s.r.l. ("Prosa"), an
Italian company, for $190,000 and 25,000 options to purchase shares of the
Company's common stock. The Prosa transaction was accounted for as a purchase
and, accordingly, will be consolidated in the fourth quarter of 1999.
Letter of Credit
On October 15, 1999, the Company signed a Letter of Credit agreement for
$1,150,000 as security on the rental of additional office space. In connection
with the agreement, a warrant to purchase 96,478 shares of common stock with an
exercise price of $1.4902 per share was issued. The warrant expires in 10
years.
Series B Redeemable Convertible Preferred Stock
On December 17, 1999, the Company issued 6,870,761 shares of $.0001 par
value Series B redeemable convertible preferred stock at $4.72 per share for
gross proceeds of approximately $32.5 million. January 19, 2000 the company
issued shares of $.0001 par value Series B redeemable convertible
preferred stock at $4.72 per share for gross proceeds of $1,000,000.
Each share of Series B preferred stock is non-voting and convertible to one
share of common stock at any time at the option of the holder and automatically
upon either an initial public offering that exceeds a threshold, or the sale of
the business. Dividends on the Series B preferred stock are noncumulative.
Holders of the Series B preferred stock are entitled to a liquidation
preference in the event of any liquidation. Each share of Series B preferred
stock is redeemable in three annual installments from and after December 14,
2004. The preferred
F-15
<PAGE>
LINUXCARE, INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
stock is redeemable at a sum equal to $0.61625 per share, plus five percent
(5%) of the original issue price compounded annually.
Certain shareholders extended 30 day promissory notes totaling $3,000,000 to
the Company prior to the first round of Series B Financing. The notes were
exchanged for shares of Series B redeemable convertible preferred stock as a
part of the Series B offering.
Stockholder Notes Receivable
In December 1999, the Company issued notes receivable for $26,000 and
$339,966 to executives of the Company to exercise 204,918 and 340,000 stock
options, respectively. The notes are full recourse and secured by the
underlying stock. In connection with the note receivable for $339,966, the
Company violated a non financial covenant on its Note Payable with its Lender
(see Note 2--Note Payable). The Company has obtained a waiver from the Lender
related to this covenant.
Amended and Restated Certificate of Incorporation
In December 1999, the Board of Directors approved an increase in the total
number of shares that the Company is authorized to issue to 50,556,075 shares,
of which 32,000,000 will be common stock and 18,566,075 will be preferred
stock.
Proposed Public Offering of Common Stock
In December 1999, the Board of Directors authorized the Company to proceed
with an initial public offering of its common stock. If the offering is
consummated as presently anticipated, each share of outstanding redeemable
convertible preferred stock will automatically convert into one share of common
stock.
2000 Director Option Plan
On January 18, 2000, the Board of Directors adopted the 2000 Director Option
Plan. A total of 300,000 shares were reserved for issuance and 40,000 shares
were issued.
F-16
<PAGE>
Report of Independent Auditors
To The Board of Directors and Stockholders of
The Puffin Group Inc.:
We have audited the accompanying balance sheets of The Puffin Group Inc. as
at December 31, 1998 and September 30, 1999, and the related statements of
operations, stockholders' (deficit) equity and cash flows for the period from
September 14, 1998 (inception) to December 31, 1998 and the nine month period
ended September 30, 1999. These financial statements are the responsibility of
the Company's management. Our responsibility is to express an opinion on these
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards in Canada and in the United States of America. Those standards
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. An audit also includes assessing the
accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of The Puffin Group Inc. as at
December 31, 1998 and September 30, 1999, and the results of its operations and
its cash flows for the periods from September 14, 1998 (inception) to December
31, 1998 and the nine month period ended September 30, 1999 in accordance with
accounting principles generally accepted in Canada and in the United States of
America.
Ottawa, Canada
January 7, 2000
F-17
<PAGE>
THE PUFFIN GROUP INC.
BALANCE SHEET
US DOLLARS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents......................... $ 1,862 $14,335
Accounts receivable (note 1)...................... 3,955 40,000
Prepaid expenses.................................. -- 2,462
Other assets...................................... 192 2,400
------- -------
Total current assets............................ 6,009 59,197
Property and equipment, net (note 1)................ 1,887 8,461
------- -------
$ 7,896 $67,658
======= =======
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable.................................. $ 7,400 $35,864
Accrued professional fees......................... 3,252 14,077
Accrued salaries.................................. 550 4,087
------- -------
Total current liabilities....................... 11,202 54,028
Commitments and contingencies (note 2 and 5)
Stockholders'(deficit) equity (note 1):
Class A shares, voting on a two for one basis,
unlimited number authorized, 500,000 issued...... 67 67
Class C shares, voting on a one for one basis,
unlimited number authorized, 500,000 issued...... 67 67
Class D shares, non-voting, unlimited number
authorized, 25,000 issued........................ -- 16,633
Class B shares, non-voting, unlimited number
authorized, 0 shares issued...................... -- --
First preferred shares, non-voting, unlimited
number authorized, 0 shares issued............... -- --
------- -------
134 16,767
Accumulated deficit............................... (3,440) (3,137)
------- -------
Total stockholders'(deficit) equity............. (3,306) 13,630
------- -------
$ 7,896 $67,658
======= =======
</TABLE>
See accompanying notes.
F-18
<PAGE>
THE PUFFIN GROUP INC.
STATEMENTS OF OPERATIONS
US DOLLARS
<TABLE>
<CAPTION>
Period from
September 14, Nine month
1998 to period ended
December 31, September 30,
1998 1999
------------- -------------
<S> <C> <C>
Revenues:
Software development and
support.................. $14,700 $97,735
------- -------
Total revenues.......... 14,700 97,735
Operating expenses:
Sales and marketing....... -- 1,381
General and
administrative........... 18,140 96,051
------- -------
Total operating
expenses............... 18,140 97,432
------- -------
Net income (loss) and
comprehensive income
(loss)..................... $(3,440) $ 303
======= =======
</TABLE>
See accompanying notes.
F-19
<PAGE>
THE PUFFIN GROUP INC.
STATEMENT OF STOCKHOLDER'S (DEFICIT) EQUITY
US DOLLARS
<TABLE>
<CAPTION>
Class A Class C Class D Accumulated
Shares Amount Shares Amount Shares Amount Deficit Total
------- ------ ------- ------ ------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Issuance of shares to
founders............... 500,000 $67 500,000 $67 -- $ -- $ -- $ 134
Net loss and
comprehensive loss..... -- -- -- -- -- -- (3,440) (3,440)
------- --- ------- --- ------ ------- ------- -------
December 31, 1998....... 500,000 67 500,000 67 -- -- (3,440) (3,306)
Issuance of shares
for cash............... -- -- -- -- 25,000 16,663 -- 16,633
Net income and
comprehensive income... -- -- -- -- -- -- 303 303
------- --- ------- --- ------ ------- ------- -------
September 30, 1999...... 500,000 $67 500,000 $67 25,000 $16,633 $(3,137) $13,630
======= === ======= === ====== ======= ======= =======
</TABLE>
F-20
<PAGE>
THE PUFFIN GROUP INC.
STATEMENTS OF OPERATIONS
US DOLLARS
<TABLE>
<CAPTION>
Period from
September 14, Nine month
1998 to period ended
December 31, September 30,
1998 1999
------------- -------------
<S> <C> <C>
Cash flows from operating activities:
Net income (loss)................................. $(3,440) $ 303
Adjustments to reconcile net loss to net cash used
in operating activities
Depreciation.................................... 377 798
Changes in assets and liabilities:
Accounts receivable........................... (3,955) (36,045)
Prepaid expenses.............................. -- (2,462)
Other assets.................................. (192) (2,208)
Accounts payable.............................. 7,400 28,464
Accrued liabilities........................... 3,802 14,362
------- --------
Net cash used in operating activities............. 3,992 3,212
Cash flows from investing activities:
Purchase of property and equipment................ (2,264) (7,372)
------- --------
Net cash used in investing activities............. (2,264) (7,372)
Cash flows from financing activities:
Proceeds from issuance of common stock............ 134 16,633
------- --------
Net cash provided by financing activities......... 134 16,633
------- --------
Net increase in cash and cash equivalents......... 1,862 12,473
Cash and cash equivalents, beginning of period.... -- 1,862
------- --------
Cash and cash equivalents, end of period.......... $ 1,862 $ 14,335
======= ========
</TABLE>
See accompanying notes.
F-21
<PAGE>
THE PUFFIN GROUP INC.
NOTES TO FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Description of Business
The Puffin Group Inc. ("the Company"), was incorporated under the Ontario
Corporation Act on September 14, 1998. The Company provides Linux-based
computer software development and consulting services.
Use of Estimates
The preparation of the financial statements in conformity with accounting
principles generally accepted in the United States of America requires
management to make estimates and assumptions that affect the reported amounts
of assets and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of revenues
and expenses during the period. Actual results could differ from those
estimates.
Foreign Currency Translation
The financial statements have been translated into US dollars in accordance
with Financial Accounting Standards Board issued SFAS No. 52, Foreign Currency
Translation. Monetary assets and liabilities are translated at the rates of
exchange in effect at the applicable year end. Non-monetary assets and
liabilities are translated at the rates of exchange in effect at the dates of
the transactions. Revenue and expenses are translated at the rates of exchange
in effect during the year except for depreciation which is translated at the
same rate as the asset to which is relates. Gains and losses from translations
are included in earnings in the year in which they occur.
Revenue Recognition
Revenue from fixed price long-term computer software development contracts
is recognized over the contract term based on the percentage of services
provided during the period compared to the total estimated services provided
over the entire contract. Revenue from consulting services is recognized as the
services are provided.
Fair Value of Financial instruments
The carrying values of the Company's financial instruments approximate their
fair value given their short-term nature.
Concentrations of Credit Risk and Significant Customers
Financial instruments that potentially subject the Company to concentrations
of credit risk consist primarily of trade receivables. The Company provides
credit, in the normal course of business, to its customers and performs ongoing
credit evaluations of its customers. As of December 31, 1998 and September 30,
1999, accounts receivable and total revenue were concentrated as follows:
<TABLE>
<CAPTION>
Accounts Total
receivable revenue
---------- -------
<S> <C> <C>
December 31, 1998
Customer A.............................................. $ 3,955 $14,700
------- -------
September 30, 1999
Customer A.............................................. -- 32,100
Customer B.............................................. 40,000 65,635
------- -------
Total................................................... $40,000 $97,735
======= =======
</TABLE>
F-22
<PAGE>
THE PUFFIN GROUP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
Cash and Cash Equivalents
The Company considers all highly liquid investments with an original
maturity of three months or less to be cash equivalents. All cash and cash
equivalents at December 31, 1998 and September 30, 1999 were held with one
financial institution.
Property and Equipment
Property and equipment are stated at cost and are depreciated using the
straight-line method over the estimated useful lives (three to five years) of
the assets. Leasehold improvements are amortized over the corresponding lease
term.
Property and equipment consists of the following at December 31, 1998 and
September 30, 1999:
<TABLE>
<CAPTION>
December 31, September 30,
1998 1999
------------ -------------
<S> <C> <C>
Original cost:
Computer equipment.............................. $2,264 $ 3,217
Furniture and fixtures.......................... -- 5,651
Leasehold improvements.......................... -- 768
------ -------
Total property and equipment.................... 2,264 9,636
Less: accumulated depreciation.................. (377) (1,175)
------ -------
Property and equipment, net..................... $1,887 $ 8,461
====== =======
</TABLE>
Impairment of Long-lived Assets
In accordance with Statement of Financial Accounting Standards (SFAS) No.
121, Accounting for the Impairment of Long-Lived Assets and for Long-lived
Assets to be Disposed Of, the Company reviews long-lived and intangible assets
for impairment whenever events or circumstances indicate the carrying value of
an asset may not be recoverable.
Income Taxes
The Company provides for income taxes based on the liability method, which
requires recognition of deferred tax assets and liabilities based on
differences between financial reporting and tax bases of assets and liabilities
measured using enacted tax rates and laws that are expected to be in effect
when the differences are expected to reverse.
Stock Split
Effective August 31, 1999, the Company completed a 500-for-1 stock split. As
a result of the stock split, outstanding and issued shares increased with the
effect of the stock split accounted for retroactively in these financial
statements. The rights of the holders of these securities were not otherwise
modified.
Impact of Recent Accounting Pronouncements
In March 1998, the AICPA issued Statement of Position (SOP) No. 98-1,
Accounting for the Costs of Computer Software Developed or Obtained for
Internal Use. SOP No. 98-1 requires entities to capitalize certain costs
related to internal-use software once certain criteria have been met. SOP No.
98-1 was adopted by
F-23
<PAGE>
THE PUFFIN GROUP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
the Company in fiscal 1999. The adoption of SOP No. 98-1 did not have a
material impact on the Company's financial position or results of operations.
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133,
Accounting for Derivative Instruments and Hedging Activities. SFAS No. 133
establishes accounting and reporting standards requiring that every derivative
instrument be recorded in the balance sheet as either an asset or liability
measured at its fair value. SFAS No. 133, as recently amended, is effective for
fiscal years beginning after June 15, 2000. Management has not yet determined
the effects of the adoption of SFAS No. 133 on the Company's financial position
or results of operations.
2. Commitments
The Company leases its facilities under operating leases that expire at
various dates through June 30, 2002.
Future minimum operating lease payments as of September 30, 1999 are as
follows:
<TABLE>
<S> <C>
2000............................................................. $ 35,150
2001............................................................. 43,320
2002............................................................. 32,500
--------
Total future minimum lease payments.............................. $110,970
========
</TABLE>
Rent expense for the period to December 31, 1998 and September 30, 1999 was
$0 and $4,652, respectively.
3. Income Taxes
As of September 30, 1999, the Company had federal and provincial net loss
carryforwards of approximately $2,000 which expire in the year ending 2006, if
not utilized.
Significant components of the Company's deferred tax assets for federal and
provincial income taxes as of December 31, 1998 and September 30, 1999 are as
follows:
<TABLE>
<S> <C>
Deferred tax assets:
Net operating loss carryforwards.................................. $ 452
Valuation allowance............................................... (452)
-----
$ --
=====
</TABLE>
4. Segmented information
The Company has adopted SFAS No. 131, Disclosures about Segments of an
Enterprise and Related Information.
The Company operates in one business segment--Linux-based computer software
development and consulting services. This segment engages in business
activities from which it earns Linux-based computer software development and
support revenue and incurs expenses.
The Company has generated all of its revenue from the United States of
America. All of the Company's assets are located in Canada.
F-24
<PAGE>
THE PUFFIN GROUP INC.
NOTES TO FINANCIAL STATEMENTS--(Continued)
5. Uncertainty due to the year 2000 (unaudited)
The Year 2000 Issue arises because many computerized systems use two digits
rather than four to identify a year. Date-sensitive systems may recognize the
year 2000 as 1900 or some other date, resulting in errors when information
using year 2000 dates is processed. In addition, similar problems may arise in
some systems which use certain dates in 1999 to represent something other than
a date. The effects of the Year 2000 Issue may be experienced before, on, or
after January 1, 2000, and, if not addressed, the impact on operations and
financial reporting may range from minor errors to significant systems failure
which could affect an entity's ability to conduct normal business operations.
It is not possible to be certain that all aspects of the Year 2000 Issue
affecting the entity, including those related to the efforts of customers,
suppliers, or other third parties, will be fully resolved.
6. Subsequent event
On October 1, 1999 the Company's shareholders sold 100% of their interest in
the Company to Linuxcare Inc. in exchange for shares of Linuxcare Inc. Upon
completion of the acquisition the Company's name will be changed to Linuxcare
Canada.
F-25
<PAGE>
[LINUXCARE LOGO]
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
Item 13. Other Expenses of Issuance and Distribution
The following table sets forth the costs and expense other than underwriting
discounts and commissions, payable by Linuxcare, Inc. in connection with the
sale of Common Stock being registered. All amounts are estimates except the SEC
registration fee and the NASD filing fee.
<TABLE>
<S> <C>
SEC registration fee................................................ $24,288
NASD filing fee..................................................... 9,700
Nasdaq National Market listing fee.................................. *
Printing and engraving costs........................................ *
Legal fees and expenses............................................. *
Accounting fees and expenses........................................ *
Transfer Agent and Registrar fees................................... *
Miscellaneous expenses.............................................. *
-------
Total............................................................. $ *
=======
</TABLE>
- --------
*To be filed by amendment.
Item 14. Indemnification of Directors and Officers
Section 145 of the Delaware General Corporation Law permits a corporation to
include in its charter documents, and in agreements between the corporation and
its directors and officers, provisions expanding the scope of indemnification
beyond that specifically provided by the current law.
Article 11 of the Registrant's Amended and Restated Certificate of
Incorporation provides for the indemnification of directors to the fullest
extent permissible under Delaware law.
Article 7 Section 7.6 of the Registrant's Bylaws provides for the
indemnification of officers, directors and third parties acting on behalf of
the Registrant if such person acted in good faith and in a manner reasonably
believed to be in and not opposed to the best interest of the Registrant, and,
with respect to any criminal action or proceeding, the indemnified party had no
reason to believe his or her conduct was unlawful.
The Registrant has entered into indemnification agreements with its
directors and executive officers, in addition to indemnification provided for
in the Registrant's Bylaws, and intends to enter into indemnification
agreements with any new directors and executive officers in the future.
Item 15. Recent Sales of Unregistered Securities
Since December 9, 1998, we have issued unregistered securities to a limited
number of persons as described below (all share numbers and exercise prices in
this Item 15 are adjusted for our stock split which occurred in April 1999):
(a) From December 9, 1998 through January 18, 2000, we sold an aggregate of
2,707,062 shares of our common stock at exercise prices ranging from $0.07
to $1.00 per share to employees, consultants, directors and other service
providers pursuant to our 1999 Stock Plan.
(b) On December 14, 1998 we sold 3,000,000 shares of common stock at a price of
$0.001 per share to our founders for an aggregate purchase price of $300.
(c) On December 23, 1998 we sold 529,412 shares of common stock at a price of
$0.001 per share to outside service providers for an aggregate purchase
price of $53.
II-1
<PAGE>
(d) On February 1, 1999 and April 16,1999, we sold 1,318,458 and 2,623,004
shares of Series A preferred stock, respectively, at a price of $0.61625
per share, along with a right to purchase 1,388,889 shares of Series A
preferred stock at a purchase price of $0.61625 per share, to a group of
private investors for an aggregate purchase price of $4,857,852.
(e) On July 27, 1999, we granted a right to purchase shares of Series A
preferred stock at a purchase price of $0.61625 in connection with an
L.O.C. subordinated loan and security agreement.
(f) On September 9, 1999, we issued 34,612 shares of Series A preferred stock
for $0.61625 per share to an outside service provider in consideration for
past services rendered, for an aggregate purchase price of $21,330.
(g) On October 15, 1999, we granted a right to purchase shares of Series A
preferred stock at a purchase price of $0.61625 in connection with an
L.O.C. subordinated loan and security agreement.
(h) On November 15,1999, we issued 100,000 shares of our common stock and a
right to purchase 325,000 shares of common stock at a purchase price of
$0.13 per share in connection with a share exchange agreement.
(i) On November 19, 1999, we granted a right to purchase up to 25,500 shares of
Series B preferred stock for $4.728 per share in connection with a non-
binding term sheet relating to an equipment lease financing.
(j) On December 30, 1999, we granted a right to purchase 25,000 shares of
common stock at a purchase price of $2.00 in connection with a quota
purchase agreement.
(k) On December 17, 1999 and January 18, 2000, we sold 6,870,761 and 211,506
shares of Series B preferred stock, respectively, at a price of $4.728 per
share to a group of private investors for an aggregate purchase price of
$33,484,958.
For additional information concerning these equity investment transactions,
reference is made to the information contained under the caption "Certain
Relationships and Related Transactions" in the form of prospectus included
herein. The sales of the above securities were deemed to be exempt from
registration in reliance on Rule 701 promulgated under Section 3(b) under the
Securities Act as transactions pursuant to a compensatory benefit plan or a
written contract relating to compensation, or in reliance on Section 4(2) of
the Securities Act or Regulation D promulgated thereunder as transactions by an
issuer not involving any public offering. The recipients of securities in each
such transaction represented their intention to acquire the securities for
investment only and not with a view to or for sale in connection with any
distribution thereof and appropriate legends were affixed to the share
certificates and other instruments issued in such transactions. All recipients
either received adequate information about Linuxcare or had access, through
employment or other relationships, to such information.
II-2
<PAGE>
Item 16. Exhibits and Financial Statement Schedules
(a) Exhibits
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1.1 Share Exchange Agreement with Puffin Group, dated October 1, 1999.
2.1.2 Quota Purchase Agreement, dated December 30, 1999.
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
4.1* Form of stock certificates.
4.2 Second Amended and Restated Investors' Rights Agreement, dated
December 17, 1999.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2.1 Master Services Agreement with Amdahl Corporation, dated November 5,
1999.
10.2.2+ Support Training and Certification Agreement with Dell Products, LP,
dated October 22, 1999.
10.2.3+ Master Services Agreement with Hewlett-Packard Company, dated
January 6, 2000.
10.2.4+ Master Services Agreement with Densa Techno Tokyo Co., Ltd., dated
June 1, 1999.
10.2.5 Statement of Work with IBM Global Services, dated October 21, 1999.
10.2.6 Master Outsourcing Agreement with Motorola, dated August 6, 1999.
10.2.7+ Consulting Services Agreement with Macmillan USA, Inc., dated
August 30, 1999.
10.2.8+ Master Services Agreement with NEC Software Ltd., dated June 1, 1999.
10.2.9+ Master Services Agreement with Sun Microsystems, Inc., dated
October 20, 1999.
10.2.10+ Staroffice Support Services Agreement with Sun Microsystems, Inc.,
dated September 24, 1999.
10.3.1 Lease Agreement with Euro Business Center regarding office
accommodations, dated September 17, 1999.
10.3.2 Lease Agreement with Swallowfield Office Services Limited regarding
office occupation, dated November 1, 1999.
10.3.3 Third amendment to lease with ZORO, LLC, dated October 7, 1999.
10.3.4* Lease Agreement for 650 Townsend Street, dated February 11, 1999.
10.4* Amended and Restated 1999 Stock Option Plan and form of agreements
thereunder.
10.5 2000 Employee Stock Purchase Plan.
10.6* 2000 Director Option Plan.
11.1* Statement regarding computation of per share earnings.
12.1* Statements regarding computation of ratios.
15.1* Letter regarding unaudited interim financial information.
21.1* Subsidiaries of the registrant.
23.1.1 Consent of Ernst & Young, LLP, Independent Accountants.
23.1.2 Consent of Ernst & Young, LLP, Independent Accountants.
23.2* Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see signature page).
25.1* Statement of eligibility of trustee.
27.1 Financial Data Schedules.
</TABLE>
- --------
+ Confidential treatment has been requested for certain portions of this
exhibit. The omitted portions have been separately filed with the Commission.
* To be filed by amendment
(b) Financial Statement Schedules
See Exhibit 27.1
Schedules not listed above have been omitted because the information
required to be set forth therein is not applicable or is shown in the financial
statements or notes thereto.
II-3
<PAGE>
Item 17. Undertakings
The undersigned registrant hereby undertakes to provide to the underwriters
at the closing specified in the underwriting agreement certificates in such
denominations and registered in such names as required by the underwriters to
permit prompt delivery to each purchaser.
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
registrant pursuant to the provisions referenced in Item 14 of this
registration statement or otherwise, the registrant has been advised that in
the opinion of the Securities and Exchange Commission such indemnification is
against public policy as expressed in the Securities Act and is, therefore,
unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the registrant of expenses incurred or
paid by a director, officer, or controlling person of the registrant in the
successful defense of any action, suit or proceeding) is asserted by a
director, officer or controlling person in connection with the securities being
registered hereunder, the registrant will, unless in the opinion of its counsel
the matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it is
against public policy as expressed in the Securities Act and will be governed
by the final adjudication of such issue.
The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as part
of this registration statement in reliance upon Rule 430A and contained
in a form of prospectus filed by the registrant pursuant to Rule
424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to
be part of this registration statement as of the time it was declared
effective.
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of
Prospectus shall be deemed to be a new registration statement relating
to the securities offered therein, and the offering of such securities
at that time shall be deemed to be the initial bona fide offering
thereof.
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, as amended, the
registrant has duly caused this Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of San
Francisco, State of California, on the 19th day of January, 2000.
Linuxcare, Inc.
/s/ Fernand Sarrat
By: _________________________________
Fernand Sarrat
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Fernand Sarrat and Christian Paul and each of
them, his attorneys-in-fact, each with the power of substitution, for him and
in his name, place and stead, in any and all capacities, to sign any and all
amendments (including post-effective amendments) to this Registration
Statement, and to sign any registration statement for the same offering covered
by this Registration Statement that is to be effective upon filing pursuant to
Rule 462(b) promulgated under the Securities Act of 1933, as amended, and all
post-effective amendments thereto, and to file the same, with all exhibits
thereto and all documents in connection therewith, with the Securities and
Exchange Commission, granting unto said attorneys-in-fact and agents, and each
of them, full power and authority to do and perform each and every act and
thing requisite and necessary to be done in and about the premises, as fully to
all intents and purposes as he might or could do in person, hereby ratifying
and confirming all that such attorneys-in-fact and agents or any of them, or
his or their substitute or substitutes, may lawfully do or cause to be done by
virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Registration Statement has been signed by the following persons in the
capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<C> <S> <C>
/s/ Fernand Sarrat President and Chief January 19, 2000
_______________________________ Executive Officer and
Fernand Sarrat Director (Principal
Executive Officer)
/s/ Christian Paul- Chief Financial Officer January 19, 2000
_______________________________ (Principal Financial and
Christian Paul Accounting Officer)
/s/ Arthur Tyde III Director January 19, 2000
_______________________________
Arthur Tyde III
/s/ Ted E. Schlein Chairman of the Board of January 19, 2000
_______________________________ Directors
Ted E. Schlein
/s/ Paul Vais Director January 19, 2000
_______________________________
Paul Vais
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
Signature Title Date
--------- ----- ----
<S> <C> <C>
/s/ John Drew Director January 19, 2000
_______________________________
John Drew
/s/ Regis McKenna Director January 19, 2000
_______________________________
Regis McKenna
/s/ Ernest Von Simson Director January 19, 2000
_______________________________
Ernest von Simson
</TABLE>
II-6
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Document
------- -----------------------
<C> <S>
1.1* Form of Underwriting Agreement.
2.1.1 Share Exchange Agreement with Puffin Group, dated October 1, 1999.
2.1.2 Quota Purchase Agreement dated December 30, 1999.
3.1* Amended and Restated Certificate of Incorporation of the Registrant.
3.2* Bylaws of the Registrant.
4.1* Form of stock certificates.
4.2 Second Amended and Restated Investors' Rights Agreement, dated
December 17, 1999.
5.1* Opinion of Wilson Sonsini Goodrich & Rosati, Professional
Corporation.
10.1 Form of Indemnification Agreement between the Registrant and each of
its directors and officers.
10.2.1 Master Services Agreement with Amdahl Corporation, dated November 5,
1999.
10.2.2+ Support Training and Certification Agreement with Dell Products, LP
regarding support services, dated October 22, 1999.
10.2.3+ Master Services Agreement with Hewlett-Packard Company, dated
January 6, 2000.
10.2.4+ Master Services Agreement with Densa Techno Tokyo Co., Ltd., dated
June 1, 1999.
10.2.5 Statement of Work with IBM Global Services, dated October 21, 1999.
10.2.6 Master Outsourcing Agreement with Motorola, dated August 6, 1999.
10.2.7+ Consulting Services Agreement with Macmillan USA, Inc., dated
August 30, 1999.
10.2.8+ Master Services Agreement with NEC Software Ltd., dated June 1, 1999.
10.2.9+ Master Services Agreement with Sun Microsystems, Inc., dated October
20, 1999.
10.2.10+ StarOffice Support Services Agreement with Sun Microsystems, Inc.
dated September 24, 1999.
10.3.1 Lease Agreement with Euro Business Center, dated September 17, 1999.
10.3.2 Lease Agreement with Swallowfield Office Services Limited, dated
November 1, 1999.
10.3.3 Third amendment to lease with ZORO, LLC, dated October 7, 1999.
10.3.4* Lease Agreement for 650 Townsend Street, dated February 11, 1999.
10.4* Amended and Restated 1999 Stock Option Plan and form of agreements
thereunder.
10.5 2000 Employee Stock Purchase Plan.
10.6* 2000 Director Option Plan.
11.1* Statement regarding computation of per share earnings.
12.1* Statements regarding computation of ratios.
15.1* Letter regarding unaudited interim financial information.
21.1* Subsidiaries of the registrant.
23.1.1 Consent of Ernst & Young, LLP, Independent Accountants.
23.1.2 Consent of Ernst & Young, LLP, Independent Accountants.
23.2* Consent of Counsel (see Exhibit 5.1).
24.1 Power of Attorney (see signature page).
25.1* Statement of eligibility of trustee.
27.1 Financial Data Schedules.
</TABLE>
- --------
+ Confidential treatment has been requested for certain portions of this
exhibit. The omitted portions have been separately filed with the Commission.
* To be filed by amendment
<PAGE>
EXHIBIT 2.1.1
SHARE EXCHANGE AGREEMENT
by and among
Linuxcare, Inc.,
Puffin Group Inc.
Christopher Beard
Alex deVries
and
Andrew Hutton
Dated as of October 1, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
ARTICLE I - PURCHASE AND SALE OF COMPANY SHARES AND RIGHTS.................. 2
1.1. Purchase and Sale................................................ 2
1.2. Acquisition Consideration; Exchange Ratio........................ 2
1.3. Closing.......................................................... 3
1.4. Surrender of Company Certificates................................ 4
1.5. Taking of Necessary Action; Further Action....................... 4
ARTICLE II - REPRESENTATIONS AND WARRANTIES OF EACH SHAREHOLDER AND THE
COMPANY....................................................................... 4
2.1. Organization..................................................... 5
2.2. Capital Structure................................................ 5
2.3. Subsidiaries..................................................... 5
2.4. Authority........................................................ 5
2.5. No Conflict...................................................... 6
2.6. Consents......................................................... 6
2.7. Company Financial Statements..................................... 6
2.8. No Undisclosed Liabilities....................................... 6
2.9. Tax Matters...................................................... 7
2.10. Restrictions on Business Activities.............................. 7
2.11. Title to Assets; Absence of Liens................................ 7
2.12. Intellectual Property............................................ 7
2.13. Agreements, Contracts and Commitments............................ 8
2.14. Litigation....................................................... 9
2.15. Minute Books..................................................... 9
2.16. Brokers' and Finders' Fees....................................... 9
2.17. Insurance........................................................ 9
</TABLE>
-i-
<PAGE>
<TABLE>
<S> <C>
2.18. Compliance With Laws............................................. 9
2.19. Complete Copies of Materials..................................... 10
2.20. Securities Exemption Representations............................. 10
2.21. Representations Complete......................................... 11
ARTICLE III - REPRESENTATIONS AND WARRANTIES OF LINUXCARE..................... 11
3.1. Organization and Standing; Articles of Incorporation and Bylaws.. 11
3.2. Corporate Power.................................................. 11
3.3. Subsidiaries..................................................... 12
3.4. Capital Structure................................................ 12
ARTICLE IV - ADDITIONAL AGREEMENTS........................................... 12
4.1. Access to Information............................................ 12
4.2. Expenses......................................................... 13
4.3. Public Disclosure................................................ 13
4.4. Consents and Approvals........................................... 13
4.5. Legal Requirements............................................... 13
4.6. Notification of Certain Matters.................................. 14
4.7. Additional Documents and Further Assurances...................... 14
4.8. Stock Option Agreements and Consideration for Puffin Employees... 14
4.9. Proprietary Information Agreement................................ 16
4.10. Lock-Up Agreement................................................ 16
4.11. Tax Matters...................................................... 16
4.12 Company's Directors and Officers................................. 17
ARTICLE V - CONDITIONS TO THE SHARE EXCHANGE
5.1. Conditions to Obligations of The Company and the Shareholders.... 17
5.2. Conditions to the Obligations of Linuxcare....................... 18
ARTICLE VI - SURVIVAL OF REPRESENTATIONS AND WARRANTIES;
INDEMNITY; ESCROW
6.1. Survival of Representations and Warranties....................... 19
</TABLE>
-ii-
<PAGE>
<TABLE>
<S> <C>
6.2. Agreement to Indemnify........................................... 19
6.3. Termination...................................................... 20
6.4. Effect of Termination............................................ 21
6.5. Amendment........................................................ 21
6.6. Extension; Waiver................................................ 21
ARTICLE VII - GENERAL PROVISIONS............................................ 22
7.1 Notices.......................................................... 22
7.2. Counterparts..................................................... 22
7.3. Entire Agreement; Assignment..................................... 23
7.4. Severability..................................................... 23
7.5. Other Remedies................................................... 23
7.6. Specific Performance............................................. 23
7.7. Arbitration...................................................... 24
7.8. Governing Law; Jurisdiction; Venue............................... 24
7.9. Rules of Construction............................................ 24
</TABLE>
-iii-
<PAGE>
SHARE EXCHANGE AGREEMENT
This SHARE EXCHANGE AGREEMENT (the "Agreement") is made and entered into as of
October 1, 1999 by and among Linuxcare, Inc., a Delaware corporation, The Puffin
Group Inc. ("Puffin" or the "Company"), a Canadian company incorporated under
the laws of the Province of Ontario, and Alex deVries, Christopher Beard, Andrew
Hutton, Christopher J.A. Beard in trust for Wendy Beard, Christopher J.A. Beard
in trust for Joseph Harnick and Christopher J.A. Beard in trust for Ronald Robb,
the six (6) shareholders of the Company (collectively, the "Shareholders").
BACKGROUND
A. The Shareholders own all of the issued shares of capital stock of the
Company in the following numbers and in the following Classes of Shares:
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------
Name Class A Class C Class D Total
Shares Shares Shares
------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Christopher J.A. Beard 245,000 250,000 495,000
------------------------------------------------------------------------------------------
Alex deVries 230,000 225,000 455,000
------------------------------------------------------------------------------------------
Andrew J. Hutton 25,000 25,000 50,000
------------------------------------------------------------------------------------------
Christopher J.A. Beard (in 10,000 10,000
trust for Wendy Beard)
------------------------------------------------------------------------------------------
Christopher J.A. Beard (in 10,000 10,000
trust for Joseph Harnick)
------------------------------------------------------------------------------------------
Christopher J.A. Beard (in 5,000 5,000
trust for Ronald Robb)
------------------------------------------------------------------------------------------
TOTALS 500,000 500,000 25,000 1,025,000
------------------------------------------------------------------------------------------
</TABLE>
B. Linuxcare desires to acquire from the Shareholders, and the Shareholders
desire to sell to Linuxcare, the Company Shares (as defined below) owned by the
Shareholders, in exchange for the consideration specified herein and subject to
the terms and conditions hereof (such transaction is referred to as the "Share
Exchange").
-1-
<PAGE>
NOW, THEREFORE, in consideration of the covenants, promises and
representations set forth herein, and for other good and valuable consideration,
the parties agree as follows:
ARTICLE I
---------
PURCHASE AND SALE OF COMPANY SHARES AND RIGHTS
----------------------------------------------
1.1. Purchase and Sale
-----------------
Subject to the terms and conditions set forth in this Agreement, at the Closing,
Linuxcare shall purchase from the Shareholders, and the Shareholders shall sell,
assign, transfer and deliver to Linuxcare, or cause to be sold, assigned
transferred and delivered, all outstanding shares of Puffin (the "Company
Shares") free and clear of any pledge, lien, security interest, encumbrance,
claim or other equitable or third-party interest (collectively, "Liens"). After
the Closing, Puffin will operate as Linuxcare's wholly-owned Canadian
subsidiary.
1.2. Acquisition Consideration; Exchange Ratio
-----------------------------------------
In reliance on the representations, warranties and covenants of the Shareholders
and of Puffin, and in consideration of the sale, assignment, transfer and
delivery of the Company Shares, Linuxcare shall:
(a) issue to the Shareholders 100,000 shares of Linuxcare's Common Stock
(the "Linuxcare Exchange Shares") ;
(b) deliver to the Shareholders options to purchase 325,000 shares, at an
exercise price of $0.13 per share (U.S.), of Linuxcare's Common Stock,
(the "Share Purchase Options"); and
(c) deliver to the Shareholders the additional consideration as set forth
in Section 4.8 of this Agreement
which said Linuxcare Exchange Shares and Share Purchase Options being, together
with the employment agreements and additional stock options with certain
employees in Section 4.8, called the "Acquisition Consideration".
The Linuxcare Exchange Shares and the Share Purchase Options shall be allocated
to the six (6) Shareholders pro rata to their respective shareholdings in Puffin
as of the Closing (as defined below).
-2-
<PAGE>
As of the date hereof, such Linuxcare Exchange Shares and Share Purchase Options
shall be allocated to the Shareholders as follows:
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
Name Number and Class of Linuxcare Share Purchase
Shares Exchange Shares Options
-------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Christopher J.A. Beard 495,000 Class A and 48,292 156,949
Class C Shares, in
aggregate
-------------------------------------------------------------------------------------------
Alex deVries 455,000 Class A and 44,390 144,267
Class C Shares, in
aggregate
-------------------------------------------------------------------------------------------
Andrew J. Hutton 50,000 Class A and Class 4,878 15,854
D Shares, in aggregate
-------------------------------------------------------------------------------------------
Christopher J.A. Beard (in 10,000 Class D Shares 976 3,172
trust for Wendy Beard)
-------------------------------------------------------------------------------------------
Christopher J.A. Beard (in 10,000 Class D Shares 976 3,172
trust for Joseph Harnick)
-------------------------------------------------------------------------------------------
Christopher J.A. Beard (in 5,000 Class D Shares 488 1,586
trust for Ronald Robb)
-------------------------------------------------------------------------------------------
TOTAL 1,025,000 Shares 100,000 325,000
-------------------------------------------------------------------------------------------
</TABLE>
In the case of Exchange Shares for Christopher Beard (in trust for Wendy Beard,
Joseph Harnick and Ronald Robb), Linuxcare Common Stock shall be registered in
the names of the beneficiaries of such trust, namely, Wendy Beard, Joseph
Harnick and Ronald Robb.
The Share Purchase Options shall vest and become exercisable as set forth in
Section 4.8 of this Agreement.
1.3. Closing
-------
The Closing of the transactions contemplated in this Agreement shall occur at
the offices of Wilson Sonsini Goodrich & Rosati located at 650 Page Mill Road,
Palo Alto, California 94304, at 8:00 a.m., local time, on November, 15, 1999 or
such earlier date as the parties may agree or, if any closing condition has not
been satisfied by such date, then the second business day following the date
such condition is satisfied, or on such other date as the parties hereto shall
agree (the "Closing"). The Share Exchange shall be effected with the delivery
of the Company Certificates (as defined below) by the
-3-
<PAGE>
Shareholders in accordance with Section 1.2, the issue and delivery by Linuxcare
of the Linuxcare Exchange Shares, the Share Purchase Options and the employment
agreements with certain employees in such terms as are set out in accordance
with Section 4.8 hereof.
1.4. Surrender of Company Certificates
---------------------------------
(a) At the Closing, the Shareholders shall deliver or cause to be delivered to
Linuxcare a certificate or certificates and/or any other instrument (the
"Company Certificates") representing all Company Shares owned by the
Shareholders, together with all necessary endorsements, transfers or assignments
required for the valid delivery thereof.
(b) Concurrent with the delivery of the Company Certificates by the
Shareholders, Linuxcare shall deliver to the Shareholders as payment of the
applicable portion of the Acquisition Consideration in accordance with this
Article I, their pro-rata portion of the Linuxcare Exchange Shares in the name
of the Shareholders and the Share Purchase Options.
(c) All shares of Linuxcare Common Stock issued as Linuxcare Exchange Shares in
exchange for Company Shares in accordance with the terms of this Agreement shall
be deemed to be fully paid and non-assessable.
1.5. Taking of Necessary Action; Further Action
------------------------------------------
If at any time after the Share Exchange, any further action is necessary or
desirable to carry out the purposes of this Agreement and to vest Linuxcare with
full right, title and possession to the Company Shares, the officers and
directors of Linuxcare and the Company are hereby fully authorized in the names
of their respective corporations or otherwise to take, and will take, all such
lawful and necessary action.
ARTICLE II
----------
REPRESENTATIONS AND WARRANTIES
------------------------------
OF EACH SHAREHOLDER AND THE COMPANY
-----------------------------------
For purposes of this Agreement, "Company Disclosure Schedule" shall mean the
disclosure schedule attached hereto as Schedule 1 supplied by the Shareholders
and the Company to Linuxcare and certified by the Shareholders and the Company.
-4-
<PAGE>
Each Shareholder and the Company hereby represent and warrant to Linuxcare as
follows:
2.1. Organization
------------
The Company is a corporation duly incorporated and organized, and is validly
existing and up-to-date in the filing of all corporate returns under the laws of
the Province of Ontario and of Canada. The Company has all the corporate power
to own its properties and to carry on its business as now being conducted. The
Company has delivered a true and correct officially certified copy of its
Articles of Incorporation and Shareholder Register, (together, the "Charter"),
to Linuxcare.
2.2. Capital Structure
-----------------
The authorized stated capital of the Company consists of an unlimited number of
First Preferred Shares, of which none are issued and outstanding, an unlimited
number of Class A Shares, of which 500,000 are issued and outstanding, an
unlimited number of Class B Shares, of which none are issued and outstanding, an
unlimited number of Class C Shares, of which 500,000 are issued and outstanding
and an unlimited number of Class D Shares, of which 25,000 are issued and
outstanding. The issued and outstanding Company Shares are held by such
Shareholders and in such numbers as are set out in Paragraph A in the recitals
hereof. All issued and outstanding Company Shares have been duly authorized and
validly issued and are fully paid and nonassessable, and were not issued in
violation of or subject to any preemptive right, or other rights to subscribe
for or purchase shares, and are owned by the Shareholders free and clear of any
Liens. Other than Company Shares owned by the Shareholders, there are no other
outstanding interests, existing or contingent or direct or indirect, in Company
Shares, whether issued or unissued. Immediately following the Closing as
provided in this Agreement, the Company will be a wholly owned subsidiary of
Linuxcare. Except as set forth in Section 2.2 of the Company Disclosure
Schedule, there are no obligations of the Company of any character, written or
oral, to which the Company or any shareholder of the Company is a party.
2.3. Subsidiaries
------------
The Company does not have and has never had any subsidiaries or affiliated
companies and does not otherwise own and has never otherwise owned any shares in
the capital of or any interest in, or control, directly or indirectly, any other
corporation, partnership, association, joint venture or other business entity.
2.4. Authority
---------
The Company will have at the Closing all requisite legal and corporate power and
authority to execute and deliver the Agreement, to transfer the Company Shares
hereunder, and to carry out and perform its obligations under the terms of the
Agreements.
-5-
<PAGE>
2.5. No Conflict
-----------
The execution and delivery of this Agreement by the Company and the Shareholders
does not, and, the consummation of the transactions contemplated hereby and
thereby will not, conflict with, or result in any violation of, or default under
(with or without notice or lapse of time, or both), or give rise to a right of
termination, cancellation, modification or acceleration of any obligation or
loss of any benefit under (any such event, a "Conflict") (i) any provision of
the Charter, (ii) any mortgage, indenture, lease, contract or other agreement or
instrument, permit, concession, franchise or license to which the Company or a
Shareholder is subject, or (iii) any judgment, order, decree, statute, law,
ordinance, rule or regulation applicable to the Shareholders or to the Company
or its properties or assets, other than any such conflicts, violations,
defaults, terminations, cancellations or accelerations which would not have a
material adverse effect on the ability of the Company to consummate the
transactions contemplated hereby and thereby.
2.6. Consents
--------
No consent, waiver, approval, order or authorization of, or registration,
declaration or filing with, any court, administrative agency or commission or
other U.S. or Canadian federal, state, province, county, local or other foreign
governmental authority, instrumentality, agency or commission ("Governmental
Entity") or any third party, including a party to any agreement with the Company
(so as not to trigger any Conflict), is required by or with respect to the
Company in connection with the execution and delivery of this Agreement except
for such consents, waivers, approvals, orders, authorizations, registrations,
declarations and filings (i) as may be required under applicable securities
laws, (ii) as are set forth in Section 2.6 of the Company Disclosure Schedule,
and (iii) such other consents, authorizations, filings, approvals and
registrations which if not obtained or made would not have a material adverse
effect on the ability of the Company to consummate the transactions contemplated
hereby and thereby.
2.7. Company Financial Statements
----------------------------
The Company has provided Linuxcare with financial statements (the "Financial
Statements") that present fairly the financial condition and operating results
of the Company as of the dates and during the periods indicated therein, subject
to ongoing taxes withheld from employees to be remitted to the Government of
Canada and similar amounts to be paid out of assets in the Company at Closing.
2.8. No Undisclosed Liabilities
--------------------------
The Company does not have any liabilities that have not been fully disclosed
either in the Financial Statements or otherwise in writing to Linuxcare.
-6-
<PAGE>
2.9. Tax Matters
-----------
All taxes applicable to the business, assets or property of the Company, at or
prior to the Closing, shall have been paid by the Company or provisions for
payment shall have been made. As of the Closing, no event or circumstance shall
exist which would permit the imposition of any lien or other claim by a taxing
authority against Linuxcare with respect to the business, assets and operations
being transferred hereunder.
2.10. Restrictions on Business Activities
-----------------------------------
There is no agreement (noncompete or otherwise), commitment, judgment,
injunction, order or decree to which the Shareholders, the Company or any of its
employees is a party or otherwise binding upon the Shareholders, the Company or
any of its employees that has or reasonably could be expected to have the effect
of prohibiting or impairing any business practice of the Company or any employee
of the Company, any acquisition of property (tangible or intangible) by the
Company, the conduct of business by the Company or the conduct of any business
activities by the Shareholders or any employee of the Company.
2.11. Title to Assets; Absence of Liens
---------------------------------
The Company has good and marketable title to its assets (the "Assets"),
free and clear of any claim, lien, or encumbrance of any party, other than (i)
the lien of current taxes not yet due and payable, and (ii) possible minor liens
and encumbrances which do not in any case detract from the value of the Assets
subject thereto and which have not arisen other than in the ordinary course of
business. Schedule 2.11 lists all Assets, including a full description of such
Assets, a statement of which Assets are owned and which are licensed, the terms
and payment obligations of any licenses and any software development agreements.
2.12. Intellectual Property
---------------------
(a) The Company owns, or is licensed or is otherwise entitled to exercise all
rights under or with respect to all its Intellectual Property. "Intellectual
Property" shall mean all United States, international and foreign: (i) patents,
patent applications (including provisional applications); (ii) registered
trademarks, applications to register trademarks, intent-to-use applications, or
other registrations or applications related to trademarks; (iii) registered
copyrights and applications for copyright registration; and (iv) any other
Intellectual Property that is the subject of an application, certificate,
filing, registration or other document issued by, filed with, or recorded by,
any state, government or other public legal authority. Schedule 2.12 lists all
rights, material licences, sublicences and other agreements as to which the
Company is a party and pursuant to which the Company or any other person owns or
is licensed or otherwise authorized or obligated with respect to the use
thereof. The Company's obligation hereunder will not
-7-
<PAGE>
be in violation of any licence, sublicence or any other agreement applicable to
it. The Company is the sole and exclusive owner or licensee of all right, title
and interest in and to (free and clear of any liens or encumbrances), its
Intellectual Property and has sole and exclusive rights in respect thereof, and
has full right to transfer these rights as contemplated by this Agreement. Upon
the Closing, Linuxcare will have, through its ownership of the Company Shares,
full right, title and interest in and to Puffin's Intellectual Property.
(b) No claims with respect to the Intellectual Property have been asserted or,
to the best knowledge of the Company and the Shareholders, are likely to be
threatened by any person; nor do the Company or the Shareholders know of any
grounds for any claims with respect to the Intellectual Property that might
reasonably be expected to be made now or in the future (i) to the effect that
any of the Intellectual Property or the operation of the Puffin business
infringes on or misappropriates any Intellectual Property rights in which any
third party has any rights and (ii) challenging the ownership, validity or
effectiveness of any of the Intellectual Property. To the best knowledge of the
Company and of the Shareholders, there is no material unauthorized use,
infringement or misappropriation of any of the Intellectual Property of the
Company by any third party. No Intellectual Property is subject to any
outstanding order, judgment, decree, stipulation or agreement restricting in any
manner the licensing or exploitation thereof.
2.13. Agreements, Contracts and Commitments
-------------------------------------
(a) Except as set forth in Section 2.13 of the Company Disclosure Schedule, the
Company does not have any continuing obligations under and is not a party to or
bound by any oral or written agreements that have not been fully disclosed to
Linuxcare. The Company has not implemented a stock option plan, employee benefit
plan or provided any other similar rights to its employees.
(b) Except as noted in Section 2.13 of the Company Disclosure Schedule, the
Company has not breached, violated or defaulted under, or received notice that
it has breached, violated or defaulted under, any of the material terms or
conditions of (i) any agreement, contract or commitment required to be set forth
in Section 2.13 of the Company Disclosure Schedule, or (ii) any other material
agreement, contract or commitment to which it is a party or by which it is bound
(any such agreement, contract or commitment referenced in the preceding clauses
(i) and (ii), a "Contract"), nor are the Shareholders or the Company aware of
any event that would constitute such a breach, violation or default with the
lapse of time, giving of notice or both. Each Contract is in full force and
effect and, except as otherwise disclosed in Section 2.13 of the Company
Disclosure Schedule, is not subject to any default thereunder, of which the
Shareholders or the Company are aware, by any party obligated to the Company
pursuant thereto. The Company has obtained, or will obtain prior to the Closing
Date, all necessary consents, waivers and approvals of parties to any Contract
as are required thereunder in connection with the Share Exchange.
-8-
<PAGE>
2.14. Litigation
----------
There is no action, suit, claim, proceeding or arbitration of any nature pending
or, to the best knowledge of the Shareholders and the Company, threatened
against the Company or any of its properties or any of its officers, directors
or shareholders in respect of the Company. There is no investigation pending or,
to the best knowledge of the Shareholders and the Company, threatened against
the Company, its properties or any of its officers, directors or shareholders in
respect of the Company by or before any Governmental Entity. No Governmental
Entity has at any time challenged or questioned the legal right of the Company
to manufacture, offer or sell any of its products in the present manner or style
thereof.
2.15. Minute Books
------------
The minute books of the Company made available to Linuxcare or to counsel for
Linuxcare are the only minute books of the Company and contain an accurate
summary of all meetings of directors (and committees thereof) and shareholders
or actions by written consent since the formation of the Company.
2.16. Brokers' and Finders' Fees
--------------------------
The Company 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.
2.17. Insurance
---------
Section 2.17 of the Company Disclosure Schedule lists all insurance policies and
fidelity bonds covering the assets, business, equipment, properties, operations,
employees, officers and directors of the Company. Such insurance policies are
customary for similarly situated companies and are reasonably satisfactory to
ensure the Company against the risks associated with its business. There is no
claim by the Company pending under any of such policies or bonds as to which
coverage has been questioned, denied or disputed by the underwriters of such
policies or bonds. All premiums due and payable under all such policies and
bonds have been paid and the Company is otherwise in material compliance with
the terms of such policies and bonds (or other policies and bonds providing
substantially similar insurance coverage). Neither the Shareholders nor the
Company have any knowledge of any threatened termination of, or material premium
increase with respect to, any of such policies.
2.18. Compliance With Laws
--------------------
The Company has complied in all material respects with, is not in violation in
any material respect of, and has not received any notices of violation with
respect to, any foreign, federal, state, province or local statute, law or
regulation with respect to the conduct of its business, or the ownership or
operation of its business, assets or properties.
-9-
<PAGE>
2.19. Complete Copies of Materials
----------------------------
The Company has delivered to Linuxcare true and complete copies of each
agreement, contract, commitment or other document (or summaries of same) that is
referred to in the Company Disclosure Schedule or that has been requested by
Linuxcare or its counsel.
2.20. Securities Exemption Representations
------------------------------------
(a) Each of the Shareholders has substantial knowledge and experience in
financial and business matters so that each of them is capable of evaluating the
merits and risks of their investment in Linuxcare, has the capacity to protect
their own interests, and has a pre-existing business or close personal
relationship with Linuxcare or one or more of its officers, directors or
controlling persons. The Shareholders have had an opportunity to discuss
Linuxcare's management, business and financial condition with Linuxcare's
management.
(b) The Shareholders acquisition of Linuxcare Common Stock by way of the
Linuxcare Exchange Shares and the Share Purchase Options constitutes a
transaction exempt from the registration requirements of the Securities Act of
1933, as amended (the "Securities Act") under Rule 901 and Rule 903 of
Regulation S thereof. The Shareholders acknowledge that they are not acquiring
Linuxcare's Common Stock for the account or benefit of any U.S. person. The
Shareholders also understand that each may resell Linuxcare's Common Stock only
in accordance with the provisions of Regulation S. All Shares acquired by the
Shareholders shall contain a legend to the effect that transfer is prohibited
except in accordance with Regulation S.
(c) The Shareholders are acquiring the shares of Linuxcare Common Stock by way
of the Linuxcare Exchange Shares and the Share Purchase Options for investment
for their own account, and not as a nominee or agent, and not with the view to,
or for resale in connection with, any distribution thereof. The Shareholders
understand that the shares of Linuxcare Common Stock have not been, and will not
be, registered under the Securities Act by reason of a specific exemption from
the registration provisions of the Securities Act, the availability of which
depends upon, among other things, the bona fide nature of the investment intent
and the accuracy of the Shareholder's representations as expressed herein.
(d) The Shareholders acknowledge that the Shareholders Common Stock must be
held indefinitely unless subsequently registered under the Securities Act or
unless an exemption from such registration is available. The Shareholders are
aware of the provisions of Rule 144 promulgated under the Securities Act which
permit limited resale of securities purchased in a private placement subject to
the satisfaction of certain conditions, including, among other things, the
existence of a public market for the securities, the availability of certain
current public information about Linuxcare, the resale occurring not less than
one year after a party has acquired and given full consideration for the
security to be acquired, the sale being effected through a "broker's
transaction" or in transactions directly with a "market maker" and the number of
securities being sold during any three-month period not exceeding specified
limitations.
-10-
<PAGE>
(e) The Shareholders acknowledge that the securities of Linuxcare offered
hereby have not been registered under the Securities Act and may only be
offered, sold, pledged or otherwise transferred pursuant to an effective
registration statement as to the securities under the Securities Act or an
opinion of counsel satisfactory to Linuxcare that registration under the
Securities Act is not required. Linuxcare agrees to cause the Linuxcare Common
Stock acquired under the Exchange Shares and the Share Purchase Options to be
qualified for trading in the public markets, without the restrictions set out in
this section 2.20, as soon as such qualification is attained for any other
shareholder or for any officer or director of Linuxcare.
2.21. Representations Complete
------------------------
None of the representations or warranties made in this Article II (as modified
by the Company Disclosure Schedule), nor any statement made in any schedule or
certificate furnished by the Company or the Shareholders pursuant to this
Agreement contains, as of the date hereof, any untrue statement of a material
fact, or omits, as of the date hereof, to state any material fact necessary in
order to make the statements contained herein or therein, in the light of the
circumstances under which made, not misleading. There is no event, fact or
condition that materially and adversely affects the business, assets, financial
condition or results of operations of the Company, or that reasonably could be
expected to do so, that has not been set forth in this Agreement or in the
Company Disclosure Schedule.
ARTICLE III
-----------
REPRESENTATIONS AND WARRANTIES OF LINUXCARE
-------------------------------------------
Except as disclosed in the Linuxcare Disclosure Schedule attached hereto as
Schedule 2, Linuxcare represents and warrants to Shareholder and the Company as
follows:
3.1. Organization and Standing; Articles of Incorporation and Bylaws
---------------------------------------------------------------
Linuxcare is a corporation duly organized and validly existing under, and by
virtue of, the laws of the State of California and is in good standing under
such laws. Linuxcare has the requisite corporate power and authority to own and
operate its properties and assets, and to carry on its business as presently
conducted and as proposed to be conducted. Linuxcare will deliver to the
Shareholders and their counsel at Closing true and correct officially certified
copies of its Articles of Incorporation, as amended, and Bylaws, as amended.
3.2. Corporate Power
---------------
Linuxcare will have at the Closing all requisite legal and corporate power and
authority to execute and deliver the Agreements, to sell and issue the Common
Shares hereunder, and to carry out and perform its obligations under the terms
of the Agreements.
-11-
<PAGE>
3.3. Subsidiaries
------------
Except as set forth in Section 3.3 of the Linuxcare Disclosure Schedule,
Linuxcare has no subsidiaries or affiliated companies and does not otherwise own
or control, directly or indirectly, any equity interest in any corporation,
association or business entity. Linuxcare is not a participant in any joint
venture, partnership or similar arrangement.
3.4. Capital Structure
-----------------
As of the Closing, the authorized capital stock of Linuxcare will consist
of (i) 28,000,000 shares of common stock ("Common Stock"), of which 8,755,018
shares are currently issued and outstanding, and (ii) 10,695,314 Series A
preferred stock ("Series A Preferred Stock), of which 7,917,536 shares are
currently issued and outstanding. All such Common Stock and Series A Preferred
Stock will as of the Closing have been duly authorized, and all such issued and
outstanding shares shall have been validly issued, fully paid and non-assessable
and free of any liens or encumbrances other than any liens or encumbrances
created by or imposed upon the holders thereof, and shall have been issued in
compliance with all applicable state and federal laws concerning the issuance of
securities. Linuxcare has also reserved __________ shares of Common Stock for
issuance to employees, directors and consultants pursuant to Linuxcare's 1995
Stock Option Plan, as amended and restated, of which options covering __________
shares of Common Stock are currently outstanding. Other than as set out herein,
there are no other outstanding options, agreements or promises to issue shares
of Linuxcare's capital stock.
3.5. Financial Statements
--------------------
Linuxcare has delivered to the Company Linuxcare's financial statements since
the date of its inception. The financial statements accurately set out and
describe the financial condition and operating results of Linuxcare as of the
respective dates and for the respective periods indicated.
ARTICLE IV
----------
ADDITIONAL AGREEMENTS
---------------------
4.1. Access to Information
---------------------
The Company shall afford Linuxcare and its accountants, counsel and other
representatives (collectively, the "Representatives") reasonable access during
normal business hours upon reasonable notice during the period prior to the
Closing to all of the properties, books, contracts, commitments, records and all
other information concerning the business, properties and personnel (subject to
restrictions imposed by applicable law) of the Company as Linuxcare may
reasonably request, including without limitation
-12-
<PAGE>
access upon reasonable request to employees, customers and vendors of the
Company for due diligence inquiry. The Company shall provide to Linuxcare and
its Representatives copies of internal financial statements, business plans and
projections promptly upon request. No information or knowledge obtained in any
investigation pursuant to this Section 4.1 shall affect or be deemed to modify
any representation or warranty contained herein or the conditions to the
obligations of the parties to consummate the transactions contemplated hereby.
4.2. Expenses
--------
All fees and expenses incurred in connection with the Share Exchange,
including all legal, accounting, financial, advisory, consulting and all other
fees and expenses of third parties incurred by a party in connection with the
negotiation of the terms and conditions of this Agreement and the consummation
of the transactions contemplated hereby ("Third Party Expenses"), shall be the
obligation of the respective party incurring such fees and expenses.
Notwithstanding the foregoing, Linuxcare agrees that after the Share Exchange it
will pay or cause the Company to pay legal and accounting Third Party Expenses
of the Company up to an aggregate amount of $7,500 (US); provided, however, that
to the extent such expenses exceed $7,500 (US), they shall be borne by the
Shareholders.
4.3. Public Disclosure
-----------------
Upon execution and delivery of this Agreement by the parties hereto, if not
already publicly announced and if Linuxcare so elects, Linuxcare and the Company
shall release a jointly prepared announcement describing the Share Exchange.
Except as aforesaid, prior to the Closing no disclosure (whether or not in
response to an inquiry) of the subject matter of this Agreement shall be made by
any party hereto unless approved by Linuxcare and by the Company prior to
release.
4.4. Consents and Approvals
----------------------
Linuxcare and the Company shall promptly apply for or otherwise seek, and
use their respective best efforts to obtain, all consents and approvals required
to be obtained by it for the consummation of the Share Exchange, and the Company
shall use its best efforts to obtain all consents, waivers and approvals under
any of the Company's agreements, contracts, licenses or leases in order to
preserve its rights and benefits thereunder.
4.5. Legal Requirements
------------------
Subject to the terms and conditions provided in this Agreement, each of the
parties hereto shall use its reasonable best efforts to take promptly, or cause
to be taken, all reasonable actions, and to do promptly, or cause to be done,
all things necessary, proper or advisable under applicable laws and regulations
to
-13-
<PAGE>
(i) consummate and make effective the transactions contemplated hereby, (ii) to
obtain all necessary waivers, consents and approvals and to effect all necessary
registrations and filings and, (iii) 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.
4.6. Notification of Certain Matters
-------------------------------
The Company and the Shareholders shall give prompt notice to Linuxcare, and
Linuxcare shall give prompt notice to the Company and the Shareholders, of (i)
the occurrence or non-occurrence of any event, the occurrence or non-occurrence
of which may cause any representation or warranty of the Shareholders, the
Company or Linuxcare, respectively, contained in this Agreement to be untrue or
inaccurate at the Closing and (ii) any failure of Linuxcare, the Company and the
Shareholders, as the case may be, to comply with or satisfy any covenant,
condition or agreement to be complied with or satisfied by it or them hereunder;
provided, however, that the delivery of any notice pursuant to this Section 4.6
shall not limit or otherwise affect any remedies available to the party
receiving such notice.
4.7. 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 completely the
consummation of this Agreement and the transactions contemplated hereby.
4.8. Stock Option Agreements and Consideration for Puffin Employees
--------------------------------------------------------------
Linuxcare and the Shareholders and certain other Puffin employee's shall enter
into the following stock option agreements and employment agreements, all of
which constitutes consideration, in addition to the Acquisition Consideration
referred to in Section 1.2 hereof:
(a) Share Purchase Options - Shareholders shall receive such Share Purchase
----------------------
Options as are referred to and identified in Section 1.2. The Linuxcare Common
Stock shall vest in the Shareholders as follows:
(i) in the case of each of Christopher Beard and Alex de Vries, over a 3
year period commencing on October 1, 1999 at the rate of 1/36 each
month, provided that, if Christopher Beard or Alex de Vries shall quit
their employment with the Company or with Linuxcare prior to the lapse
of the 36 month period, the unvested portion of such number of
Linuxcare Common Stock for that terminated employee shall be canceled.
If employment shall be terminated by the Company or by Linuxcare
without just cause, the
-14-
<PAGE>
unvested portion of such number of Linuxcare Common Stock shall
immediately accelerate and Linuxcare Share Certificates shall be
delivered to Christopher Beard or Alex de Vries, as the case may be,
whose employment shall have been so terminated.
(ii) in the case of Andrew Hutton and Christopher J. A. Beard (in trust for
Wendy Beard, Joseph Harnick, and Ronald Robb), the Linuxcare Common
Stock under the Share Purchase Option shall vest on Closing and
Linuxcare Share Certificates shall be delivered to Andrew Hutton and
to each of the beneficial owners personally in their own name on or
following Closing upon delivery of the exercise price to Linuxcare.
All Linuxcare Common Stock acquired under the Share Purchase Options shall have
an exercise price of $0.13 (U.S.) per share and may be exercised at any time.
(b) Stock Option Agreements - In addition to the Share Purchase Options set
-----------------------
forth in subparagraph (a) immediately above, Linuxcare shall enter into the
following stock option agreements (the "Stock Option Agreements") on the
closing:
(i) for each of Christopher Beard and Alex deVries for 10,000 Linuxcare
Common Stock; and
(ii) for each of David Kennedy and Debra Richardson for 5,000 Linuxcare
Common Stock.
These stock options shall be part of the standard Linuxcare employment
agreements for each of Christopher Beard, Alex de Vries, David Kennedy and Debra
Richardson. These stock options shall vest at the rate of 25% in the first year
of employment and thereafter the remaining shares shall vest over 3 years at the
rate of 1/36 per month. The exercise price for each Linuxcare Common Shares
under these Stock Option Agreements shall be $0.13 (US). These employees will be
eligible for additional stock options for satisfactory performance from time to
time.
(c) Employment Agreements and Bonus - Christopher Beard, Alex de Vries,
-------------------------------
David Kennedy and Debra Richardson shall be employees of Puffin, Linuxcare's
Canadian wholly-owned subsidiary. Employment Agreements shall be entered into
for each of these employees in accordance with Linuxcare's standard Employment
Agreements. Except with the consent of these employees, their place of
employment shall be in Ottawa, Canada. The starting salaries shall be $100,000
(Cdn.) for each of Christopher Beard and Alex de Vries and $47,500 (Cdn.) for
each of David Kennedy and Debra Richardson.
-15-
<PAGE>
Christopher Beard and Alex de Vries will be entitled to a discretionary
bonus in each year of 25% of his base salary subject to the approval of
Linuxcare's Board of Directors. Similarly other employees may receive a bonus of
up to 25% of his or her base salary. Such bonus will be paid for satisfactory
performance and be subject to the discretion of Linuxcare's Board of Directors.
Christopher Beard and Alex deVries' bonuses, however, shall be contingent upon
both of them continuing their employment with Puffin.
In addition to all other bonuses and compensation, Christopher Beard and
Alex de Vries shall each be paid a non-refundable signing bonus of $15,000.00
(US) on the Closing of this Share Exchange.
4.9. Proprietary Information Agreement
---------------------------------
The Company shall cause each of its employees to execute and deliver Linuxcare's
standard form proprietary information and confidentiality agreement on or prior
to the Closing.
4.10. Lock-Up Agreement
-----------------
Each Shareholder hereby agrees that if so requested by Linuxcare and/or the
representative for any underwriter selected by Linuxcare, Shareholder shall not
sell or otherwise transfer any Common Stock or other securities of Linuxcare for
a period specified by the Company or the underwriter's representative not to
exceed one hundred eighty (180) days following the effective date of a
Registration Statement of Linuxcare filed under the Securities Act; provided
that (a) such agreement shall apply only to Linuxcare's initial public offering
and the next underwritten registration, and (b) all officers and directors of
Linuxcare shall have entered into similar agreements with respect to such
offering. Each Shareholder hereby agrees that in connection with such
agreement, Linuxcare may issue stop transfer orders to the transfer agent for
Linuxcare with respect to the shares held by Shareholder for such period.
4.11. Tax Matters
-----------
Linuxcare shall cause the Company to prepare and file income tax returns of the
Company required to be filed after the Closing and the Shareholders shall be
responsible for the payment of all taxes of the Company for any taxable period
ending on or prior to the Closing, whenever incurred or assessed. Such tax
returns shall be made available to a designated representative of the
Shareholders no less than 21 calendar days prior to the filing thereof for
review by such representative. From and after the date hereof, the Company and
the Shareholders shall make available to Linuxcare, as reasonably requested, all
information, records or documents relating to the tax liabilities of the Company
for all periods ending on or prior to the date hereof, and will preserve such
information, records or documents until the expiration of any applicable statute
of limitations or extensions thereof.
-16-
<PAGE>
4.12 Company's Directors and Officers
--------------------------------
Linuxcare shall cause the Company to appoint its directors and officers after
the Closing and to file such corporate information with the government of the
Province of Ontario.
ARTICLE V
---------
CONDITIONS TO THE SHARE EXCHANGE
--------------------------------
5.1. Conditions to Obligations of The Company and the Shareholders
-------------------------------------------------------------
The obligations of the Company and the Shareholders to consummate and put into
effect this Agreement and 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, by the Company and the
Shareholders:
(a) The representations and warranties of Linuxcare in this Agreement shall be
true and correct in all material respects (except for representations and
warranties already subject to a materiality qualifier which shall be true and
correct in all respects) on and as of the Closing as though such representations
and warranties were made on and as of such time; Linuxcare shall have performed
and complied in all material respects with all covenants, obligations and
conditions of this Agreement required to be performed and complied with by it as
of the Closing; and the Company and the Shareholders shall have been provided
with a certificate, dated the Closing and executed on behalf of Linuxcare by its
President or any Vice President to such effect.
(b) There shall not be in effect any order of a court of competent jurisdiction
preventing consummation of the Share Exchange, nor shall there have been taken
any action, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Share Exchange by a Governmental Entity that
makes consummation of the Share Exchange illegal.
(c) The form of closing documents and other documents delivered hereunder shall
be reasonably acceptable to the counsel for the Company and the Shareholders.
(d) Linuxcare shall have delivered the Acquisition Consideration subject to,
and in accordance with, the terms of this Agreement.
-17-
<PAGE>
5.2. Conditions to the Obligations of Linuxcare
------------------------------------------
The obligations of Linuxcare to consummate and put into effect this Agreement
and 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, by Linuxcare:
(a) The representations and warranties of the Shareholders and the Company in
this Agreement shall be true and correct in all material respects (except for
representations and warranties already subject to a materiality qualifier which
shall be true and correct in all respects) on and as of the Closing as though
such representations and warranties were made on and as of such time; the
Company and the Shareholders shall have performed and complied in all material
respects with all covenants, obligations and conditions of this Agreement
required to be performed and complied with by it as of the Closing; and
Linuxcare shall have been provided with a certificate, dated the Closing and
executed on behalf of the Company by its President and by the Shareholders to
such effect.
(b) All consents, waivers, and approvals listed on the Company Disclosure
Schedule or as otherwise may be required to be obtained in order to enable the
Company to continue to enjoy all of its material rights and benefits following
consummation of the Share Exchange shall have been obtained.
(c) There shall not be in effect any order of a court of competent jurisdiction
preventing consummation of the Share Exchange, nor shall there have been taken
any action, or any statute, rule, regulation or order enacted, promulgated or
issued or deemed applicable to the Share Exchange by a Governmental Entity that
makes consummation of the Share Exchange illegal.
(d) No action, suit, claim or proceeding of any nature shall be pending or
threatened against the Company, its properties or any of its officers or
directors, arising out of, in any way connected with, or seeking to prevent the
Share Exchange or the other transactions contemplated by the terms of this
Agreement.
(e) Linuxcare and the relevant Puffin employees shall have entered into the
Share Purchase Option Agreements, Stock Option Agreements, and Employment
Agreements as contemplated in Section 4.8 of this Agreement.
(f) The Shareholders shall have transferred and delivered to Linuxcare the
Certificates representing all issued and outstanding Company Shares.
-18-
<PAGE>
(g) All key contracts of the Company shall be in a form and substance
satisfactory to Linuxcare and its counsel. All existing employment contracts or
arrangements between the Company and each of its executive officers shall have
been terminated in accordance with all applicable notice provisions and legal
requirements and new employment agreements in the terms as set out in Section
4.8 shall have been signed by the Company and its executive officers.
(h) On or prior to the Closing of the Share Exchange, Linuxcare shall be
satisfied in the course of its due diligence investigation that the business and
financial condition (including without limitation ownership and sufficiency of
intellectual property) of the Company are acceptable and satisfactory to
Linuxcare.
(i) All regulatory approvals which are, in Linuxcare's judgment, necessary or
desirable shall have been obtained to Linuxcare's satisfaction.
(j) The form of all closing documents and other papers delivered hereunder
shall be reasonably acceptable to the counsel of Linuxcare.
ARTICLE VI
----------
SURVIVAL OF REPRESENTATIONS AND
-------------------------------
WARRANTIES; INDEMNITY; ESCROW
-----------------------------
6.1. Survival of Representations and Warranties
------------------------------------------
All of the Company's and the Shareholders' representations and warranties and
Linuxcare's representations and warranties in this Agreement or in any
instrument delivered pursuant to this Agreement (each as modified by the Company
Disclosure Schedule) shall survive the Closing and continue until 5:00 p.m.,
California time, on the date which is two (2) years following the Closing.
6.2. Agreement to Indemnify
----------------------
(a) The Shareholders, jointly and severally, agree to indemnify and hold
Linuxcare and its affiliates, officers, directors, employees and shareholders
harmless against any losses, claims, damages, costs, expenses or other
liabilities (including reasonable attorneys' fees and expenses) resulting from
(i) any breach of or inaccuracy in any representations and warranties of the
Company or the Shareholders set forth in this Agreement, (ii) any breach or
default by the Company or the Shareholders of any covenant, obligation or other
agreement of the Company or the Shareholders under this Agreement. This
-19-
<PAGE>
indemnification shall survive the Share Exchange for a period ending on the date
two (2) years from the Exchange Date.
(b) Linuxcare agrees to indemnify and hold the Company and its affiliates,
officers, directors and employees and the Shareholders harmless against any
losses, claims, damages, costs, expenses or other liabilities (including
reasonable attorneys' fees and expenses) resulting from (i) any breach of or
inaccuracy in any representations and warranties of Linuxcare set forth in this
Agreement, (ii) any breach or default by Linuxcare of any covenant, obligation
or other agreement of Linuxcare under this Agreement. This indemnification shall
survive the Share Exchange for a period ending on the date two (2) years from
the Exchange Date.
6.3. Termination
-----------
This Agreement may be terminated at any time prior to the Exchange Date:
(a) by mutual consent of all the parties hereto; or
(b) by any party hereto if the Closing of the Share Exchange has not occurred
by November 15, 1999 other than due to the failure of the party seeking to
terminate this Agreement to perform its obligations under this Agreement which
are required to be performed at or prior to the Exchange Date; or
(c) by Linuxcare if there shall be an order of a court of competent
jurisdiction in effect preventing consummation of the Share Exchange; or there
shall be any action taken, or any statute, rule, regulation or order enacted,
promulgated or issued or deemed applicable to the Share Exchange by any
Governmental Entity which would (i) make the consummation of the Share Exchange
illegal; (ii) prohibit ownership or operation by Linuxcare or the Company of all
or a material portion of the business of the Company; or (iii) compel Linuxcare
or the Company to dispose of all or a material portion of the business or assets
of Linuxcare or the Company as a result of the Share Exchange; or
(d) by Linuxcare if it is not in material breach of its obligations under this
Agreement and there has been a material breach of any material representation,
warranty, covenant or agreement contained in this Agreement on the part of the
Company or the Shareholders, as the case may be, provided that, if such breach
is curable by the Company or the Shareholders, as the case may be, within
fifteen (15) days through the exercise of its reasonable best efforts, then for
so long as the Company or the Shareholders, as the case may be, continues to
exercise such reasonable best efforts Linuxcare may
-20-
<PAGE>
not terminate this Agreement under this Section 6.3(d) unless such breach is not
cured within such fifteen (15) day period; or
(e) by the Company or the Shareholders, as the case may be, if they are not in
material breach of their obligations under this Agreement and there has been a
material breach of any material representation, warranty, covenant or agreement
contained in this Agreement on the part of Linuxcare, provided that, if such
breach is curable by Linuxcare within fifteen (15) days through the exercise of
its reasonable best efforts, then for so long as Linuxcare continues to exercise
such reasonable best efforts the Company or the Shareholders, as the case may
be, may not terminate this Agreement under this Section 6.3(e) unless such
breach is not cured within such fifteen (15) day period.
6.4. Effect of Termination
---------------------
In the event of termination of this Agreement as provided in Section 6.4, this
Agreement shall forthwith become void and there shall be no liability or
obligation on the part of Linuxcare, the Company or the Shareholders or their
respective officers, directors or shareholders; provided, however, that each
party shall remain liable for any breaches of this Agreement prior to its
termination; and provided further that the provisions of Sections 4.2 and 4.3
and Articles VI and VII of this Agreement shall remain in full force and effect
and survive any termination of this Agreement.
6.5. Amendment
---------
This Agreement may be amended by the parties hereto at any time by execution of
an instrument in writing signed by or on behalf of each of the parties hereto.
6.6. Extension; Waiver
-----------------
At any time prior to the Closing, Linuxcare, on the one hand, and the
Shareholders and the Company on the other, may, to the extent legally allowed,
(a) extend the time for the performance of any of the obligations of the other
party hereto, (b) waive any inaccuracies in the representations and warranties
made to such party contained herein or in any document delivered pursuant
hereto, and (c) 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.
-21-
<PAGE>
ARTICLE VII
-----------
GENERAL PROVISIONS
------------------
7.1. Notices
-------
All notices and other communications required or permitted hereunder shall be in
writing and shall be delivered by hand or delivered by overnight courier,
freight prepaid, 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):
if to Linuxcare, to: Attn: Jonathan Levy
Wilson Sonsini Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, California 94304-1050
Facsimile No.: (650) 493-6811
if to the Company, to: Puffin Group, Inc.
Attn: Christopher Beard
41 1/2 William Street, 2/nd/ Floor,
Ottawa ON K1N 6Z9
Facsimile No.: (613) 562-9304
with a copy to: Attn: William Johnson
Borden Elliot Scott & Aylen
1000-60 Rue Queen Street
Ottawa, Canada K1P 5Y7
Facsimile No.: (613) 230-8842
Each such notice or other communication shall for all purposes of this Agreement
be treated as effective when received, and shall in any event be deemed to have
been received (i) when delivered, if delivered personally or sent by telecopy
and confirmed in writing or (ii) two (2) business days after the business day of
deposit with overnight courier, addressed and shipped as aforesaid.
7.2. 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
-22-
<PAGE>
of the parties and delivered to the other party, it being understood that all
parties need not sign the same counterpart.
7.3. Entire Agreement; Assignment
----------------------------
This Agreement, the schedules and exhibits hereto, and the documents and
instruments and other agreements among the parties hereto referenced herein:
(a) 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; (b) are not intended to confer upon any other person any rights or
remedies hereunder; and (c) shall not be assigned, by operation of law or
otherwise, except as otherwise specifically provided and except that Linuxcare
may assign its rights and delegate its obligations hereunder to any wholly owned
subsidiary, direct or indirect, of Linuxcare, and to any party that acquires the
Company or all or substantially all of its assets from Linuxcare or its
subsidiaries.
7.4. 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.
7.5. Other Remedies
--------------
Except as otherwise provided herein, 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.
7.6. Specific Performance
--------------------
The parties hereto acknowledge that damages would be an inadequate remedy for
any breach of the provisions of this Agreement and agree that the obligations of
the parties hereunder shall be specifically enforceable.
-23-
<PAGE>
7.7. Arbitration
-----------
If any dispute arises with respect to this Agreement, then any party (the
"Demanding Party") may demand, by written notice to each other party to the
dispute (collectively, the "Responding Party"), that such issue shall be settled
by binding arbitration to be held in San Francisco, California (an "Arbitration
Demand"). All claims shall be settled by three arbitrators in accordance with
the Commercial Arbitration Rules then in effect of the American Arbitration
Association. The Demanding Party and the Responding Party shall each designate
one (1) arbitrator within fifteen (15) calendar days after the delivery of the
Arbitration Demand. Such designated arbitrators shall mutually agree upon and
shall designate a third arbitrator. The final decision of a majority of the
arbitrators shall be furnished to Demanding Party and the Responding Party in
writing and shall constitute a conclusive determination of the issue in
question, binding upon all parties and shall not be contested by any of them.
The non-prevailing party shall bear all costs and expenses associated with such
arbitration, including all arbitrators' fees and attorneys' fees.
7.8. Governing Law; Jurisdiction; Venue
----------------------------------
This Agreement shall be governed by and construed in accordance with the laws of
the State of California, without regard to applicable principles of conflicts of
laws thereof.
7.9. Rules of Construction
---------------------
The parties hereto agree that they have been represented by counsel during the
negotiation and execution of this Agreement and, therefore, 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.
IN WITNESS WHEREOF, each party hereto has caused this Share Purchase
Agreement to be duly executed on its behalf, all as of the date first written
above.
THE PUFFIN GROUP INC.
Per: /s/ Christopher J.A. Beard
------------------------
Name: Christopher J.A. Beard
Title: President
-24-
<PAGE>
/s/ CHRISTOPHER J.A. BEARD
---------------------------------
CHRISTOPHER J.A. BEARD
/s/ ALEX DeVRIES
---------------------------------
ALEX DeVRIES
/s/ ANDREW HUTTON
---------------------------------
ANDREW HUTTON
/s/ CHRISTOPHER J.A. BEARD
---------------------------------
CHRISTOPHER J.A. BEARD
(IN TRUST FOR WENDY BEARD)
/s/ CHRISTOPHER J.A. BEARD
---------------------------------
CHRISTOPHER J.A. BEARD
(IN TRUST FOR JOSEPH HARNICK)
/s/ CHRISTOPHER J.A. BEARD
---------------------------------
CHRISTOPHER J.A. BEARD
(IN TRUST FOR RONALD ROBB)
-25-
<PAGE>
LINUXCARE, INC.
Per:
Name: Anthony Pollace
Title: CFO
/S/ A. Pollace
---------------------------
ANTHONY POLLACE
<PAGE>
SCHEDULE 1
COMPANY DISCLOSURE SCHEDULE
(PRESCRIBED UNDER ARTICLE II, SHARE EXCHANGE AGREEMENT)
2.2 - SHARE ISSUE RIGHTS
2.6 - CONSENTS, WAIVERS, APPROVALS, ETC.
2.11 - COMPANY ASSETS
2.12 - INTELLECTUAL PROPERTY
2.13 - AGREEMENTS, CONTRACTS AND COMMITMENTS
2.17 - INSURANCE
<PAGE>
SCHEDULE 2
LINUXCARE DISCLOSURE SCHEDULE
(PRESCRIBED UNDER ARTICLE III, SHARE EXCHANGE AGREEMENT)
3.3 - SUBSIDIARIES
<PAGE>
EXHIBIT 2.1.2
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
QUOTA PURCHASE AGREEMENT
between
LINUXCARE INC.,
and
Davide Barbieri, Paolo Didone, Alessio Gianelle, Fabrizio Polacco, and
Alessandro Rubini
As of December 30, 1999
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1 PURCHASE AND SALE OF SHARES ....................................................... 1
1.1 Transfer of Shares................................................................ 1
------------------
1.2 Instruments of Conveyance and Transfer; Sales and Use Tax; Delivery............... 2
-------------------------------------------------------------------
1.3 Further Assurances................................................................ 2
------------------
1.4 Consideration for Transfer of the Assets.......................................... 2
----------------------------------------
1.5 Liabilities Not Assumed........................................................... 2
-----------------------
1.6 Accounts Receivable
-------------------
SECTION 2 CLOSING DATE....................................................................... 3
SECTION 3 REPRESENTATIONS AND WARRANTIES OF THE SELLER AND THE
SHAREHOLDERS............................................................................ 3
3.1 Organization, Authorization, Shareholders......................................... 3
-----------------------------------------
3.2 Capitalization.................................................................... 3
--------------
3.3 Financial Statements.............................................................. 3
--------------------
3.4 Compliance With Law............................................................... 4
-------------------
3.5 Legal Proceedings, etc............................................................ 4
----------------------
3.6 Agreements........................................................................ 4
----------
3.7 Authorization..................................................................... 4
-------------
3.8 Governmental Authorization........................................................ 4
--------------------------
3.9 Title to Assets................................................................... 5
---------------
3.10 Absence of Conflicts.............................................................. 5
--------------------
3.11 Taxes............................................................................. 5
-----
3.12 Intellectual Property............................................................. 5
---------------------
3.13 Year 2000 Compliance.............................................................. 6
--------------------
3.14 Acquisition of Shares for Investment; Ability to Evaluate and Bear Risk........... 6
-----------------------------------------------------------------------
3.15 Further Limitations on Disposition................................................ 7
----------------------------------
SECTION 4 REPRESENTATIONS AND WARRANTIES OF BUYER............................................ 8
4.1 Authorization..................................................................... 8
-------------
4.2 Financial Statements.............................................................. 8
--------------------
SECTION 5 CONDITIONS TO CLOSING.............................................................. 8
5.1 Buyer's Conditions to Closing..................................................... 8
-----------------------------
5.2 Seller's Conditions to Closing.................................................... 9
------------------------------
SECTION 6 COVENANTS.......................................................................... 9
6.1 Cooperation....................................................................... 9
-----------
6.2 Legend............................................................................ 9
------
6.3 Covenant Not to Compete........................................................... 9
-----------------------
</TABLE>
-i-
<PAGE>
TABLE OF CONTENTS
(continued)
<TABLE>
<CAPTION>
Page
----
<S> <C>
6.4 No Shop Provision............................................................... 10
-----------------
6.5 Public Disclosure............................................................... 10
-----------------
SECTION 7 INDEMNIFICATION.................................................................. 10
7.1 Seller Indemnity of Buyer....................................................... 10
-------------------------
7.2 Notice to Indemnifying Party.................................................... 11
----------------------------
7.3 Defense by Indemnifying Party................................................... 11
-----------------------------
7.4 Further Assurances.............................................................. 11
------------------
SECTION 8 ASSIGNMENT AND RELEASE........................................................... 12
8.1 Assignment of Rights............................................................ 12
--------------------
8.2 Release of Claims by the Shareholders........................................... 12
-------------------------------------
SECTION 9 MISCELLANEOUS.................................................................... 12
9.1 Governing Law................................................................... 12
-------------
9.2 Survival........................................................................ 13
--------
9.3 Successors and Assigns.......................................................... 13
----------------------
9.4 Entire Agreement; Amendment..................................................... 13
---------------------------
9.5 Notices......................................................................... 13
-------
9.6 Delays or Omissions............................................................. 13
-------------------
9.7 Counterparts.................................................................... 13
------------
9.8 Severability.................................................................... 13
------------
9.9 Titles and Subtitles............................................................ 13
--------------------
9.10 Expenses........................................................................ 14
--------
9.11 Arbitration..................................................................... 14
-----------
9.12 Various Provisions.............................................................. 15
------------------
</TABLE>
-ii-
<PAGE>
EXHIBIT 2.1.2
QUOTA PURCHASE AGREEMENT
------------------------
THIS QUOTA PURCHASE AGREEMENT (the "Agreement") is entered into as of this 30th
day of December, 1999, by and among Davide Barbieri, Paolo Didone, Alessio
Gianelle, Fabrizio Polacco, and Alessandro Rubini the holders of all of the
outstanding quotas (hereinafter "shares") of Prosa Progettazione Sviluppo Aperto
SRL (collectively, the "Shareholders" or "Seller"), and Linuxcare Inc., a
Delaware corporation ("Buyer").
WHEREAS, the Shareholders wish to sell to Buyer, and Buyer wishes to
acquire all of the shares of Prosa Progettazione Sviluppo Aperto SRL, an Italian
company incorporated under the laws of Italy, with registered office in Lovere
(Bergamo), Via Fratelli Pellegrini, 1, Tax Number 02620700167, and Registration
Number with the Companies' Register of Bergamo 34223/1998 (hereinafter "Prosa")
upon the terms and subject to the conditions of this Agreement.
NOW, THEREFORE, in consideration of the promises and mutual covenants set
forth in this Agreement, the Shareholders and Buyer agree as follows:
SECTION 1
PURCHASE AND SALE OF SHARES
- ---------------------------
1.1 Transfer of Shares. (a) On the terms and subject to the conditions set
------------------
forth in this Agreement, on the Closing Date (as defined in Section 2 below),
Shareholders shall sell, convey, assign, transfer and deliver to Buyer, and
Buyer shall purchase and acquire from Shareholders all right, title and interest
in and to all shares of Prosa. The Shareholders shall ensure the transfer and
continuation of:
(i) all licenses, permits, authorizations, orders,
registrations, certificates, variances, approvals, consents and franchises and
similar rights obtained from governments and governmental agencies or any
pending applications relating to any of the foregoing;
(ii) all Intellectual Property, goodwill associated
therewith, licenses and sublicenses granted in respect thereto and rights
thereunder, remedies against infringements thereof and rights to protection of
interest therein, including without limitation the Intellectual Property
described in art. 3.12;
(iii) all agreements, contracts, instruments, guarantees, or
other similar agreements, and rights thereunder ;
(iv) all customer, distribution, supplier, contact and
mailing lists;
(v) all business, financial and tax records, books,
ledgers, files, plans, documents, correspondence, lists, plats, architectural
plans, drawings, notebooks, specifications,
<PAGE>
creative materials, advertising and promotional materials, marketing materials,
studies, reports, equipment repair, maintenance or service records, whether
written or electronically stored or otherwise recorded ("Books and Records");
(vi) all employee agreements.
1.2 Instruments of Conveyance and Transfer; Sales and Use Tax; Delivery.
-------------------------------------------------------------------
On the Closing Date, the Shareholders shall deliver to Buyer such instruments of
conveyance and assignment as shall be reasonably satisfactory to Buyer's counsel
and effective to vest in Buyer all right, title and interest in the Shares being
purchased by Buyer. Any and all registration taxes associated with the transfer
of the Shares shall be paid by the Buyer.
1.3 Further Assurances. If at any time after the date of this Agreement,
------------------
Buyer shall consider it advisable that any further conveyance, agreements,
documents, instruments and assurances of law or any other things are necessary
or desirable to vest, perfect, confirm or record in Buyer the title to any of
the Assets of Prosa, each of the Shareholders shall execute and deliver, upon
Buyer's reasonable request and at Buyer's expense, any and all proper
conveyances, agreements, documents, instruments and assurances of law, and do
all things reasonably necessary or proper to vest, perfect, confirm or record
title to the Assets in Buyer and otherwise to carry out the provisions of this
Agreement.
1.4 Consideration for Transfer of the Shares.
----------------------------------------
In full consideration for transfer of the Shares, and subject to the terms
and conditions of this Agreement, upon satisfaction or waiver of the closing
conditions set forth in Section 5 below, Buyer shall pay each of the
Shareholders U.S. $25,000, grant each of the Shareholders 5000 options to
purchase the Buyer's stock and assume the liabilities as set forth in Section
1.5 hereof. The Purchase Price shall be payable through wire transfer by and no
later than December 31, 1999 with value date of December 30, 1999.
1.5 Liabilities Not Assumed. Anything in this Agreement to the contrary
-----------------------
notwithstanding, Buyer shall not assume, and the Shareholders shall retain and
be responsible for, all liabilities and obligations associated with Prosa
incurred prior to the Closing Date.
1.6 Accounts Receivable. In connection with the accounts receivable
-------------------
of the Prosa, the Shareholders will use its best efforts and cooperate with
Buyer in ensuring that these credits are paid by the Prosa Licensees. The
Shareholders will also make their best efforts to place phone calls to former
licensees to assist Buyer in collection of accounts receivable. Notwithstanding
the preceding paragraph, all license fees matured by the Prosa prior to the
closing date, but received after the closing date are due to the Shareholders.
-2-
<PAGE>
SECTION 2
CLOSING DATE
- ------------
The closing of the transactions contemplated by Section 1 of this Agreement
shall take place in Padova, on December 30, 1999, or such other date as shall be
agreed upon by the parties in writing. Such closing is referred to as the
"Closing," and the date and time of such Closing are referred to as the "Closing
Date."
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE SHAREHOLDERS
- --------------------------------------------------
Each of Seller and the Shareholders jointly and severally represents to
Buyer as follows:
3.1 Organization, Authorization, Shareholders. Seller is a corporation
-----------------------------------------
duly organized, validly existing and in good standing under the laws of Italy.
Prosa has all requisite power and authority to own, operate and lease its
properties and to carry on its business as presently conducted. The Company and
its Shareholders have validly approved the transfer of the shares to Linuxcare,
Inc. in accordance with the provisions of the Company's articles of
incorporation and by-laws. Furthermore, each individual Shareholder has the
power to transfer the shares free and clear of liens and encumbrances. Each of
the Shareholders, who is also a member of the Company's Board of Directors
agrees that as a condition to the completion of the acquisition contemplated
herein, they must resign as members of the Board of Directors of Prosa SRL.
Notwithstanding the above, it is the intention of the Buyer to maintain most of
the current management team with the addition of other members as the Buyer
deems appropriate in the future.
3.2 Capitalization. The authorized stated capital of Prosa consists of
--------------
five (5) quotas ("quote" above and hereinafter referred to as "Shares") of
4,200,000 lire each for a total of 21,000,000 Italian lire.
There are no outstanding preemptive, conversion or other rights, options,
warrants, rights to subscribe to, calls or commitments of any character
whatsoever relating to, or securities or rights convertible into, shares of any
class of capital stock of the Company (collectively "Conversion Stock") or
contracts, commitments, understandings or agreements granted or issued or
binding upon Prosa or the Shareholders for the purchase or acquisition of any
capital stock or Conversion Stock of Prosa. Furthermore, as of the Closing Date
the Company shall not have any outstanding liabilities towards Third Parties or
its own Shareholders such as loans or salaries with the exception of those
listed in Exhibit 1 in wich shall remain the sole responsibility of the
Shareholders.
3.3 Financial Statements. The official filed balance sheets of Prosa as of
--------------------
December 31, 1998 and the related statements of income, cash flow and changes in
shareholders' equity of Prosa for the fiscal years then ended, and (ii) the
unaudited balance sheets of Prosa as of November 30,
-3-
<PAGE>
1999 and the related statements of income and cash flow for the periods then
ended, are complete and correct in all material respects and fairly present the
financial condition of Prosa at such dates and the results of the operations of
Prosa for the periods covered by such statements, all in accordance with GAAP
consistently applied.
3.4 Compliance With Law. Prosa is conducting, and has conducted, its
-------------------
business and operations as it relates directly or indirectly to the Assets in
compliance in all material respects with all governmental laws, rules and
regulations applicable thereto and is not in violation or default in any
material respect under any statute, regulation, order, decree or governmental
authorization applicable to it or any of its properties or business as presently
conducted or proposed to be conducted as it relates directly or indirectly to
the Assets. Prosa is not subject to any order or consent decree of any court or
administrative body that relates in any way to the Assets. Furthermore, Prosa
has paid all applicable taxes and fees required under Italian law.
3.5 Legal Proceedings, etc. There are no adverse third party actions or
----------------------
claims pending against Prosa in any court or by or before any governmental or
regulatory authority with respect to Prosa, its shares or its Assets. There are
no other actions, suits, proceedings, claims or investigations pending against
Prosa, nor has Prosa received notice of any of the foregoing, with respect to
the transactions contemplated hereby or materially affecting the value of the
Company, its shares and its Assets or which, if adversely determined, would
prevent the Shareholders from consummating the transactions contemplated hereby.
3.6 Agreements. There are no outstanding contracts, leases, instrument,
----------
obligations, commitments, understandings and agreements, whether written or
oral, to which Prosa is a party and to which the Company, its shares or its
Assets will be subject subsequent to the Closing. Prosa has no material
agreement with any third party which will obligate Buyer to make any payments to
such third parties with respect to any of the Assets.
3.7 Authorization. Each of the Shareholders has all requisite power and
-------------
authority to enter into this Agreement and any other agreements or documents
necessary to consummate the transactions contemplated hereby (collectively, all
of such agreements are referred to as the "Agreements"), to perform its
obligations under the Agreements and to consummate the transactions contemplated
by the Agreements. All corporate action on the part of Prosa for the execution
and delivery of the Agreements and the consummation of the transactions
contemplated hereby has been taken or will be taken prior to the Closing. The
Agreements, when executed and delivered by the Shareholders, shall constitute
the valid and binding obligation of each of the Shareholders enforceable against
them in accordance with its terms, subject to laws of general application
relating to bankruptcy, insolvency, reorganization, moratorium and other laws of
general application affecting enforcement of creditors rights generally and
principles of equity relating to specific performance, injunctive relief or
other equitable remedies and limitations of public policy.
3.8 Governmental Authorization. The execution, delivery and performance of
--------------------------
the Agreements by the Shareholders, and the consummation of the transactions
contemplated hereby,
-4-
<PAGE>
does not and will not require any consent, approval or action by or in respect
of or any declaration, filing or registration with, any governmental authority.
3.9 Title to Assets. Prosa has good and marketable title to all the
---------------
current Assets of the Company, free and clear of any claim, lien, or encumbrance
of any party, other than (i) the lien of current taxes not yet due and payable,
and (ii) possible minor liens and encumbrances which do not in any case detract
from the value of the Assets subject thereto and which have not arisen other
than in the ordinary course of business.
3.10 Absence of Conflicts. Neither the execution and delivery by each of
--------------------
the Shareholders, the compliance by each of the Shareholders with the terms and
conditions hereof nor the consummation by each of the Shareholders of the
transactions contemplated hereby will (i) conflict with any of the terms,
conditions or provisions of the Certificate of Incorporation, Bylaws or other
constituent documents of Prosa, (ii) violate any provision of, or require any
consent, authorization or approval under, any law or regulation or any judicial
or administrative order, award, judgment, writ, injunction or decree or any
governmental permit or license issued to Prosa or any Shareholder, or (iii)
conflict with, result in a breach of, constitute a default or event of default
under, or require any consent, authorization or approval under any indenture,
mortgage, lien, lease, agreement or instrument to which Prosa or any Shareholder
is a party or by which it may be bound.
3.11 Taxes. All national and regional taxes applicable to the business,
-----
assets or property of Prosa, at or prior to the Closing, shall have been paid by
the Shareholders with the exception of the taxes on profits matured during the
year 1999 which will remain the sole responsibility of the Shareholders. As of
the Closing, no event or circumstance shall exist which would permit the
imposition of any lien or other claim by a taxing authority against Buyer with
respect to the business, Assets and operations being transferred hereunder.
3.12 Intellectual Property.
---------------------
(a) Prosa operates in the area of Open Source software. As a result
the Buyer acknowledges that Prosa owns or has title over no intellectual
property. The Buyer also understands that Prosa has been founded on the ethical
principles of free software, and has only developed solutions under the various
free software models. The Buyer agrees that it will preserve the trust Prosa has
built in the free software community - and even after this acquisition - the
Prosa labs division will continue to develop only free software under the GPL,
LGPL or other applicable free software license agreements.
(b) Notwithstanding the above, the Shareholders warrant that the
Company is licensed or is otherwise entitled to exercise all rights under or
with respect to all Assets. Upon the Closing, Buyer will have full right, title
and interest in and to the Assets.
(c) No claims with respect to the Assets have been asserted or, to the
best knowledge of Prosa and the Shareholders are likely to be threatened by any
person nor do the Shareholders know of any grounds for any claims with respect
to the Assets that might reasonably be
-5-
<PAGE>
expected to be made now or in the future (i) to the effect that any of the
Intellectual Property or the operation of the Prosa Business infringes on or
misappropriates any Intellectual Property rights in which any third party has
any rights and (ii) challenging the ownership, validity or effectiveness of any
of the Assets. To the best knowledge of the Shareholders, there is no material,
unauthorized use, infringement or misappropriation of any of the Assets by any
third party. No Assets are subject to any outstanding order, judgment, decree,
stipulation or agreement restricting in any manner the licensing or exploitation
thereof.
3.13 Year 2000 Compliance. Each of the Shareholders has reviewed the
--------------------
systems and processes of Prosa for compliance with the year 2000. Each system,
comprised of software, hardware, databases or embedded control systems
(microprocessor-controlled or controlled by any robotic or other device)
(collectively, a "System") that constitutes any material part of, or is used in
connection with the use, operation or enjoyment of, any tangible or intangible
asset or real property of Prosa will not be adversely affected by the advent of
the year 2000, the advent of the 21/st/ century or the transition from the
20/th/ century through the year 2000 and into the 21/st/ century. Each System of
Prosa is able to accurately process date data, including but not limited to,
calculating, comparing and sequencing from, into and between the 20/th/ century
(through year 1999), the year 2000 and the 21/st/ century, including leap year
calculations.
3.14 Acquisition of Shares for Investment; Ability to Evaluate and Bear
------------------------------------------------------------------
Risk.
- ----
(a) Each Shareholder is acquiring options for the purchase of the
Shares of the Buyer for investment and not with a view toward, or for sale in
connection with, any distribution thereof, nor with any present intention of
distributing or selling such options or related Shares (except for the Seller's
distribution to the Shareholders). The Shareholders agree that the options and
the related Shares acquired in connection therewith must be held indefinitely
and may not be sold, transferred, offered for sale, pledged, hypothecated or
otherwise disposed of without registration under the United States Securities
Act of 1933, as amended (the "Act"), and any applicable state securities laws,
except pursuant to an exemption from such registration under the Act.
(b) Each Shareholder (i) is able to bear the economic risk of holding
the options and the Shares for an indefinite period, (ii) can afford to suffer
the complete loss of the investment in the options and the Shares, and (iii) has
knowledge and experience in financial and business matter such that it is
capable of evaluating the risks of the investment in the options and the Shares.
(c) Each Shareholder acknowledges that their acquisition of the
options and the subsequent acquisition of Linuxcare Common Stock constitutes a
transaction exempt from the registration requirements of the Act under Rule 901
and 903 of Regulation S. The Shareholders acknowledge that they are not
acquiring Linuxcare's Common Stock for the account or benefit of any citizen of
the United States. The Shareholders also understand that they can resell
Linuxcare's Common Stock only in accordance with the provisions of Regulation S.
All Shares acquired by the Shareholders shall contain a legend (similar to the
legend set forth in Section 6.2) to the effect that transfer is prohibited
except in accordance with Regulation S.
-6-
<PAGE>
(d) Each Shareholder is aware of the provisions of Rule 144
promulgated under the Act which permit limited resale of shares purchased in a
private placement subject to the satisfaction of certain conditions, including,
among other things, the existence of a public market for the shares, the
availability of certain current public information about the Company, the resale
occurring not less than one year after a party has purchased and paid for the
security to be sold, the sale being effected through a "broker's transaction" or
in transactions directly with a "market maker" and the number of shares being
sold during any three-month period not exceeding specified limitations. Each of
the Shareholders is further aware that Rule 144(k) permits persons who have not
been affiliates of Buyer for at least three months and whose shares have been
beneficially owned by other than Buyer or its affiliates for at least two years
after full payment for such shares to sell such shares without regard to the
current public information, manner of sale and volume limitations described
above.
(e) Each Shareholder understands that no public market now exists for
any of the securities issued by the Buyer and that the Buyer has made no
assurances that a public market will ever exist for the Buyer's securities.
(f) Each Shareholder has had an opportunity to discuss Buyer's
business, management and financial affairs with its management. Each Shareholder
has also had an opportunity to ask questions of officers of Buyer, which
questions were answered to its satisfaction. Each Shareholder understands that
such discussions, as well as any written information issued were intended to
describe certain aspects of the Buyer's business and prospects but were not a
thorough or exhaustive description. Each Shareholder acknowledges that Buyer's
business has been and continues to be subject to change and that any projections
included in any business plans are necessarily speculative in nature, and it can
be expected that some or all of the assumptions of the projections will not
materialize or will vary significantly from actual results.
3.15 Further Limitations on Disposition. Without in any way limiting the
----------------------------------
representations set forth above or the limitations set forth in Section 6.7,
each of the Shareholders further agrees that the Shareholders shall in no event
make any disposition of all or any portion of the Shares, unless and until (i)
there is then in effect a Registration Statement under the Securities Act
covering such proposed disposition and such disposition is made in accordance
with said Registration Statement, (ii) the resale provisions of Rule 144(k) are
available in the opinion of counsel to Buyer or (iii) (A) the transferring party
shall have notified Buyer of the proposed disposition and shall have furnished
Buyer with a detailed statement of the circumstances surrounding the proposed
disposition, (B) the transferring party shall have furnished Buyer with an
opinion of the transferring party's counsel to the effect that such disposition
will not require registration of such stock under the Securities Act and (C)
such opinion of the transferring party's counsel shall have been concurred with
by counsel for and Buyer shall have advised the transferring party of such
concurrence.
-7-
<PAGE>
SECTION 4
REPRESENTATIONS AND WARRANTIES OF BUYER
- ---------------------------------------
Buyer hereby warrants and represents to each of the Shareholders as
follows:
4.1 Authorization. Buyer has all requisite power and authority to enter
-------------
into the Agreements, to perform its obligations under the Agreements and to
consummate the transactions contemplated by the Agreements. Buyer has duly
executed and delivered the Agreements, each of which is a legal, valid and
binding obligation of Buyer enforceable against Buyer in accordance with its
terms, subject to laws of general application relating to bankruptcy,
insolvency, reorganization, moratorium and other laws of general application
affecting the enforcement of creditors' rights generally and principles of
equity relating to specific performance, injunctive relief or other equitable
remedies and limitations of public policy.
4.2 Financial Statements. The unaudited balance sheets of Buyer as of
--------------------
September 30, 1999 and the related statements of income and cash flow for the
periods then ended, are complete and correct in all material respects and fairly
present the financial condition of Buyer at such dates and the results of the
operations of Buyer for the periods covered by such statements, all in
accordance with GAAP consistently applied.
SECTION 5
CONDITIONS TO CLOSING
- ---------------------
5.1 Buyer's Conditions to Closing. Buyer's obligation to purchase the
-----------------------------
Shares at the Closing is, at the option of Buyer, subject to the fulfillment as
of the Closing Date of the following conditions :
(a) Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by each of the Shareholders in Section 3 shall be true and
correct in all material respects on the Closing Date.
(b) Compliance. Each of the Shareholders shall have performed all
----------
obligations and conditions in the Agreements required to be performed or
observed by it on or prior to the Closing Date.
(c) Employment Arrangements.
-----------------------
(i) Prosa's key employees (as determined by Linuxcare) shall have
entered into an employment or exclusive consultant arrangement with terms as set
forth in the attached Employment and Consulting Agreements which shall be
effective as of January 1, 2000.
-8-
<PAGE>
(d) Shareholder Approval. Holders of not less than 75% of the
--------------------
outstanding equity securities of the Prosa shall have approved this Agreement
and the transactions contemplated hereby, and holders of not more than 10% of
the outstanding equity securities of Prosa shall have voted against this
Agreement and the transactions contemplated hereby.
(e) Resignation of current directors. All current directors of Prosa
--------------------------------
shall have notified Prosa and the Buyer of their irrevocable resignation from
the Board of Directors having waived any right to compensation, damages or
costs.
5.2 Seller's Conditions to Closing. The Shareholders' obligation to sell
------------------------------
the Shares at the Closing is subject to the fulfillment as of the Closing Date
of the following conditions:
(a) Representations and Warranties Correct. The representations and
--------------------------------------
warranties made by Buyer in Section 4 shall be true and correct in all material
respects on the Closing Date.
(b) Compliance. Buyer shall have performed all obligations and
----------
conditions herein required to be performed or observed by it on or prior to the
Closing Date.
SECTION 6
COVENANTS
- ---------
6.1 Cooperation. Buyer and the Shareholders each agree to cooperate with
-----------
the other, whether prior to or after the Closing Date, in consummating the
transactions contemplated hereby, including without limitation (i) making or
causing to be made promptly any filing required to be made in any jurisdiction,
(ii) obtaining in a timely manner any consents required and (iii) executing all
other documents and taking all other action necessary to effect the transactions
contemplated hereby in a timely manner.
6.2 Legend. In addition to any legends required by applicable federal and
------
state securities or blue sky laws, the certificate representing the Shares shall
be imprinted with the following legends in substantially the following form:
"THE SHARES REPRESENTED BY THIS CERTIFICATE WERE ISSUED PURSUANT TO AN
EXEMPTION FROM THE REGISTRATION REQUIREMENTS UNDER THE SECURITIES ACT OF
1933, AS AMENDED (THE "ACT"), AND MAY NOT BE OFFERED, SOLD, PLEDGED,
EXCHANGED, TRANSFERRED OR OTHERWISE DISPOSED OF EXCEPT IN ACCORDANCE WITH
THE REQUIREMENTS OF REGULATION S OF THE ACT, OR PURSUANT TO REGISTRATION
UNDER THE ACT, OR PURSUANT TO AN AVAILABLE EXEMPTION FROM REGISTRATION, AND
HEDGING TRANSACTIONS INVOLVING THESE SECURITIES MAY NOT BE CONDUCTED UNLESS
IN COMPLIANCE WITH THE ACT"
6.3 Covenant Not to Compete. Omitted
-----------------------
-9-
<PAGE>
6.4 No Shop Provision. Unless and until this Agreement shall have been
-----------------
terminated by mutual agreement of the parties, no Shareholder shall, directly or
indirectly, through any officer, director, shareholder, employee,
representative, agent or otherwise, (i) solicit, initiate or encourage the
submission of proposals or offers from any person relating to any acquisition of
Prosa or of any equity securities or any Assets of Prosa, or any merger,
consolidation, business combination or similar transaction with Prosa, or any
other material transaction (including a joint venture or similar transaction),
or (ii) participate in any discussions or negotiations regarding, furnish to any
other person or any confidential information with respect to, or otherwise
cooperate in any way with, or participate in, or facilitate or encourage any
effort or attempt by any other person to do or seek any of the foregoing. In the
event any Shareholder receives from any third party any offer or indication of
interest (whether made in writing or otherwise) regarding any of the
transactions referred to in this Section 6.4 above, or any request for
information about Prosa with respect to any of the above, then said Shareholder
shall promptly communicate to Buyer the material terms of each such offer,
including the identity of the third party .
6.5 Public Disclosure. Each of the Shareholders hereto agree that he will
-----------------
not, except as may be required by law, disclose or issue any press release with
respect to the transactions contemplated by this Agreement without the prior
written consent of Buyer. Buyer shall have the right to disclose or issue in a
press release with respect to the transactions contemplated hereby if prior to
such disclosure or release Buyer delivers to Prosa a copy of such disclosure or
press release.
SECTION 7
INDEMNIFICATION
- ---------------
7.1 Shareholder Indemnity of Buyer. For the period beginning on the
------------------------------
Closing Date and continuing until the expiration of all applicable limitation
periods relating thereto, Shareholders shall indemnify, defend and hold harmless
against all claims, losses, liabilities, damages, deficiencies, costs and
expenses, including reasonable attorneys', accountants' and expert witness' fees
and the costs and expenses of enforcing the indemnification (individually a
"Loss" and collectively "Losses") (including without limitation, Losses
resulting from the defense, settlement or compromise of a claim or demand or
assessment) incurred by Buyer and arising as a result of:
(i) any misrepresentation or breach by the Shareholders of
any of its representations and warranties contained in this Agreement,
(ii) any breach by the Shareholders of any covenant
contained in this Agreement or the instruments delivered pursuant hereto,
(iii) any and all obligations and liabilities of Prosa not
expressly assumed by Buyer under this Agreement,
-10-
<PAGE>
(iv) any claim, suit, action or proceeding which pertains
to the ownership, organization, operation or conduct of Prosa, SRL, whether
known or unknown, prior to the Closing Date, and
(v) any assessment of any tax in respect of the Assets or
the earnings of prior to the Closing Date.
7.2 Notice to Indemnifying Party. If Buyer (the "Indemnified Party")
----------------------------
receives notice of any claim or other commencement of any action or proceeding
with respect to which any other party is obligated to provide indemnification
(the "Indemnifying Party") pursuant to Section 7.1, the Indemnified Party shall
promptly give the Shareholders written notice thereof (as appropriate), which
notice shall specify, if known, the amount or an estimate of the amount of the
liability arising therefrom. Such notice shall be a condition precedent to any
liability of the Indemnifying Party under the provisions for indemnification
contained in this Agreement. The Indemnified Party shall not settle or
compromise any claim by a third party for which it is entitled to
indemnification hereunder, without the prior written consent of the Indemnifying
Party (which shall not be unreasonably withheld) unless suit shall have been
instituted against it and the Indemnifying Party shall not have taken control of
such suit after notification thereof as provided in Section 7.3 of this
Agreement.
7.3 Defense by Indemnifying Party. In connection with any claim giving
-----------------------------
rise to indemnity hereunder resulting from or arising out of any claim or legal
proceeding by a person who is not a party to this Agreement, the Indemnifying
Party at its sole cost and expense may, upon written notice to the Indemnified
Party, assume the defense of any such claim or legal proceeding if it
acknowledges to the Indemnified Party in writing its obligations to indemnify
the Indemnified Party with respect to all elements of such claim. The
Indemnified Party shall be entitled to participate in (but not control) the
defense of any such action, with its counsel and at its own expense. If the
Indemnifying Party does not assume the defense of any such claim or litigation
resulting therefrom, (a) the Indemnified Party may defend against such claim or
litigation, after giving notice of the same to the Indemnifying Party, on such
terms as the Indemnified Party may deem appropriate, and (b) the Indemnifying
Party shall be entitled to participate in (but not control) the defense of such
action, with its counsel and at its own expense. If the Indemnifying Party
thereafter seeks to question the manner in which the Indemnified Party defended
such third-party claim or the amount or nature of any such settlement, the
Indemnifying Party shall have the burden to prove by a preponderance of the
evidence that the Indemnified Party did not defend or settle such third-party
claim in a reasonably prudent manner.
7.4 Further Assurances. From time to time at Buyer's request (whether at
------------------
or after the Closing Date) and without further consideration, the Shareholders
will (i) execute and deliver such further instruments of conveyance and transfer
as Buyer may reasonably request in order to assist Buyer in the collection or
reduction to possession of any of the Assets and (ii) render such other
cooperation as Buyer may reasonably request, including such access to Prosa's
books and records as may be necessary to obtain any information required for
Buyer's completion and filing of national and regional tax forms and reports.
-11-
<PAGE>
SECTION 8
ASSIGNMENT AND RELEASE
- ----------------------
8.1 Assignment of Rights. Each Shareholder hereby assigns to Buyer, or its
--------------------
designee, all right, title, and interest in and to any and all Intellectual
Property, which such Shareholder may have, prior to the date of this Agreement,
owned, conceived or developed or reduced to practice that is related to,
necessary for, or used or held for use in connection with the Prosa Business.
With regards to the name Prosa, the Shareholders agree that the name belongs to
the Company and not the individual Shareholders. Notwithstanding the above, in
the event that the Buyer transfers the ownership and control of the Company or
terminates its operations in Italy, or is declared bankrupt by any competent
court having jurisdiction over the Buyer, the individual Shareholders may regain
possession of the name Prosa and continue operating under that name provided
that all five (5) of the Shareholders as identified above agrees thereto. In the
absence of unanimous agreement among the Shareholders the Company will retain
title to the name Prosa and may sell, assign or transfer its rights over the
name as it deems appropriate but shall grant preference to the above five
Shareholders.
8.2 Release of Claims by the Shareholders. Each Shareholder hereby
-------------------------------------
releases and discharges Buyer and Prosa and their respective affiliates, agents,
officers, directors, employees, investors, shareholders, predecessor and
successor corporations, and assigns, including without limitation, all parties
controlling, controlled by, or under common control with Buyer or Prosa
(collectively, the "Affiliates") from any and all debts, claims, demands,
contracts, damages, liabilities, costs or expenses, financial or otherwise,
causes of action, complaints, and any and all other claims and obligations
whatsoever of every kind and nature, whether known or unknown, disclosed or
undisclosed, suspected or unsuspected, both at law and equity, which such
Shareholder may now have, or may have ever had against the Buyer or Prosa, or
any of their Affiliates, including without limitation, those arising from or in
any way relating to (i) the sale, conveyance, transfer, and delivery of the
Shares hereby, (ii) the Seller's rights in any Intellectual Property, (iii) such
Shareholder's rights in any Intellectual Property related to, necessary for, or
used or held for use in connection with the Prosa Business, (iv) such
Shareholder's contributions to Prosa and the Prosa Business, (v) such
Shareholder's relationship with Prosa and the Prosa Business, (vi) breach of
contract, both express and implied, and (vii) any actions, omissions or
statements by Buyer or Prosa or any of their Affiliates to such Shareholder or
any other person, occurring on or before the date of this Agreement.
SECTION 9
MISCELLANEOUS
- -------------
9.1 Governing Law. This Agreement shall be governed by and construed under
-------------
the laws of the State of California.
-12-
<PAGE>
9.2 Survival. The representations, warranties, covenants and agreements
--------
made herein shall survive the closing of the transactions contemplated hereby.
9.3 Successors and Assigns. Except as otherwise provided herein, the
----------------------
provisions of this Agreement shall inure to the benefit of, and be binding upon,
the successors, assigns, heirs, executors and administrators of the parties
hereto.
9.4 Entire Agreement; Amendment. This Agreement, including all exhibits,
---------------------------
and the other documents delivered pursuant to this Agreement at the Closing
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof, and no party shall be liable or
bound to any other party in any manner by any warranties, representations or
covenants except as specifically set forth herein or therein. Except as
expressly provided herein, neither this Agreement nor any term hereof may be
amended, waived, discharged or terminated other than by a written instrument
signed by the party against whom enforcement of any such amendment, waiver,
discharge or termination is sought.
9.5 Notices. All notices and other communications required or permitted
-------
hereunder shall be in writing and shall be sent by telefax, mailed by United
States Postal Service or the Italian Postal service as appropriate, by
registered or certified mail, postage prepaid, or otherwise delivered by hand or
by messenger, addressed to the appropriate address set forth on the last page of
this Agreement or such other address as a party shall have furnished to the
other party.
9.6 Delays or Omissions. Except as expressly provided herein, no delay or
-------------------
omission to exercise any right, power or remedy accruing to any party under this
Agreement, upon any breach or default of another party under this Agreement,
shall impair any such right, power or remedy of such party nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be in writing and shall
be effective only to the extent specifically set forth in such writing. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
9.7 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall constitute an original and all of which
together shall constitute one instrument.
9.8 Severability. In the event that any provision of this Agreement
------------
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
9.9 Titles and Subtitles. The titles and subtitles used in this Agreement
--------------------
are used for convenience only and are not to be considered in construing or
interpreting this Agreement.
-13-
<PAGE>
9.10 Expenses. Unless otherwise provided herein, the parties to this
--------
Agreement agree that they shall be liable for their own costs, including legal,
accounting and other such costs, incurred by it in the negotiation and the
closing of this transaction. Each party shall indemnify the other for any claims
for brokerage or finder's fees by persons claiming to have been engaged by such
party.
9.11 Arbitration. It is understood and agreed that Buyer and Shareholders
-----------
shall carry out this Agreement in the spirit of mutual cooperation and good
faith and that any differences, disputes or controversies shall be resolved and
settled amicably among the parties hereto. In the event that the dispute,
controversy or difference is not so settled in the above manner within forty-
five (45) days, then the matter shall be exclusively submitted to arbitration in
San Francisco County, California before three independent technically qualified
arbitrators in accordance with the Commercial Arbitration Rules of the American
Arbitration Association and under the laws of California, without reference to
conflict of laws principles. Arbitration shall be the exclusive forum and the
decision and award by the arbitrator(s) shall be final and binding upon the
parties concerned and may be entered in any state court of California having
jurisdiction.
9.12. Various provisions. 1. The new business organization may maintain
------------------
their current client base and all existing relationships. When a Linuxcare
infrastructure (sales, marketing, accounting) is established, these
relationships may be offloaded to the appropriate staff. While the new business
will focus on kernel, drivers, devices and other technology projects it is
understood that some direct relationships between existing Prosa clients and the
new business will be maintained indefinitely.
2. The new business unit will be operated by the existing Prosa management.
Employee management (hiring and termination), such quality of life policies such
as working hours, some employee benefits, and employee location (working
remotely) will be determined within the new business unit.
3. The interim Linuxcare management team responsible for Prosa will consist
of Arthur Tyde (Executive Vice-President), Tony Pollace (Chief Financial
Officer), Ron Forrester (Dir. Reserch & Development) and David Welton (Debian
Developer). The interim management team in Italy will consist of Davide Barbieri
(Direttore Generale), Dominique Russo (Direttore Finanziario) and David Welton
(Debian Developer). It is likely that the Prosa development unit will report to
Ron Forrester, director of Research & Development on the technical side.
4. The new business unit will continue to operate under the existing
pricing structure for services currently being delivered to clients in Italy.
(The remainder of this page has been intentionally left blank.)
-14-
<PAGE>
IN WITNESS WHEREOF, this Agreement is executed as of the date first above
written.
"SHAREHOLDERS"
/s/ Alessio Gianelle
-------------------------------------------
Name: ALESSIO GIANELLE
/s/ Davide Barbieri
-------------------------------------------
Name: DAVIDE BARBIERI
/s/ Paolo Disone
-------------------------------------------
Name: PAOLO DISONE
PER POLACCO
/s/ Davide Barbieri
-------------------------------------------
Name: FABRIZIO POLACCO
/s/ Alessendro Rubini
-------------------------------------------
Name: Alessendro Rubini
"BUYER"
LINUXCARE, INC.
By:________________________________________
<PAGE>
EXHIBIT 4.2
LINUXCARE, INC.
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
DECEMBER 17, 1999
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
1. Registration Rights 1
1.1 Definitions 1
1.2 Request for Registration 3
1.3 Company Registration 4
1.4 Form S-3 Registration 5
1.5 Obligations of the Company 6
1.6 Information from Holder 7
1.7 Expenses of Registration 7
1.8 Delay of Registration 8
1.9 Indemnification 8
1.10 Reports Under Securities Exchange Act of 1934 10
1.11 Assignment of Registration Rights 10
1.12 Limitations on Subsequent Registration Rights 11
1.13 "Market Stand-Off" Agreement 11
1.14 Termination of Registration Rights 11
2. Covenants of the Company 12
2.1 Delivery of Financial Statements 12
2.2 Inspection 13
2.3 Termination of Information and Inspection Covenants 13
2.4 Right of First Offer 13
2.5 Qualified Small Business Status 14
2.6 Delivery of Annual Budget 15
2.7 Insurance 15
2.8 Committees 15
2.9 Board Representation 15
2.10 Termination of Certain Covenants 15
3. Miscellaneous 16
3.1 Successors and Assigns 16
3.2 Governing Law 16
3.3 Counterparts 16
3.4 Titles and Subtitles 16
3.5 Notices 16
3.6 Expenses 16
3.7 Entire Agreement: Amendments and Waivers 16
3.8 Severability 17
3.9 Aggregation of Stock 17
</TABLE>
<PAGE>
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"Agreement") is made as of December 17, 1999, by and among LinuxCare, Inc., a
Delaware corporation (the "COMPANY"), (ii) the purchasers of the Company's
Series A Preferred Stock (the "SERIES A INVESTORS") pursuant to the Series A
Preferred Stock Purchase Agreement, dated February 1, 1999 (the "FIRST SERIES A
AGREEMENT") and the Series A Preferred Stock and Warrant Purchase Agreement
dated April 16, 1999 (the "SECOND SERIES A AGREEMENT" and together with the
First Series A Agreement, the "SERIES A AGREEMENTS"), (iii) the purchasers of
the Company's Series B Preferred Stock (the "SERIES B INVESTORS") pursuant to
the Series B Preferred Stock Purchase Agreement of even date herewith, as
amended from time to time (the "SERIES B AGREEMENT"), and (iv) Messrs. Arthur F.
Tyde III, David L. Sifry and David LaDuke (collectively, the "FOUNDERS").
Collectively, the Series A Investors and the Series B Investors are referred to
as the "Investors".
BACKGROUND
A. The Series A Investors possess registration rights, information rights,
rights of first offer, and other rights pursuant to the First Amended and
Restated Investors' Rights Agreement dated as of April 16, 1999, among the
Company and the Series A Investors (the "PRIOR AGREEMENT").
B. The holders of a majority of the "REGISTRABLE SECURITIES" of the
Company (as defined in the Prior Agreement) desire to terminate the Prior
Agreement and to accept the rights created pursuant hereto in lieu of the rights
granted to them under the Prior Agreement.
C. The Series B Agreement provides that as a condition to the closing of
the sale of the Series B Preferred Stock, this Agreement must be executed and
delivered by such Series B Investors, Series A Investors holding a majority of
the "REGISTRABLE SECURITIES" of the Company (as defined in the Prior Agreement)
and the Company.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the Existing Investors hereby agree that the Prior Agreement shall
be superseded and replaced in its entirety by this Agreement, and the parties
hereto further agree as follows:
1. Registration Rights. The Company covenants and agrees as follows
-------------------
immediately prior to the transaction or transactions:
1.1 Definitions. For purposes of this Agreement:
-----------
(a) The term "ACT" means the Securities Act of 1933, as amended.
<PAGE>
(b) The term "CHANGE OF CONTROL" shall be as defined in Section
2(c) of Article IV of the Amended and Restated Certificate of Incorporation of
the Company.
(c) The term "FORM S-3" means such form under the Act as in effect
on the date hereof or any registration form under the Act subsequently adopted
by the SEC that permits ts inclusion or incorporation of substantial information
by reference to other documents filed by the Company with the SEC.
(d) The term "HOLDER" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 1.11 hereof.
(e) The term "INITIAL OFFERING" means the Company's first firm
commitment underwritten public offering of its Common Stock under the Act.
(f) The term "1934 ACT" means the Securities Exchange Act of
1934, as amended.
(g) The term "QUALIFIED PUBLIC OFFERING" means a sale of
securities pursuant to a registration statement filed by the Company under the
Act in connection with the initial firm commitment underwritten offering of its
securities to the general public, which results in automatic conversion of
Preferred Stock into Common Stock in accordance with the Company's Certificate
of Incorporation as in effect at the time of the offering.
(h) The term "REGISTER," "REGISTERED," and "REGISTRATION" refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(i) The term "REGISTRABLE SECURITIES" means (i) the Common Stock
issuable or issued (a) upon conversion of the Series A Preferred Stock sold
pursuant to the Series A Agreements, (b) upon conversion of the Warrant Shares
(as defined in the Second Series A Agreement), (c) upon conversion of the Series
B Preferred Stock sold pursuant to the Series B Agreement, and (ii) any Common
Stock of the Company issued as (or issuable upon the conversion or exercise of
any warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange for, or in replacement of, the
shares referenced in (i) above, excluding in all cases, however, (i) any
Registrable Securities sold by a person in a transaction in which such person's
rights under this Section 1 are not assigned in compliance with Section 1.11
below and (ii) any Registrable Securities as to which the registration rights
set forth in this Section 1 have terminated pursuant to Section 1.14 below.
(j) The number of shares of "REGISTRABLE SECURITIES" outstanding
shall be determined by the number of shares of Common Stock outstanding that
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities that are, Registrable Securities.
(k) The term "SEC" shall mean the Securities and Exchange
Commission.
<PAGE>
1.2 Request for Registration.
------------------------
(a) Subject to the conditions of this Section 1.2, if the Company
shall receive at any time after the earlier of (i) April 30, 2001 or (ii) six
(6) months after the effective date of the Initial Offering, a written request
from the Holders of fifty percent (50%) or more of the Registrable Securities
then outstanding (the "INITIATING HOLDERS") that the Company file a registration
statement under the Act covering the registration of Registrable Securities with
an anticipated aggregate offering price of at least $10,000,000, then the
Company shall, within twenty (20) business days of the receipt thereof, give
written notice of such request to all Holders, and subject to the limitations of
this Section 1.2, use its reasonable best efforts to effect, as soon as
practicable, the registration under the Act of all Registrable Securities that
the Holders request to be registered in a written request received by the
Company within twenty (20) calendar days of the mailing of the Company's notice
pursuant to this Section 1.2(a).
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 1.2
or Section 1.4 and the Company shall include such information in the written
notice referred to in Section 1.2(a) or Section 1.4(a). In such event the right
of any Holder to include its Registrable Securities in such registration shall
be conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Initiating
Holders (which underwriter or underwriters shall be reasonably acceptable to the
Company). Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Company that marketing factors require a limitation of
the number of securities underwritten (including Registrable Securities), then
the Company shall so advise all Holders of Registrable Securities that would
otherwise be underwritten pursuant hereto, and the number of shares that may be
included in the underwriting shall be allocated to the Holders of such
Registrable Securities on a pro rata basis based on the number of Registrable
Securities held by all such Holders (including the Initiating Holders),
provided, however, that the number of shares of Registrable Securities to be
- -------- -------
included in such underwriting and registration shall not be reduced unless all
other securities of the Company are first entirely excluded from the
underwriting and registration. Any Registrable Securities excluded or withdrawn
from such underwriting shall be withdrawn from the registration.
(c) The Company shall not be required to effect a registration
pursuant to this Section 1.2:
(i) in any particular jurisdiction in which the Company would
be required to execute a general consent to service of process in effecting such
registration, unless the Company is already subject to service in such
jurisdiction and except as may be required under the Act; or
<PAGE>
(ii) after the Company has effected two (2) registrations
pursuant to this Section 1.2, and such registration have been declared or
ordered effective; or
(iii) during the period starting with the date sixty (60) days
prior to the Company's good faith estimate of the date of the filing of, and
ending on a date one hundred eighty (180) days following the effective date of,
a Company-initiated registration subject to Section 1.3 below, provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iv) if the Initiating Holders propose to dispose of
Registrable Securities that may be registered on Form S-3 pursuant to Section
1.4 hereof; or
(v) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 1.2, a certificate signed by the
Company's Chief Executive Officer or Chairman of the Board stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its stockholders for such registration
statement to be effected at such time, in which event the Company shall have the
right to defer such filing for a period of not more than one hundred twenty
(120) days after receipt of the request of the Initiating Holders, provided that
such right to delay a request shall be exercised by the Company not more than
once in any twelve (12)-month period.
1.3 Company Registration.
--------------------
(a) If (but without any obligation to do so) the Company proposes
to register (including for this purpose a registration effected by the Company
for stockholders other than the Holders) any of its stock or other securities
under the Act in connection with the public offering of such securities (other
than a registration relating solely to the sale of securities to participants in
a Company stock plan, a registration relating to a corporate reorganization or
other transaction under Rule 145 of the Act, or a registration in which the only
Common Stock being registered is Common Stock issuable upon conversion of debt
securities that are also being registered), the Company shall, at such time,
promptly give each Holder written notice of such registration. Upon the written
request of each Holder given within twenty (20) days after mailing of such
notice by the Company in accordance with Section 3.5, the Company shall, subject
to the provisions of Section 1.3(c), use all reasonable efforts to cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered.
(b) Right to Terminate Registration. The Company shall have the
-------------------------------
right to terminate or withdraw any registration initiated by it under this
Section 1.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The expenses of
such withdrawn registration shall be borne by the Company in accordance with
Section 1.7 hereof.
(c) Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under this Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it
<PAGE>
(or by other persons entitled to select the underwriters) and enter into an
underwriting agreement in customary form with an underwriter or underwriters
selected by the Company, and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by stockholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
that the underwriters determine in their sole discretion will not jeopardize the
success of the offering (the securities so included to be apportioned pro rata
among the selling Holders according to the total amount of securities entitled
to be included therein owned by each selling Holder or in such other proportions
as shall mutually be agreed to by such selling Holders), but in no event shall
the amount of securities of the selling Holders included in the offering be
reduced below thirty percent (30%) of the total amount of securities included in
such offering, unless such offering is the initial public offering of the
Company's securities, in which case the selling Holders may be excluded if the
underwriters make the determination described above and no other stockholder's
securities are included (except with the consent of the Holders of the then
outstanding Registrable Securities). For purposes of the preceding parenthetical
concerning apportionment, for any selling stockholder that is a Holder of
Registrable Securities and that is a partnership or corporation, the partners,
retired partners and stockholders of such Holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing persons shall be deemed to be a single "selling Holder,"
and any pro rata reduction with respect to such "selling Holder" shall be based
upon the aggregate amount of Registrable Securities owned by all such related
entities and individuals.
1.4 Form S-3 Registration. In case the Company shall receive from one
---------------------
or more Holders of at least twenty percent (20%) of the Registrable Securities a
written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company shall:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) use all reasonable efforts to effect, as soon as practicable,
such registration and all such qualifications and compliances as may be so
requested and as would permit or facilitate the sale and distribution of all or
such portion of such Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other Holders joining in such request as are specified in a written request
given within fifteen (15) days after receipt of such written notice from the
Company, provided, however, that the Company shall not be obligated to
-------- -------
effect any such registration, qualification or compliance, pursuant to this
Section 1.4:
(i) if Form S-3 is not available for such offering by the
Holders;
<PAGE>
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public (net of any underwriters' discounts or commissions) of less
than $1,000,000;
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chief Executive Officer of Chairman of the Board of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than one hundred twenty (120)
days after receipt of the request of the Holder or Holders under this Section
1.4; provided, however, that the Company shall not utilize this right more than
once in any twelve month period; or
(iv) in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 1.4 shall not be counted as requests for registration effected pursuant
to Sections 1.2.
1.5 Obligations of the Company. Whenever required under this Section
--------------------------
1 to effect the registration of any Registrable Securities, the Company shall,
as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to hone hundred twenty
(120) days or, if earlier, until the distribution contemplated in the
Registration Statement has been completed, provided, however, that in the case
-------- --------
of any registration of Registrable Securities on Form S-3 which are intended to
be offered on a continuous or delayed basis, such 120-day period shall be
extended, if necessary, to keep the registration statement effective until all
such Registrable Securities are sold;
(b) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement;
(c) furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other
<PAGE>
documents as they may reasonably request in order to facilitate the disposition
of Registrable Securities owned by them;
(d) use all reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions;
(e) in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering;
(f) notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Act or the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing;
(g) cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed; and
(h) provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
1.6 Information from Holder. It shall be a condition precedent to the
-----------------------
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.7 Expenses of Registration. All expenses other than underwriting
------------------------
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Sections 1.2, 1.3 and 1.4, including (without
limitation) all registration, filing and qualification fees, printers' and
accounting fees, fees and disbursements of counsel for the Company and the
reasonable fees and disbursements of one counsel for the selling Holders shall
be borne by the Company. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to Section 1.2 or Section 1.4 if the registration request is subsequently
withdrawn at the request of the Holders of a majority of the Registrable
Securities to be registered (in which case all participating Holders shall bear
such expenses pro rata based upon the number of Registrable Securities that were
to be requested in the withdrawn registration), provided, however, that if at
-------- -------
the time of such withdrawal, the Holders have learned of a material adverse
change in the condition, business or prospects of the Company from that known to
the Holders at the
<PAGE>
time of their request and have withdrawn the request with reasonable promptness
following disclosure by the Company of such material adverse change, then the
Holders shall not be required to pay any of such expenses and shall retain their
rights pursuant to Section 1.2 or 1.4.
1.8 Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable Securities are
---------------
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners or officers, directors and stockholders
of each Holder, legal counsel and accountants for each Holder, any underwriter
(as defined in the Act) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the Act or the 1934 Act,
against any losses, claims, damages or liabilities (joint or several) to which
they may become subject under the Act, the 1934 Act or any state securities
laws, insofar as such losses, claims, damages, or liabilities (or actions in
respect thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a "Violation"): (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto or any other document incident
to any such registration, qualification or compliance, (ii) the omission or
alleged omission to state therein a material fact required to be stated therein,
or necessary to make the statements therein not misleading, or (iii) any
violation or alleged violation by the Company of the Act, the 1934 Act, any
state securities laws or any rule or regulation promulgated under the Act, the
1934 Act or any state securities laws; and the Company will reimburse each such
Holder, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 1.9(a) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation that occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person;
provided further, however, that the foregoing indemnity agreement with respect
to any preliminary prospectus shall not inure to the benefit of any Holder or
underwriter, or any person controlling such Holder or underwriter, from whom the
person asserting any such losses, claims, damages or liabilities purchased
shares in the offering, if a copy of the prospectus (as then amended or
supplemented if the Company shall have furnished any amendments or supplements
thereto) was not sent or given by or on behalf of such Holder or underwriter to
such person, if required by law so to have been delivered by such Holder or
underwriter, at or prior to the written confirmation of the sale of the shares
to such person, and if the prospectus (as so amended or supplemented) would have
cured the defect giving rise to such loss, claim, damage or liability.
<PAGE>
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the 1934 Act or any state securities laws,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will reimburse
any person intended to be indemnified pursuant to this Section 1.9(b), for any
legal or other expenses reasonably incurred by such person in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section 1.9(b)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Holder (which consent shall not be unreasonably withheld), provided that in no
event shall any indemnity under this Section 1.9(b) exceed the net proceeds from
the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties that may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage or expense referred to
herein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage or expense, as well as any other relevant equitable
considerations; provided, however, that in no event shall any contribution by a
Holder under this Section 1.9(d)
<PAGE>
exceed the net proceeds from the offering received by such Holder. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by reference to, among other things, whether the untrue or alleged untrue
statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section
1.9 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.10 Reports Under Securities Exchange Act of 1934. With a view to
---------------------------------------------
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the Initial Offering;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Act and the 1934 Act (at any
time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC that permits the
selling of any such securities without registration or pursuant to such form.
1.11 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities that (i) is an employee, affiliate, employee of an
affiliate, subsidiary, parent, partner, limited partner, retired partner or
stockholder of a Holder, (ii) is a Holder's family member or trust for the
benefit of an individual Holder, or (iii) after such assignment or transfer,
holds at least 100,000 shares of Registrable Securities (subject to appropriate
adjustment for stock splits, stock dividends, combinations and
<PAGE>
other recapitalizations ("RECAPITALIZATIONS"), provided: (a) the Company is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such registration rights are being assigned; (b) such
transferee or assignee agrees in writing to be bound by and subject to the terms
and conditions of this Agreement, including without limitation the provisions of
Section 1.13 below; and (c) such assignment shall be effective only if
immediately following such transfer the further disposition of such securities
by the transferee or assignee is restricted under the Act.
1.12 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the then outstanding Registrable Securities (as
defined in Section 1.1(j) above), voting as a class, enter into any agreement
with any holder or prospective holder of any securities of the Company that
would allow such holder or prospective holder (a) to include such securities in
any registration filed under Section 1.3 hereof, unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of such securities will
not reduce the amount of the Registrable Securities of the Holders that are
included or (b) to demand registration of their securities.
1.13 "Market Stand-Off" Agreement. Provided that the officers and
---------------------------
directors of the Company who own securities of the Company also agree to similar
restrictions, each Holder hereby agrees that it will not, without the prior
written consent of the managing underwriter, during the period commencing on the
date of the final prospectus relating to the Company's initial public offering
and ending on the date specified by the Company and the managing underwriter
(such period not to exceed one hundred eighty (180) days) (i) lend, offer,
pledge, sell, contract to sell, sell any option or contract to purchase,
purchase any option or contract to sell, grant any option, right or warrant to
purchase, or otherwise transfer or dispose of, directly or indirectly, any
shares of Common Stock or any securities convertible into or exercisable or
exchangeable for Common Stock (whether such shares or any such securities are
then owned by the Holder or are thereafter acquired), or (ii) enter into any
swap or other arrangement that transfers to another, in whole or in part, any of
the economic consequences of ownership of the Common Stock, whether any such
transaction described in clause (i) or (ii) above is to be settled by delivery
of Common Stock or such other securities, in cash or otherwise. The foregoing
provisions of this Section 1.13 shall apply only to the Company's Initial
Offering and shall not apply to any shares purchased by Integral Capital
Partners IV, L.P. and Integral Capital Partners IV MS Side Fund, L.P. in the
Initial Offering or in the open market following the Initial Offering. The
underwriters in connection with the Company's Initial Offering are intended
third party beneficiaries of this Section 1.13 and shall have the right, power
and authority to enforce the provisions hereof as though they were a party
hereto.
In order to enforce the foregoing covenant, the Company may impose stop-
transfer instructions with respect to the Registrable Securities of each Holder
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
1.14 Termination of Registration Rights. No Holder shall be entitled
----------------------------------
to exercise any right provided for in this Section 1 after (a) five (5) years
following the consummation of the Initial Offering or, (b) as to any Holder,
such earlier time at which all Registrable Securities held by such Holder (and
any affiliate of the Holder with whom such Holder must aggregate its sales under
<PAGE>
Rule 144) can be sold in any three (3)-month period without registration in
compliance with Rule 144 of the Act.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements.
--------------------------------
(a) The Company shall deliver to each Investor:
(i) as soon as practicable, but in any event within ninety
(90) days after the end of each fiscal year of the Company, an income statement
for such fiscal year, a balance sheet of the Company and statement of
stockholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("GAAP"),
and audited and certified by independent public accountants of nationally
recognized standing selected by the Company;
(ii) as soon as practicable, but in any event within forty-
five (45) days after the end of each of the first three (3) quarters of each
fiscal year of the Company, an unaudited income statement, statement of cash
flows for such fiscal quarter and an unaudited balance sheet as of the end of
such fiscal quarter;
(iii) with respect to the financial statements called for in
Section 2.1(a)(ii), an instrument executed by the Chief Financial Officer or
President of the Company certifying that such financials were prepared in
accordance with GAAP consistently applied with prior practice for earlier
periods (with the exception of footnotes that may be required by GAAP) and
fairly present the financial condition of the Company and its results of
operation for the period specified, subject to year-end audit adjustment;
(iv) so long as an Investor holds at least 500,000 shares
Registrable Securities (as adjusted for Recapitalizations occurring after the
date of this Agreement), the Company shall provide such Investor monthly
financial statements within ten (10) days of the end of each month; and
(v) such other information relating to the financial
condition, business, prospects or corporate affairs of the Company as the
Investor or any assignee of the Investor may from time to time request,
provided, however, that the Company shall not be obligated under this subsection
- -------- -------
(v) or any other subsection of Section 2.1 to provide information that it deems
in good faith to be a trade secret or similar confidential information.
(b) So long as Patricof & Co. Ventures, Inc. ("PCV") holds at
least 500,000 shares of Registrable Securities (as adjusted for
Recapitalizations occurring after the date of this Agreement), the Company shall
deliver to PCV, within forty-five (45) days after the end of each of the first
three (3) quarters of each fiscal year of the Company, a financial summary, in a
form attached as Exhibit A, signed by the Chief Financial Officer of the
---------
Company.
<PAGE>
2.2 Inspection. The Company shall permit each Investor that holds at
----------
least 80,000 shares of Registrable Securities (as adjusted for Recapitalizations
occurring after the date of this Agreement), at such Investor's expense, to
visit and inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by the Investor;
provided, however, that the Company shall not be obligated pursuant to this
- -------- -------
Section 2.2 to provide access to any information that it deems in good faith to
be a trade secret or similar confidential information.
2.3 Termination of Information and Inspection Covenants. The covenants
---------------------------------------------------
set forth in Sections 2.1 and 2.2 shall terminate as to Investors and be of no
further force or effect when the sale of securities pursuant to a registration
statement filed by the Company under the Act in connection with the closing of
the firm commitment underwritten offering of its securities to the general
public or when the Company first becomes subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall
first occur.
2.4 Right of First Offer. Subject to the terms and conditions specified
--------------------
in this Section 2.4, the Company hereby grants to each Major Investor (as
defined below) a right of first offer with respect to future sales by the
Company of its Shares (as defined below). For purposes of this Section 2.4, a
"MAJOR INVESTOR" shall mean any Investor or transferee that holds at least
80,000 shares of Registrable Securities (as adjusted for Recapitalizations
occurring after the date of this Agreement). A Major Investor shall be entitled
to apportion the right of first offer hereby granted it among itself and its
partners and affiliates in such proportions as it deems appropriate, provided in
each such case that each partner or affiliate is an "accredited investor" within
the meaning of Regulation D, Rule 501(a) promulgated by the Securities and
Exchange Commission.
Each time the Company proposes to offer any shares of, or securities
convertible into or exchangeable or exercisable for any shares of, any class of
its capital stock ("SHARES"), the Company shall first make an offering of such
Shares to each Major Investor in accordance with the following provisions.
(a) The Company shall deliver a notice in accordance with Section
3.5 ("NOTICE") to the Major Investors stating (i) its bona fide intention to
offer such Shares, (ii) the number of such Shares to be offered, and (iii) the
price and terms upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within twenty
(20) calendar days after receipt of the Notice, the Major Investor may elect to
purchase or obtain, at the price and on the terms specified in the Notice, up to
that portion of such Shares that equals the proportion that the number of shares
of Common Stock issued and held, or issuable upon conversion of the Series A
Preferred Stock or Series B Preferred Stock then held, by such Major Investor
bears to the total number of shares of Common Stock of the Company then
outstanding (assuming full conversion of all convertible securities). The
Company shall promptly, in writing, inform each Major Investor that elects to
purchase all the shares available to it (a "FULLY-EXERCISING INVESTOR") of any
other Major Investor's failure to do likewise. During the ten (10) day period
commencing after such information is given, each Fully-Exercising Investor may
elect to purchase that portion of the Shares for which Major Investors were
entitled to subscribe but which were not subscribed for by the Major
<PAGE>
Investors that is equal to the proportion that the number of shares of Common
Stock issued and held, or issuable upon conversion of Series A Preferred Stock
or Series B Preferred Stock then held, by such Fully-Exercising Investor bears
to the total number of shares of Common Stock issued and held, or issuable upon
conversion of the Series A Preferred Stock or Series B Preferred Stock then
held, by all Fully-Exercising Investors who wish to purchase some of the
unsubscribed shares.
(c) If all Shares that Investors are entitled to obtain pursuant
to Section 2.4(b) are not elected to be obtained as provided in Section 2.4(b),
the Company may, during the ninety (90) day period following the expiration of
the period provided in Section 2.4(b), offer the remaining unsubscribed portion
of such Shares to any person or persons at a price not less than, and upon terms
no more favorable to the offeree than those specified in the Notice. If the
Company does not enter into an agreement for the sale of the Shares within such
period, or if such agreement is not consummated within ninety (90) days of the
execution thereof, the right provided hereunder shall be deemed to be revived
and such Shares shall not be offered unless first reoffered to the Major
Investors in accordance herewith.
(d) The right of first offer in this Section 2.4 shall not be
applicable to (i) the issuance or sale of shares of Common Stock (or options
therefor) to employees, directors and consultants for the primary purpose of
soliciting or retaining their services issued pursuant to a Company Stock Plan;
(ii) the issuance of securities pursuant to a bona fide, firmly underwritten
public offering of shares of Common Stock, registered under the Act, (iii) the
issuance of securities pursuant to the conversion or exercise of convertible or
exercisable securities (collectively, "CONVERTIBLE SECURITIES") outstanding as
of the date hereof, and the issuance of securities issued pursuant to the
conversion or exercise of Convertible Securities issued after the date hereof,
provided that the right of first offer in this Section 2.4 shall apply with
respect to the initial sale or grant by the Company of such Convertible
Securities, (iv) the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise, (v) the issuance of
stock, warrants or other securities or rights to persons or entities with which
the Company has business relationships, provided (A) that such issuances are for
other than primarily equity financing purposes, and (B) that such issuances be
approved by both the full board of directors of the Company and the directors
elected by the holders of Series A Preferred Stock and Series B Preferred Stock
pursuant to Section 5(b) of Article IV of the Company's Amended and Restated
Certificate of Incorporation, (vi) the issuance of securities pursuant to a
Recapitalization and (vii) the issuance of 1,000 shares of Common Stock as a
charitable contribution to the National Alliance Research on Schizophrenia &
Depression and Aldea.
2.5 Qualified Small Business Status. After the Closing Date of the
-------------------------------
Series B Preferred Stock (the "CLOSING DATE"), the Company shall (a) not make
any purchase of its stock during the one-year period following the Closing Date
having an aggregate value, when added to the aggregate value of stock purchased
by the Company during the one-year period preceding the Closing Date (in each
case determined as of the purchase date), exceeding 5% of the aggregate value of
all of the Company's stock (such value determined as of the date one year prior
to the Closing Date) without having given the holders of the Series A Preferred
and Series B Preferred prior notice of such purchase and the opportunity to
discuss with the Company means of achieving such purchase without adversely
affecting the qualification of the Series A Preferred and Series B
<PAGE>
Preferred as "qualified small business stock" set forth in Section 1202(c) of
the Code and without such repurchase having been approved by the Board of
Directors, (b) use commercially reasonable efforts to use at least 80% (by
value) of its assets in the active conduct of one or more qualified trades or
business for substantially all of the five-year period following the Closing
Date, and (c) not cease to be a C corporation which is an eligible corporation,
as defined by Code Section 1202(e)(4).
2.6 Delivery of Annual Budget. The Company shall submit for the
-------------------------
approval of the Board of Directors prior to the beginning of each fiscal year an
annual budget and strategic plan for each fiscal year.
2.7 Insurance.
---------
(a) As soon as practicable after the Closing Date, the Company
shall obtain a policy of directors' and officers' liability insurance covering
directors of the Company in an amount as the Board of Directors shall specify.
(b) As soon as practicable after the Closing Date, the Company
shall obtain and cause to be maintained a policy of key man life insurance, with
the Company as the sole beneficiary, covering each of Messrs. Fernand Sarrat,
Arthur Tyde and David Sifry in the amount of at least $1,000,000 for each of
such individual or in such amount as the Board of Directors shall specify.
2.8 Committees. The members of each of the compensation and audit
----------
committees of the Board of Directors shall include one director designated by
the holders of a majority of the Series B Preferred Stock. The Compensation
Committee of the Board of Directors shall have, among other responsibilities,
the review and approval of stock option grants and the establishment of
executive compensation and bonuses.
2.9 Board Representation. At each election of directors the Investors
--------------------
and the Founders (and their permitted transferees) shall vote all of their
respective capital stock so as to elect: (a) one person designated by holders of
a majority of the Series A Preferred Stock, which individual shall initially be
Mr. Ted Schlein; (b) one person designated by the holders of a majority of the
outstanding shares of Series B Preferred, which individual shall initially be
Mr. Paul Vais; (c) two persons designated by the holder of a majority of the
Common Stock, which individuals shall initially be Messrs. Fernand Sarrat and
Arthur F. Tyde III; and (d) three persons who are not an officer, employee or
affiliate of the Company, to be designated by a majority of the outstanding
shares of Common Stock and Common Stock issued or issuable upon conversion of
the Series A Preferred Stock or Series B Preferred Stock, voting together as a
class which individuals shall initially be Messrs. Regis McKenna, Ernie Von
Simson and John Drew. Any vote taken to remove any director elected pursuant to
this Section 2.9, or to fill any vacancy created by the resignation or death of
a director elected pursuant to this Section 2.9, shall be filled by the majority
vote of the holders of that class or series of stock.
2.10 Termination of Certain Covenants. The covenants set forth in
--------------------------------
Section 2.4, 2.5, 2.6, 2.7, 2.8 and 2.9 shall terminate and be of no further
force or effect upon (i) the
<PAGE>
consummation of the sale of securities pursuant to a Qualified Public Offering
or (ii) Change of Control of the Company.
3. Miscellaneous.
-------------
3.1 Successors and Assigns. Except as otherwise provided herein, the
----------------------
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and permitted assigns of the parties
(including transferees of any shares of Registrable Securities). Nothing in this
Agreement, express or implied, is intended to confer upon any party other than
the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
3.5 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
delivery by confirmed facsimile transmission, nationally recognized overnight
courier service, or upon deposit with the United States Post Office, by
registered or certified mail, postage prepaid and addressed to the party to be
notified at the address indicated for such party on the signature page hereof,
or at such other address as such party may designate by ten (10) days' advance
written notice to the other parties.
3.6 Expenses. If any action at law or in equity is necessary to
--------
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Entire Agreement: Amendments and Waivers. This Agreement
----------------------------------------
(including the Exhibits hereto, if any) constitutes the full and entire
understanding and agreement among the parties with regard to the subjects hereof
and thereof. Any term of this Agreement may be amended and the observance of any
term of this Agreement may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and the holders of a majority of the Registrable
Securities, provided, however, that any amendment or waiver that is detrimental
-------- -------
to a holder of the Series B Preferred Stock in a manner different than any other
holder of Preferred Stock shall require the written consent of the holders of a
majority of the Series B Preferred Stock then outstanding. Any amendment or
waiver effected in accordance with
<PAGE>
this paragraph shall be binding upon each holder of any Registrable Securities,
each future holder of all such Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are held
------------
to be unenforceable under applicable law, such provision shall be excluded from
this Agreement and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 Aggregation of Stock. All shares of Registrable Securities held
--------------------
or acquired by affiliated entities or persons shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
LINUXCARE, INC.
/s/ Fernand Sarrat
By: --------------------------------
Name:
Title:
Address: 650 Townsend Street, Suite 320
San Francisco, CA 94103
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
APA EXCELSIOR V, L.P.
By: APA Excelsior v Partners, L.P.
Its General Partner
--------------------------------------
[Type or Print Name of Investor]
By: Patricof & Co. Managers, Inc.
Its General Partner
By: /s/ Paul A. Vais
----------------------------
Print Name: Paul A. Vais
-------------
Title: Managing Director
------------------
(if applicable)
Address: 2100 Geng Rd.
-------------
Suite 150
---------
PALO Alto, CA 94303
-------------------
-2-
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
APAX EUROPE IV - A, L.P.
By: Apax Europe IV GP, L.P.
Its: Managing General Partner
By: Apax Europe IV GP. Co. Limited
Its: Managing General Partner
By: /s/ Signature Illegible
---------------------------
Name: CAEHELYAR
---------
Title: DIRECTOR
--------
SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
<PAGE>
APAX EUROPE IV - B, L.P.
By: Apax Europe IV GP, L.P.
Its: Managing General Partner
By: Apax Europe IV GP. Co. Limited
Its: Managing General Partner
By: /s/ Signature Illegible
---------------------------
Name: CAEHELLAR
---------
Title: DIRECTOR
--------
APAX EUROPE IV C GmbH & Co. KG
By: Apax Europe IV GP, L.P.
Its: Managing General Partner
By: Apax Europe IV GP. Co. Limited
Its: Managing General Partner
By: /s/ Signature Illegible
---------------------------
Name: CAEHELYAR
---------
Title: DIRECTOR
--------
<PAGE>
APAX EUROPE IV - D, L.P.
By: Apax Europe IV GP, L.P.
Its: Managing General Partner
By: Apax Europe IV GP. Co. Limited
Its: Managing General Partner
By: /s/ CAEHELYAR
--------------------------
Name: CAEHELYAR
Title: DIRECTOR
--------
APAX EUROPE IV - E, L.P.
By: Apax Europe IV GP, L.P.
Its: Managing General Partner
By: Apax Europe IV GP. Co. Limited
Its: Managing General Partner
By: /s/ CAEHELYAR
--------------------------
Name: CAEHELYAR
Title: DIRECTOR
--------
<PAGE>
APAX EUROPE IV - F, C.V.
By: Apax Europe IV GP, L.P.
Its: Managing General Partner
By: Apax Europe IV GP. Co. Limited
Its: Managing General Partner
By: /s/ CAEHELYAR
--------------------------
Name: CAEHELYAR
Title: DIRECTOR
--------
APAX EUROPE IV - G, C.V.
By: Apax Europe IV GP, L.P.
Its: Managing General Partner
By: Apax Europe IV GP. Co. Limited
Its: Managing General Partner
By: /s/ CAEHELYAR
--------------------------
Name: CAEHELYAR
---------
Title: DIRECTOR
--------
<PAGE>
APAX EUROPE IV - H GmbH & Co K.G.
By: Apax Europe IV GP, L.P.
Its: attorney
By: Apax Europe IV GP. Co. Limited
Its: Managing General Partner
By: /s/ Signature Illegible
---------------------------
Name: CAEHELYAR
---------
Title: DIRECTOR
--------
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
AUSTIN I LLC
------------
[Type or Print Name of Investor]
By: /s/ GLENN FUHRMAN
--------------------------
Print Name: GLENN FUHRMAN
-------------
Title: MANAGER
-------
(if applicable)
Address: c/o MSD CAPITAL
---------------
780 THIRD AVE. 43rd FLOOR
-------------------------
NEW YORK, NY 10017
------------------
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
BLACK MARLIN INVESTMENTS, LLC
-----------------------------
[Type or Print Name of Investor]
By: /s/ JOHN PHELAN
----------------------------
Print Name: JOHN PHELAN
-----------
Title: MANAGER
-------
(if applicable)
Address: c/o MSD CAPITAL
---------------
780 THIRD AVE - 43rd FL.
------------------------
NEW YORK, NY 10017
------------------
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
--------------------------------------
[Type or Print Name of Investor]
By: /s/ Signature Illegible
----------------------------
Print Name: JENS CHRISTENSEN
----------------
Title:_________________________
(if applicable)
Address: ______________________
______________________
______________________
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
ComDisco, Inc.
--------------
[Type or Print Name of Investor]
By: /s/ Jill Hanes
--------------------------
Print Name: Jill Hanes
-----------
Title: SR VP
-----
(if applicable)
Address: 6111 N River Rd.
----------------
Rosemont, IL
------------
ATTN: Venture Group 60018
-------------------------
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
CONSTANTIN DELIVANIS
--------------------
[Type or Print Name of Investor]
By: /s/ CONSTANTIN DELIVANIS
-----------------------------
Print Name: CONSTANTIN DELIVANIS
--------------------
Title:___________________________
(if applicable)
Address: 12440 HILLTOP DR
----------------
LOS ALTOS HILLS, CA 94024
-------------------------
------------------------
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
DELL USA L.P.
-------------
[Type or Print Name of Investor]
By: Del. Gen. P. Corp., its General
Partner
By: /s/ Alex C. Smith
--------------------------
Print Name: Alex C. Smith
-------------
Title: V.P., Dell Ventures
-------------------
(if applicable)
Address: Round Rock 1, Mail Code # 8033
------------------------------
One Dell Way
------------
Round Rock TX 78682
-------------------
Attn: Thomas H. Welch, Jr. - Legal
Vice President, Deputy General Counsel
-2-
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
Dibachi Family Trust
--------------------
[Type or Print Name of Investor]
By: /s/ Farzad Dibachi
--------------------------
Print Name: Farzad Dibachi
--------------
Title: Trustee
-------
(if applicable)
Address: ______________________
______________________
______________________
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
JOHN DREW
---------
[Type or Print Name of Investor]
By: /s/ John Drew
-----------------------------
Print Name:_____________________
Title:__________________________
(if applicable)
Address: _______________________
_______________________
_______________________
-2-
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
Melody Kean Haller
------------------
[Type or Print Name of Investor]
By: /s/ Melody Kean Haller
--------------------------
Print Name:__________________
Title:_______________________
(if applicable)
Address: c/o Antenna Group, Inc.
-----------------------
301 Howard St., Ste. 1440
-------------------------
San Fran., CA 94105
-------------------
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
Integral Capital Partners IV, L.P.
----------------------------------
[Type or Print Name of Investor]
By Integral Capital Management IV, LLC
Its General Partner
By: Pamela Hagenah
--------------
Print Name: Pamela Hagenah
--------------
Title: Manager
-------
(if applicable)
Address: 2750 Sand Hill Road
-------------------
Menlo Park, CA 94025
--------------------
--------------------
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
Integral Capital Partners IV MS side fund, L.P.
-----------------------------------------------
[Type or Print Name of Investor]
By Integral Capital Partners NBT, LLC
Its General Partner
By: Pamela Hagenah
--------------
Print Name: Pamela Hagenah
--------------
Title: Manager
-------
(if applicable)
Address: 2750 Sand Hill Road
-------------------
Menlo Park, CA 94025
-------------------
------------------
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
KPCB HOLDINGS, INC.
-------------------
[Type or Print Name of Investor]
/s/ Ted Schlein
By: ------------------------
Print Name: TED SCHLEIN
-----------
Title:______________________
(if applicable)
Address: ___________________
___________________
___________________
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
___________________________________
[Type or Print Name of Investor]
/s/ Dave McGuerty
By: ------------------------------
Print Name: Dave McGuerty
-------------
Title:____________________________
(if applicable)
Address: 38 Argon Blvd
-------------------
San Mateo, CA 94402
-------------------
___________________
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
McKenna Ventures, L.P.
----------------------
[Type or Print Name of Investor]
/s/ Regis McKenna
By: ---------------------------
Print Name: Regis McKenna
-------------
Title: G.P.
----
(if applicable)
Address: 1409 GALLOWAY CT
----------------
SUNNYVALE, CA
-------------
94087
-----
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
Motorola, Inc.
--------------
[Type or Print Name of Investor]
/s/ Wayne E. Sennett
By: ----------------------------
Print Name: Wayne E. Sennett
----------------
Title: Corp VP & GM
------------
(if applicable)
Address: 2900 S. Diablo Way
------------------
Tempe AZ 85282
--------------
_________________
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
MSD Portfolio, L.P. - Investments
---------------------------------
[Type or Print Name of Investor]
/s/ Glen Fuhrman
By: -----------------------------
Print Name: GLEN FUHRMAN
------------
Title: MANAGING PRINCIPAL
------------------
(if applicable)
Address: c/o MSD CAPITAL
---------------
780 THIRD AVE
-------------
NEW YORK, NY 10017
------------------
-2-
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
Oracle Corporation
------------------
[Type or Print Name of Investor]
/s/ Matt Mosman
By:-------------------------
Print Name: Matt Mosman
-----------
Title: Vice President, Corporate
--------------------------
Development
--------------------------
(if applicable)
Address: 500 Oracle Parkway
------------------
Redwood City, CA 94065
----------------------
_____________________
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
PATRICOF PRIVATE INVESTMENT CLUB II, L.P.
BY: APA Excelsior V Partners, L.P.
Its General Partner
--------------------------------
[Type or Print Name of Investor]
By: Patricof & Co. Managers, Inc.
Its General Partner
/s/ Paul A. Vais
By:-------------------------
Print Name: Paul A. Vais
------------
Title: Managing Director
-----------------
(if applicable)
Address: 2100 Geng Rd.
-------------
Suit 150
--------
Palo Alto, CA 99303
-------------------
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
Hasso Plattner
--------------
[Type or Print Name of Investor]
/s/ Signature Illegible
By:--------------------------------
By: Ronn Loewenthal Attorney-In-Fact
--------------------------------
Print Name:_________________________
Title:______________________________
(if applicable)
Address: c/o LOEWENTHAL CAPITAL
----------------------
235 MONTGOMERY ST. STE 920
--------------------------
SAN FRANCISCO, CA 94104
-----------------------
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
-------------------------------------
[Type or Print Name of Investor]
/s/ M. RANGASWAMI
By:------------------------------
Print Name: M. RANGASWAMI
-------------
Title: _________________________
(if applicable)
Address: _______________________
_______________________
_______________________
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
RPKS Investments, LLC
---------------------
[Type or Print Name of Investor]
/s/ GLENN FURMAN
By:-----------------------------
Print Name: GLENN FURMAN
------------
Title: MANAGER
-------
(if applicable)
Address: c/o MSD CAPITAL
---------------
780 THIRD AVE
-------------
NEW YORK, NY 10017
------------------
-2-
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
Sun microsystems, Inc.
----------------------
[Type or Print Name of Investor]
/s/ Michael Lehman
By: ----------------------------
Print Name: Michael Lehman
--------------
Title: Vice President, Corporate Resources
Chief Financial Officer
-----------------------------------
(if applicable)
Address: Sun microsystems, Inc.
----------------------
901 San Antonio Road
--------------------
Palo Alto, CA 94303
-------------------
-2-
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
Triple Marlin Investments, LLC
------------------------------
[Type or Print Name of Investor]
/s/ John Phelan
By:----------------------------
Print Name: JOHN PHELAN
-----------
Title: MANAGER
-------
(if applicable)
Address: C/O MSD CAPITAL
---------------
780 THIRD AVE
-------------
NEW YORK, NY 10017
------------------
-2-
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
VERMEER INVESTMENTS, LLC
------------------------
[Type or Print Name of Investor]
/s/ Glenn Fuhrman
By:----------------------------
Print Name: GLENN FUHRMAN
-------------
Title: MANAGER
-------
(if applicable)
Address: c/o MSD CAPITAL
---------------
780 THIRD AVE - 43RD FL.
------------------------
NEW YORK, NY 10017
------------------
-2-
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
ERNEST M. VON SIMSON
--------------------
[Type or Print Name of Investor]
/s/ ERNEST M. VON SIMSON
By:----------------------------
Print Name: ERNEST M. VON SIMSON
--------------------
Title:__________________________
(if applicable)
Address: 16 West 77
----------
New York, NY 10024
------------------
__________________
-2-
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
__________________________________
[Type or Print Name of Investor]
/s/ SUNIL WADHWANI
By:-------------------------------
Print Name: SUNIL WADHWANI
--------------
Title:____________________________
(if applicable)
Address: _________________________
_________________________
_________________________
<PAGE>
LINUXCARE, INC.
INVESTOR SIGNATURE PAGE
TO
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
The undersigned hereby executes and delivers the Second Amended and
Restated Investors' Rights Agreement (the "Agreement") to which this Signature
Page is attached effective as of the date of the Agreement, which Agreement and
Signature Page, together with all counterparts of said Agreement and Signature
Pages of the other parties named in said Agreement, shall constitute one and the
same document in accordance with the terms of said Agreement.
WS Investment Company 99B
-------------------------
[Type or Print Name of Investor]
/s/ James A. Terranova
By:-----------------------------
Print Name: James A. Terranova
------------------
Title:__________________________
(if applicable)
Address:________________________
________________________
________________________
<PAGE>
Exhibit A
Patricof Form of Financial Summary (pursuant to Section 2.1(b)).
<PAGE>
EXHIBIT 10.1
------------
LINUXCARE, INC.
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of ___________ by
and between LinuxCare, Inc., a Delaware corporation known herein as the
"Company"), and ___________________________ ("Indemnitee").
WHEREAS, the Company and Indemnitee recognize the increasing difficulty in
obtaining directors' and officers' liability insurance, the significant
increases in the cost of such insurance and the general reductions in the
coverage of such insurance;
WHEREAS, the Company and Indemnitee further recognize the substantial
increase in corporate litigation in general, subjecting officers and directors
to expensive litigation risks at the same time as the coverage of liability
insurance has been limited;
WHEREAS, Indemnitee does not regard the current protection available as
adequate under the present circumstances, and Indemnitee and other officers and
directors of the Company may not be willing to continue to serve as officers and
directors without additional protection; and
WHEREAS, the Company desires to attract and retain the services of highly
qualified individuals, such as Indemnitee, to serve as officers and directors of
the Company and to indemnify its officers and directors so as to provide them
with the maximum protection permitted by law.
NOW, THEREFORE, the Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
---------------
(a) Third Party Proceedings. The Company shall indemnify Indemnitee
-----------------------
if Indemnitee is or was a party or is threatened to be made a party to any
threatened, pending or completed action or proceeding, whether civil, criminal,
administrative or investigative (other than an action by or in the right of the
Company) by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company, or any subsidiary of the Company, by reason of
any action or inaction on the part of Indemnitee while an officer or director or
by reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement (if
such settlement is approved in advance by the Company, which approval shall not
be unreasonably withheld) actually and reasonably incurred by Indemnitee in
connection with such action or proceeding if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, and, with respect to any criminal action or
proceeding, had no reasonable cause to believe Indemnitee's conduct was
unlawful. The termination of any action, suit or pro-
<PAGE>
ceeding by judgment, order, settlement, conviction, or upon a plea of nolo
----
contendere or its equivalent, shall not, of itself, create a presumption that
- ----------
(i) Indemnitee did not act in good faith, (ii) Indemnitee did not act in a
manner which Indemnitee reasonably believed to be in or not opposed to the best
interests of the Company, or (iii) with respect to any criminal action or
proceeding, Indemnitee had no reasonable cause to believe that Indemnitee's
conduct was unlawful.
(b) Proceedings By or in the Right of the Company. The Company shall
---------------------------------------------
indemnify Indemnitee if Indemnitee was or is a party or is threatened to be made
a party to any threatened, pending or completed action or suit by or in the
right of the Company or any subsidiary of the Company to procure a judgment in
its favor by reason of the fact that Indemnitee is or was a director, officer,
employee or agent of the Company, or any subsidiary of the Company, by reason of
any action or inaction on the part of Indemnitee while an officer or director or
by reason of the fact that Indemnitee is or was serving at the request of the
Company as a director, officer, employee or agent of another corporation,
partnership, joint venture, trust or other enterprise, against expenses
(including attorneys' fees) and, to the fullest extent permitted by law, amounts
paid in settlement, in each case to the extent actually and reasonably incurred
by Indemnitee in connection with the defense or settlement of such action or
proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the Company
and its stockholders, except that no indemnification shall be made in respect of
any claim, issue or matter as to which Indemnitee shall have been adjudged to be
liable to the Company in the performance of Indemnitee's duty to the Company and
its stockholders unless and only to the extent that the court in which such
action or suit is or was pending shall determine upon application that, in view
of all the circumstances of the case, Indemnitee is fairly and reasonably
entitled to indemnity for such expenses and then only to the extent that the
court shall determine.
2. AGREEMENT TO SERVE. In consideration of the protection afforded by
------------------
this Agreement, if Indemnitee is a director of the Company, he agrees to serve
at least for the balance of the current term as a director and not to resign
voluntarily during such period without the written consent of a majority of the
Board of Directors. If Indemnitee is an officer of the Company not serving under
an employment contract, he agrees to serve in such capacity at least for the
balance of the current fiscal year of the Company and not to resign voluntarily
during such period without the written consent of a majority of the Board of
Directors. Following the applicable period set forth above, Indemnitee agrees to
continue to serve in such capacity at the will of the Company (or under separate
agreement, if such agreement exists) so long as he is duly appointed or elected
and qualified in accordance with the applicable provisions of the Bylaws of the
Company or any subsidiary of the Company or until such time as he tenders his
resignation in writing. Nothing contained in this Agreement is intended to or
shall create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
-----------------------------------
(a) Advancement of Expenses. The Company shall advance all expenses
-----------------------
incurred by Indemnitee in connection with the investigation, defense, settlement
or appeal of any civil or criminal action or proceeding referenced in Section
1(a) or (b) hereof (but not amounts actually paid in settlement of any such
action or proceeding). Indemnitee hereby undertakes to repay such expenses
advanced only if, and to the extent that, it shall ultimately be determined that
Indemnitee is not entitled to be indemnified by the Company as authorized
hereby. The advances to be made
<PAGE>
hereunder shall be paid by the Company to Indemnitee within twenty (20) days
following delivery of a written request therefor by Indemnitee to the Company.
(b) Notice/Cooperation by Indemnitee. Indemnitee shall, as a
--------------------------------
condition precedent to his right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made against
Indemnitee for which indemnification will or could be sought under this
Agreement. Notice to the Company shall be directed to the Chief Executive
Officer of the Company at the address shown on the signature page of this
Agreement (or such other address as the Company shall designate in writing to
Indemnitee). Notice shall be deemed received three business days after the date
postmarked if sent by domestic certified or registered mail, properly addressed;
otherwise notice shall be deemed received when such notice shall actually be
received by the Company. In addition, Indemnitee shall give the Company such
information and cooperation as it may reasonably require and as shall be within
Indemnitee's power.
(c) Procedure. Any indemnification provided for in Section 1 shall be
---------
made no later than forty-five (45) days after receipt of the written request of
Indemnitee. If a claim under this Agreement, under any statute, or under any
provision of the Company's Certificate of Incorporation or Bylaws providing for
indemnification, is not paid in full by the Company within forty-five (45) days
after a written request for payment thereof has first been received by the
Company, Indemnitee may, but need not, at any time thereafter submit his claim
to arbitration as described in Section 14 to recover the unpaid amount of the
claim and, subject to Section 15 of this Agreement, Indemnitee shall also be
entitled to be paid for the expenses (including attorneys' fees) of bringing
such claim. It shall be a defense to any such action (other than a claim brought
for expenses incurred in connection with any action or proceeding in advance of
its final disposition) that Indemnitee has not met the standards of conduct
which make it permissible under applicable law for the Company to indemnify
Indemnitee for the amount claimed, but the burden of proving such defense shall
be on the Company, and Indemnitee shall be entitled to receive interim payments
of expenses pursuant to Subsection 3(a) unless and until such defense may be
finally adjudicated by court order or judgment from which no further right of
appeal exists or an arbitration panel as described in Section 14. It is the
parties' intention that if the Company contests Indemnitee's right to
indemnification, the question of Indemnitee's right to indemnification shall be
for the court or arbitration panel to decide, and neither the failure of the
Company (including its Board of Directors, any committee or subgroup of the
Board of Directors, independent legal counsel, or its stockholders) to have made
a determination that indemnification of Indemnitee is proper in the
circumstances because Indemnitee has met the applicable standard of conduct
required by applicable law, nor an actual determination by the Company
(including its Board of Directors, any committee or subgroup of the Board of
Directors, independent legal counsel, or its stockholders) that Indemnitee has
not met such applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.
(d) Notice to Insurers. If, at the time of the receipt of a notice of
------------------
a claim pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall thereafter
take all necessary or desirable action to cause such insurers to pay, on behalf
of the Indemnitee, all amounts payable as a result of such proceeding in
accordance with the terms of such policies.
<PAGE>
(e) Selection of Counsel. In the event the Company shall be obligated
--------------------
under Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the defense
of such proceeding, with counsel approved by Indemnitee, which approval shall
not be unreasonably withheld, upon the delivery to Indemnitee of written notice
of its election so to do. After delivery of such notice, approval of such
counsel by Indemnitee and the retention of such counsel by the Company, the
Company will not be liable to Indemnitee under this Agreement for any fees of
counsel subsequently incurred by Indemnitee with respect to the same proceeding,
provided that (i) Indemnitee shall have the right to employ his own counsel in
any such proceeding at Indemnitee's expense; and (ii) if (A) the employment of
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such defense
or (C) the Company shall not, in fact, have employed counsel to assume the
defense of such proceeding, then the fees and expenses of Indemnitee's counsel
shall be at the expense of the Company.
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
-------------------------------------------------
(a) Scope. Notwithstanding any other provision of this Agreement, the
-----
Company hereby agrees to indemnify the Indemnitee to the fullest extent
permitted by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's Certificate
of Incorporation, the Company's Bylaws or by statute. In the event of any
change, after the date of this Agreement, in any applicable law, statute or rule
which expands the right of a Delaware corporation to indemnify a member of its
Board of Directors or an officer, such changes shall be, ipso facto, within the
---- -----
purview of Indemnitee's rights and Company's obligations under this Agreement.
In the event of any change in any applicable law, statute or rule which narrows
the right of a Delaware corporation to indemnify a member of its Board of
Directors or an officer, such changes, to the extent not otherwise required by
such law, statute or rule to be applied to this Agreement shall have no effect
on this Agreement or the parties' rights and obligations hereunder.
(b) Nonexclusivity. The indemnification provided by this Agreement
--------------
shall not be deemed exclusive of any rights to which Indemnitee may be entitled
under the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested directors, the General Corporation Law of
the State of Delaware, or otherwise, both as to action in Indemnitee's official
capacity and as to action in another capacity while holding such office. The
indemnification provided under this Agreement shall continue as to Indemnitee
for any action taken or not taken while serving in an indemnified capacity even
though he may have ceased to serve in such capacity at the time of any action or
other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision
-----------------------
of this Agreement to indemnification by the Company for some or a portion of the
expenses, judgments, fines, penalties or amounts paid in settlement actually or
reasonably incurred by him in the investigation, defense, appeal or settlement
of any civil or criminal action or proceeding, but not, however, for the total
amount thereof, the Company shall nevertheless indemnify Indemnitee for the
portion of such expenses, judgments, fines or penalties to which Indemnitee is
entitled.
<PAGE>
6. MUTUAL ACKNOWLEDGEMENT. Both the Company and Indemnitee acknowledge
----------------------
that in certain instances, Federal law or applicable public policy may prohibit
the Company from indemnifying its directors and officers under this Agreement or
otherwise. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the Securities and
Exchange Commission to submit the question of indemnification to a court in
certain circumstances for a determination of the Company's right under public
policy to indemnify Indemnitee.
7. DIRECTORS' AND OFFICERS' LIABILITY INSURANCE. The Company shall, from
--------------------------------------------
time to time, make a good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance with
reputable insurance companies providing the officers and directors of the
Company with coverage for losses from wrongful acts, or to ensure the Company's
performance of its indemnification obligations under this Agreement. Among other
considerations, the Company will weigh the costs of obtaining such insurance
coverage against the protection afforded by such coverage. In all policies of
directors' and officers' liability insurance, Indemnitee shall be named as an
insured in such a manner as to provide Indemnitee the same rights and benefits
as are accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is not a
director of the Company but is an officer; or of the Company's key employees, if
Indemnitee is not an officer or director but is a key employee. Notwithstanding
the foregoing, the Company shall have no obligation to obtain or maintain such
insurance if the Company determines in good faith that such insurance is not
reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage provided by
such insurance is limited by exclusions so as to provide an insufficient
benefit, or if Indemnitee is covered by similar insurance maintained by a
subsidiary or parent of the Company.
8. SEVERABILITY. Nothing in this Agreement is intended to require or
------------
shall be construed as requiring the Company to do or fail to do any act in
violation of applicable law. The Company's inability, pursuant to court order,
to perform its obligations under this Agreement shall not constitute a breach of
this Agreement. The provisions of this Agreement shall be severable as provided
in this Section 8. If this Agreement or any portion hereof shall be invalidated
on any ground by any court of competent jurisdiction, then the Company shall
nevertheless indemnify Indemnitee to the full extent permitted by any applicable
portion of this Agreement that shall not have been invalidated, and the balance
of this Agreement not so invalidated shall be enforceable in accordance with its
terms.
9. EXCEPTIONS. Any other provision herein to the contrary
----------
notwithstanding, the Company shall not be obligated pursuant to the terms of
this Agreement:
(a) Excluded Acts. To indemnify Indemnitee for any acts or omissions
-------------
or transactions from which a director may not be indemnified under the Delaware
General Corporation Law; or
(b) Claims Initiated by Indemnitee. To indemnify or advance expenses
------------------------------
to Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to
<PAGE>
indemnification under this Agreement or any other statute or law or otherwise as
required under Section 145 of the Delaware General Corporation Law, but such
indemnification or advancement of expenses may be provided by the Company in
specific cases if the Board of Directors has approved the initiation or bringing
of such claim; or
(c) Lack of Good Faith. To indemnify Indemnitee for any expenses
------------------
incurred by the Indemnitee with respect to any proceeding instituted by
Indemnitee to enforce or interpret this Agreement, if a court of competent
jurisdiction or the arbitration panel determines that each of the material
assertions made by the Indemnitee in such proceeding was not made in good faith
or was frivolous; or
(d) Insured Claims. To indemnify Indemnitee for expenses or
--------------
liabilities of any type whatsoever (including, but not limited to, judgments,
fines, ERISA excise taxes or penalties, and amounts paid in settlement) which
have been paid directly to Indemnitee by an insurance carrier under a policy of
directors' and officers' liability insurance maintained by the Company; or
(e) Claims Under Section 16(b). To indemnify Indemnitee for expenses
--------------------------
and the payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of 1934,
as amended, or any similar successor statute.
10. EFFECTIVENESS OF AGREEMENT. To the extent that the indemnification
--------------------------
permitted under the terms of certain provisions of this Agreement exceeds the
scope of the indemnification provided for in the Delaware General Corporation
Law, such provisions shall not be effective unless and until the Company's
Certificate of Incorporation authorizes such additional rights of
indemnification. In all other respects, the balance of this Agreement shall be
effective as of the date set forth on the first page and may apply to acts or
omissions of Indemnitee which occurred prior to such date if Indemnitee was an
officer, director, employee or other agent of the Company, or was serving at the
request of the Company as a director, officer, employee or agent of another
corporation, partnership, joint venture, trust or other enterprise, at the time
such act or omission occurred.
11. CONSTRUCTION OF CERTAIN PHRASES.
-------------------------------
(a) For purposes of this Agreement, references to the "Company" shall
include, in addition to the resulting corporation, any constituent corporation
(including any constituent of a constituent) absorbed in a consolidation or
merger which, if its separate existence had continued, would have had power and
authority to indemnify its directors, officers, employees or agents, so that if
Indemnitee is or was a director, officer, employee or agent of such constituent
corporation, or is or was serving at the request of such constituent corporation
as a director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, Indemnitee shall stand in the same
position under the provisions of this Agreement with respect to the resulting or
surviving corporation as Indemnitee would have with respect to such constituent
corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "other enterprises"
shall include employee benefit plans; references to "fines" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit plan;
and references to "serving at the request of the Company"
<PAGE>
shall include any service as a director, officer, employee or agent of the
Company which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants, or beneficiaries.
12. COUNTERPARTS. This Agreement may be executed in one or more
------------
counterparts, each of which shall constitute an original.
13. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
----------------------
Company and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and assigns.
14. ARBITRATION. It is understood and agreed that the Company and
-----------
Indemnitee shall carry out this Agreement in the spirit of mutual cooperation
and good faith and that any differences, disputes or controversies shall be
resolved and settled amicably among the parties hereto. In the event that the
dispute, controversy or difference is not so settled in the above manner within
forty-five (45) days, then the matter shall be exclusively submitted to
arbitration in San Francisco county, California before three independent
technically qualified arbitrators in accordance with the Commercial Arbitration
Rules of the American Arbitration Association and under the laws of California,
without reference to conflict of laws principles. Subject to Sections 1(b) and
6, arbitration shall be the exclusive forum and the decision and award by the
arbitrator(s) shall be final and binding upon the parties concerned and may be
entered in any state court of California having jurisdiction.
15. ATTORNEYS' FEES. In the event that any action is instituted or claim
---------------
is submitted to arbitration by Indemnitee under this Agreement to enforce or
interpret any of the terms hereof, Indemnitee shall be entitled to be paid all
court costs and expenses, including reasonable attorneys' fees, incurred by
Indemnitee with respect to such action or arbitration, unless as a part of such
action, a court of competent jurisdiction or the arbitrator(s) determines that
each of the material assertions made by Indemnitee as a basis for such claim
were not made in good faith or were frivolous. In the event of an action
instituted or a claim submitted to arbitration by or in the name of the Company
under this Agreement or to enforce or interpret any of the terms of this
Agreement, Indemnitee shall be entitled to be paid all court costs and expenses,
including attorneys' fees, incurred by Indemnitee in defense of such action or
claim (including with respect to Indemnitee's counterclaims and cross-claims
made in such action or arbitration), unless as a part of such action the court
or the arbitrator(s) determines that each of Indemnitee's material defenses to
such action or claim were made in bad faith or were frivolous.
16. NOTICE. All notices, requests, demands and other communications under
------
this Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for by the party addressee, on the date of such
receipt, or (ii) if mailed by domestic certified or registered mail with postage
prepaid, on the third business day after the date postmarked. Addresses for
notice to either party are as shown on the signature page of this Agreement, or
as subsequently modified by written notice.
17. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby
-----------------------
irrevocably consent to the jurisdiction of the courts of the State of California
for all purposes in connection with
<PAGE>
any proceeding which arises out of or relates to this Agreement and agree that
any action instituted under this Agreement shall be brought only in the state
courts of the State of California in San Francisco County and that any
arbitration proceeding which arises out of or relates to this Agreement shall be
held in San Francisco County, California.
18. CHOICE OF LAW. This Agreement shall be governed by and its provisions
-------------
construed in accordance with the laws of the State of California as applied to
contracts between California residents entered into and performed entirely
within California.
19. SUBROGATION. In the event of payment under this Agreement, the Company
-----------
shall be subrogated to the extent of such payment to all of the rights of
recovery of Indemnitee, who shall execute all documents required and shall do
all acts that may be necessary to secure such rights and to enable the
corporation effectively to bring suit to enforce such rights.
20. CONTINUATION OF INDEMNIFICATION. All agreements and obligations of the
-------------------------------
Company contained herein shall continue during the period that Indemnitee is a
director, officer or agent of the Company and shall continue thereafter so long
as Indemnitee shall be subject to any possible claim or threatened, pending or
completed action, suit or proceeding, whether civil, criminal, arbitrational,
administrative or investigative, by reason of the fact that Indemnitee was
serving in the capacity referred to herein.
21. AMENDMENT AND TERMINATION. Subject to Section 20, no amendment,
-------------------------
modification, termination or cancellation of this Agreement shall be effective
unless in writing signed by both parties hereto.
22. INTEGRATION AND ENTIRE AGREEMENT. This Agreement (a) sets forth the
--------------------------------
entire understanding between the parties, (b) supersedes all previous written or
oral negotiations, commitments, understandings and agreements relating to the
subject matter hereof and (c) merges all prior and contemporaneous discussions
between the parties.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
LINUXCARE, INC.
By:____________________________
Name:
Title:
AGREED TO AND ACCEPTED:
INDEMNITEE:
______________________________
Signature
______________________________
Print Name
______________________________
______________________________
Address
<PAGE>
EXHIBIT 10.2.1
AGREEMENT NUMBER: AM001-MSA
---------
MASTER SERVICES AGREEMENT
This Agreement is made as of December 1, 1999 ("Effective Date"),
between Linuxcare, Inc., a Delaware corporation with an office at 650 Townsend
Street, San Francisco, CA 94103, USA (Phone: 415-354-4878; Fax: 415-701-7457; E-
mail: [email protected], ("Linuxcare") and the "Customer" listed below.
Customer: Amdahl Corporation Contact: Matthew Erickson
Address: 1250 East Arques Avenue Phone: (408) 737-5929
Sunnyvale, California 94088 Fax: (408) 390-5936
E-Mail: [email protected]
SERVICES INFORMATION
Service Level: OEM
Service Fee Period 18 Months from
Signature
SERVICES PROVIDED
Subject to payment of all applicable fees, Linuxcare will use reasonable
commercial efforts to perform the support services specified in Linuxcare's
current, published "Linuxcare Technical Support Programs" documentation
appropriate to the Service Level selected by Customer ("Services"), in
accordance with the Terms and Conditions exhibit attached to this Agreement, and
otherwise set forth in the "Linuxcare Technical Support Programs" documentation.
Linuxcare may change the "Linuxcare Technical Support Programs" documentation,
and the services that will be performed for a particular Service Level, at any
time; such changes will take effect at the beginning of the next Service Fee
Period. Customer understands that Linuxcare's performance is dependent in part
on Customer's actions. Accordingly, any dates or time periods relevant to
performance of Services by Linuxcare shall appropriately and equitably extended
to account for any delays resulting from changes to Customer products or
otherwise due to Customer. Customer may request additional hours or levels of
Services ("Extended Services"), which Linuxcare may provide at Linuxcare's sole
discretion, provided that Customer pays Linuxcare's then current fees for such
Extended Services.
This Agreement includes the attached Terms and Conditions Exhibit, and contains,
- --------------------------------------------------------------------------------
among other things, warranty disclaimers and liability limitations. Any
- ------------------------------------------------------------------
different or additional terms of any related purchase order, confirmation, or
similar form even if signed by the parties after the date hereof shall have no
force or effect. References in this Agreement or the Terms and Conditions
Exhibit to a capitalized term appearing on this cover page shall have the
meaning or value of such term on this cover page.
Customer: Linuxcare:
By: /s/ William Jestron By: /s/ Thomas W. Phillips
------------------------ -------------------------
Name: William Jestron Name: Thomas W. Phillips
--------------- ------------------
Title: DIRECTOR of PURCHASING Title: V.P. Sales
---------------------- ----------
<PAGE>
TERMS AND CONDITIONS EXHIBIT
1. Training. Subject to payment of all fees, Linuxcare will provide the
--------
training specified in Linuxcare's current, published "Linuxcare Training
Programs" documentation. Unless otherwise arranged between Customer and
Linuxcare, all training shall occur at Linuxcare's facilities in San Francisco,
California. The fees for training will be Linuxcare's current, published
training fees, less the Training Discount ("Training Fees").
2. Fees and Payment. Customer shall pay Linuxcare the fees for the selected
----------------
Service Level shown in Linuxcare's current price list, less the Service Discount
("Service Fees"). Customer will pay the Service Fees for the initial Service Fee
Period within 15 days of the Effective Date. Customer will pay the Service Fees
and Extended Service fees within 45 days after receipt of Linuxcare's invoice.
Customer will also pay Linuxcare all Training Fees and Extended Services fees
within 45 days after receipt of Linuxcare's invoice therefor. All payments are
non-refundable. Any payments over 30 days overdue will bear a late payment fee
of the lower of 1.5% per month or the maximum rate allowed by law provided that
payment is not reasonably in dispute by Customer.
3. Proprietary Rights. As between the parties, Linuxcare will retain all
------------------
right, title and interest in and to any software, tools, techniques, and other
materials used in connection with providing the Services ("Linuxcare
Materials"). As between the parties, Customer will retain all right, title and
interest in and to any software, products, documentation and other materials it
supplies. Linuxcare hereby assigns to Customer all right, title and interest, in
any work product created as part of the Services ("Work Product"), but this
assignment does not include any portion of the Linuxcare Materials, and will not
prevent Linuxcare from using the expertise, ideas and know-how learned while
performing Services for other purposes (including, without limitation, for
itself or on behalf of third parties).
4. Confidential Information. Neither party will disclose its Confidential
------------------------
Information to the other, except under a specific nondisclosure agreement.
5. Termination. This Agreement will continue until terminated by either party.
-----------
Either party may terminate this Agreement upon thirty (30) days written notice
to the other party, except if Linuxcare is terminating the Agreement such
termination will not be effective until the end of any fully paid-up Service Fee
Period. Linuxcare may terminate this Agreement at any time in the case of non-
payment by Customer of any fees which have not been reasonably disputed by
Customer, unless Customer pays such fees in full within ten (10) days after such
notice. Sections 4, 5, 7, 8, and 9 of this Agreement, and all accrued rights to
payment, shall survive termination. Termination is not an exclusive remedy and
all other remedies will be available whether or not termination occurs.
6. Warranty and Disclaimer. Linuxcare hereby warrants to Customer, and only
-----------------------
Customer, that all Services shall be performed in a professional and workmanlike
manner. THE PARTIES ACKNOWLEDGE THAT THIS IS AN AGREEMENT FOR SERVICES AND NOT
FOR THE SUPPLY OF GOODS. EXCEPT FOR THE FOREGOING, LINUXCARE MAKES NO OTHER
WARRANTIES OR REPRESENTATIONS AS TO THE SERVICES RENDERED, AND HEREBY DISCLAIMS
ALL EXPRESS AND IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO, IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NONINFRINGEMENT. LINUXCARE FURTHER DISCLAIMS ANY WARRANTY THAT THE SERVICES WILL
SUCCEED IN RESOLVING ANY PROBLEM, OR THAT ANY WORK PRODUCT OF THE SERVICES WILL
BE FREE FROM PROGRAM ERRORS.
7. Limitation of Liability. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR
-----------------------
OTHERWISE, AND EXCEPT FOR BODILY INJURY AND PROPERTY DAMAGE:
7.1 LINUXCARE SHALL NOT BE LIABLE OR OBLIGATED WITH RESPECT TO THE SUBJECT
MATTER OF THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR
OTHER LEGAL OR EQUITABLE THEORY: (I) FOR ANY AMOUNTS IN EXCESS IN THE AGGREGATE
OF THE FEES PAID TO IT HEREUNDER WITH RESPECT TO THE APPLICABLE SERVICES; (II)
FOR ANY COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY, SERVICES OR RIGHTS;
OR (III) FOR INTERRUPTION OF USE OR LOSS OR CORRUPTION OF DATA.
7.2 NEITHER PARTY TO THIS AGREEMENT SHALL BE LIABLE OR OBLIGATED WITH RESPECT
TO THE
<PAGE>
SUBJECT MATTER OF THIS AGREEMENT. FOR ANY INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES OR LOST PROFITS.
8. Export Control. Customer shall comply with the U.S. Foreign Corrupt
--------------
Practices Act and all applicable export laws, restrictions, and regulations of
the U.S. and foreign agency or authority.
9. Miscellaneous. This Agreement is not assignable or transferable by Customer
-------------
without the prior written consent of Linuxcare; any attempt to do so shall be
void. Subject to Customer's consent, which will not be unreasonably withheld,
Linuxcare may assign this Agreement in whole or in part, or subcontract the
performance of Services to third parties. The parties agree that they are
independent contractors and that this Agreement and relations between Linuxcare
and Customer hereby established do not constitute a, joint venture, agency or
contract of employment between them, or any other similar relationship. Neither
party has the right or authority to assume or create any obligation or
responsibility on behalf of the other. Any notice, report, approval or consent
required or permitted hereunder shall be in writing. No failure or delay in
exercising any right hereunder will operate as a waiver thereof, nor will any
partial exercise of any right or power hereunder preclude further exercise. If
any provision of this Agreement shall be adjudged by any court of competent
jurisdiction to be unenforceable or invalid, that provision shall be limited or
eliminated to the minimum extent necessary so that this Agreement shall
otherwise remain in full force and effect and enforceable. This Agreement shall
be deemed to have been made in, and shall be construed pursuant to the laws of
the State of California and the United States without regard to conflicts of
laws provisions thereof. Any waivers or amendments shall be effective only if
made in writing. This Agreement is the complete and exclusive statement of the
mutual understanding of the parties and supersedes and cancels all previous
written and oral agreements and communications relating to the subject matter of
this Agreement. The prevailing party in any action to enforce this Agreement
will be entitled to recover its attorney's fees and costs in connection with
such action.
<PAGE>
AMDAHL STATEMENT OF WORK
LINUXCARE CONFIDENTIAL
EXHIBIT A
STATEMENT OF WORK, TECHNICAL SUPPORT
CONTROL
Document ID AM0001
Location X459
Originator Jim Fisher
T.S.Approval
Issue Date 11/23/1999
Status
Version 1.0
DISTRIBUTION
LINUXCARE
AMDAHL
CORPORATION
VERSION MODIFIED BY DATE DESCRIPTION
-------- ----------- ---- -----------
0.1 Jim Fisher 11/23/1999 Initial SOW
0.2 Revisions as discussed with ISP.
LINUXCARE PAGE 1 OF 8
Rev: 11-05-1999 Tech. Svc.
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1 INTRODUCTION 3
1.1 TERM 3
1.2 LIMITATION ON LIABILITY 3
1.3 NO TRANSFER RIGHTS 3
1.4 RENEWAL AND TERMINATION 3
2 RELATIONSHIP OBJECTIVES 4
2.1 RELATIONSHIP 4
2.2 DEFINITIONS 4
2.3 PAYMENT 4
2.3.1 Currency 4
3 SERVICES 5
3.1 SERVICE SCOPE 5
3.1.1 Service Entitlement: 5
3.1.2 Service Delivery: 5
3.1.3 Hours of Operation: 5
3.1.4 Response, Report and Resolution: 5
3.2 SERVICE RATE AND BILLING 5
3.2.1 Telecommunication Costs 5
3.2.2 Rate and Billing 6
3.3 SERVICE REQUEST PROCEDURE 6
3.4 SERVICE RESTRICTIONS 6
4 MANAGEMENT 7
4.1 LINUXCARE'S RESPONSIBILITY AND OBLIGATION 7
4.1.1 Personnel 7
4.1.2 Quality of Service 7
4.1.3 Fair Representation 7
4.1.4 Audit Information 7
4.2 CUSTOMER'S RESPONSIBILITY AND OBLIGATION 7
4.2.1 Forecast and Minimum Service 7
4.2.2 Certification 7
4.2.3 Service Request Routing Facility 7
4.2.4 Escalation Point of Contact 7
</TABLE>
PAGE 2 OF 8
<PAGE>
1 INTRODUCTION
This Statement of Work, No. AM0001 ("SOW"), effective 01/01/2000 is agreed upon
------ ----------
by sets forth the agreement between Linuxcare Inc. ("LINUXCARE") and Amdahl
------
Corporation ("CUSTOMER") regarding the services to be provided by services
- -----------
provided by LINUXCARE pursuant to the Master Services Agreement between
LINUXCARE and CUSTOMER dated 01/01/2000.
-----------
This document is intended solely for CUSTOMER and LINUXCARE, constitutes
Confidential Information under the Master Services Agreement and is not be
provided to third parties without the prior written consent of LINUXCARE.
1.1 TERM
The service period of the SOW shall commence on the effective date and continue
for the period of 18 months 06/01/2001 (the "Term"), unless earlier terminated
----------
under the Master Service Agreement.
During the period LINUXCARE and CUSTOMER will evaluate CUSTOMER's needs and
LINUXCARE's service capacity as basis of negotiation for the next service
period.
1.2 FORCE MAJEURE Neither CUSTOMER nor LINUXCARE shall be in breach of this
agreement or be held liable for any damage due to any failure of
performance that arises out of causes beyond either party's control after
exercising its reasonable efforts to perform.
1.3 NO TRANSFER RIGHTS
This SOW, and all rights under and describe by it herein, can not be transferred
or assigned by CUSTOMER. Any attempt to transfer, assign or re-use the right
contained by CUSTOMER is a violation and shall immediately terminate this SOW
and all rights under it.
1.4 RENEWAL AND TERMINATION
Two (2) months prior to expiration of an existing Term, CUSTOMER and LINUXCARE
shall meet to: (1) evaluate the quality of the service provided, and (2)
evaluate whether it is appropriate to adjust the service scope and duration of a
future Term, and (3) in the case of agreement with respect to an adjustment of
the service scope or duration of the Term, mutually agree in writing as to such
future Term.
PAGE 3 OF 8
<PAGE>
2 RELATIONSHIP OBJECTIVES
2.1 RELATIONSHIP
The structure of the LINUXCARE and CUSTOMER relationship is outlined in the
following diagram:
[CHART OMITTED]
2.2 DEFINITIONS
"END USER" means a customer of CUSTOMER.
"Linux" shall mean the Linux operating system.
"SEVERITY 1" A critical system component, network or application is non-
operational and the End User cannot continue to operate. The
End User is willing to commit the necessary resources to
arrive at a problem resolution
"SEVERITY 2" A system, network or critical application problem exists that
seriously degrades system or application operations and the
End User is willing to commit the necessary resources to
arrive at problem resolution. The problem could be
intermittent
"SEVERITY 3" The End User's system, network and applications continue to
run, and operation is not degraded, but a problem exists that
requires resolution
"SEVERITY 4" A low impact problem, or a call for information, or a
documentation call.
"RESOLUTION" means formulation and development of answers, advice, and
opinion for and of circumvention, fixes, work-around and how-
to assistance. Problems shall be considered resolved when
corrective actions resume the normal performance of a feature
or function or is mutually agreed to be a code restriction or
"working as designed" issue, and when CUSTOMER conveys
acceptance to LINUXCARE.
PAGE 4 OF 8
<PAGE>
3 SERVICES
3.1 SERVICE SCOPE
The scope of the service includes the following:
3.1.1 SERVICE ENTITLEMENT:
The work under the SOW as specified herein will ensure that the CUSTOMER's End
User community is provided with support services for their LINUX based system.
-----
The services include providing answers, advice or opinions pertaining to Linux
and its run-time environment or the usage of Linux Operating System and its run-
time environment pursuant to the applicable severity level. Services exclude
consulting, project management, auditing, and any configuration assistance.
End Users or CUSTOMER's RTC support staff shall be responsible for performing
the corrective operation under LINUXCARE's guidance.??? LINUXCARE will provide
support for major Linux distributions such as Red Hat, Caldera, Debian
GNU/Linux, Laser5 Linux, Linux-Mandrake, LinuxPPC, MkLinux, Slackware Linux,
Stampede, SuSE, TurboLinux, UltraLinux, and Yellow Dog and any other derivative
of Linux.
3.1.2 SERVICE DELIVERY:
3.1.3 SUPPORT SERVICE IS DELIVERED VIA TELEPHONE OR EMAILS, RESPONSE, REPORT
AND RESOLUTION:
LINUXCARE will attend to the incident reported by CUSTOMER according to the
following criteria.
<TABLE>
<CAPTION>
Severity Initial Response Time Resolution or Report Escalation
Level Time
(Section 2.2)
<S> <C> <C> <C>
1 30 Minutes 8 Hours Same Day
2 4 Hours Within 2 Business Day 2 Business Day
3 4 Hours Within 5 Business Day 5 Business Day
4 4 Hours Within 7 Business Day 7 Business Day
</TABLE>
3.2 SERVICE RATE AND BILLING
3.2.1 TELECOMMUNICATION COSTS
LINUXCARE will be responsible for all outbound telecommunication costs related
to the provision of services provided. CUSTOMER will be responsible for all
inbound costs to LINUXCARE which are incurred through the provisioning of
services except collect calls placed by End Users.
PAGE 5 OF 8
<PAGE>
3.2.2 RATE AND BILLING
DESCRIPTION LIST PRICE
24x7 Telephone Based Support Requests will be billed for a minimum charge of
1/2 hour and in 15-minutes increment thereafter,
up to an hour, at the rate of $180/hour.
3.3 SERVICE REQUEST PROCEDURE
I). Initiate: CUSTOMER shall initiate the service request via telephone,
email or web forms located on CUSTOMER's web site with the following
information:
* Name and contact information.
* Description use the incident, description of the symptom and
necessary configuration information.
II). Response: LINUXCARE will respond to the routed service requests by
providing an initially email response in accordance with the time defined in
Response, Report and Resolution, (Section 3.1.3). The email response to End
Users shall indicate the CUSTOMER's email address or alias.
III). Closure: Service requests are considered closed or "resolved" in
accordance with the definition in Section 2.2.
IV): Escalation: If LINUXCARE is unable to resolve response in accordance with
the time defined in Response, Report and Resolution, (Section 3..1.3), it will
escalate to CUSTOMER.
3.4 SERVICE RESTRICTIONS
The services provided by LINUXCARE are to be used by CUSTOMER's End User
community. Accordingly, CUSTOMER shall not:
* Re-Sell LINUXCARE support packages to other third party service
providers.
* Make any additional or conflicting representations or warranties
on behalf of LINUXCARE.
* Use the trademark LINUXCARE name, logo, or the phrase "At the
Center of Linux" without prior written consent from LINUXCARE in
each case.
PAGE 6 OF 8
<PAGE>
4 MANAGEMENT
4.1 LINUXCARE'S RESPONSIBILITY AND OBLIGATION
4.1.1 PERSONNEL
LINUXCARE shall secure all qualified personnel required to perform the Services
as defined in Section 3.1.1.
4.1.2 FAIR REPRESENTATION
LINUXCARE will represent CUSTOMER fairly and will make no representations or
guarantees concerning CUSTOMER which are false or misleading. LINUXCARE will
comply with all applicable laws and regulations in performing under this
agreement.
4.1.3 AUDIT INFORMATION
LINUXCARE shall record and maintain relevant data in accordance with Section
3.1.4?? and 3.2 and 3.3.
LINUXCARE shall make summary incident reports online available to CUSTOMER for
each incident reported to LINUXCARE by CUSTOMER. These incident reports will be
issued in English only.
4.2 CUSTOMER'S RESPONSIBILITY AND OBLIGATION
4.2.1 FORECAST AND MINIMUM SERVICE
CUSTOMER will commit a minimum of eighty-four (84) hours of support service in
the duration defined by TERM. There shall be no refund or credits from LINUXCARE
to CUSTOMER for any unused service time upon the termination of this agreement
for any reason. CUSTOMER shall provide a forecast to LINUXCARE of the estimated
service requests per months prior to commencement of each calendar quarter.
4.2.2 SERVICE REQUEST ROUTING FACILITY
CUSTOMER will provide necessary facility, including web forms, email
address/alias and call routing system, for initiating and routing service
request.
4.2.3 ESCALATION POINT OF CONTACT
CUSTOMER will provide the contact information of the engineer(s) responsible for
escalated service request to LINUXCARE. CUSTOMER will facilitate resolution
information on escalated service requests upon request from LINUXCARE.
PAGE 7 OF 8
<PAGE>
CUSTOMER: LINUXCARE:
By: /s/ William Jestron By: /s/ Thomas W. Phillips
----------------------- -----------------------
Name: William Jestron Name: Thomas W. Phillips
--------------- ------------------
Title: Director of Purchasing Title: V.P. Sales
---------------------- ----------
PAGE 8 OF 8
<PAGE>
EXHIBIT 10.2.2
SUPPORT, TRAINING AND CERTIFICATION AGREEMENT
THIS SUPPORT, TRAINING AND CERTIFICATION AGREEMENT is entered into as of
this _____ day of _______________, 19___ (hereinafter "Effective Date") by
and between Dell Products L.P. (hereinafter "Dell") with its principal
place of business at One Dell Way, Round Rock, Texas 78682, and Linuxcare
Inc, a __________ corporation having a principal place of business at
__________ (hereinafter "Linuxcare").
DEFINITIONS:
"Linux Distributions" shall include the current and future versions and
releases of the Linux-based operating systems distributed by Redhat,
Caldera, SuSE, Turbolinux (Pacific HiTech) and Debian.
"System Configuration" shall mean any combination of the Base Platforms
described in Sections A and B of Supplement 1 with any or all of the
devices as certified by LinuxCare Labs, that are listed in Section C of
Supplement 1, as amended from time to time by Dell.
1. SUPPORT
SCOPE OF SUPPORT SERVICES
-------------------------
90-Day Installation Support
---------------------------
Linuxcare will provide phone and email support to Dell customers,
located in the geographical regions listed in Supplement 3 and in
other geographies which Dell may include from time to time. Support
will be in the following areas, for customers who choose and pay for
Linuxcare as their Linux operating system support provider for * per
Linux system sold by Dell and referenced in Supplement 1:
(i) Reinstallation of factory installed Linux operating system
distributions installed by Dell in all geographic regions.
The reinstall is done by the customer from a CD provided
with the system. Linuxcare will provide direction to the
customer as requested;
(ii) Configuration of client services associated with enabling a
system to communicate with the network and to connect to
existing networks via supported Linux drivers;
(iii) Connectivity testing between Linux workstation and the
network using the TCP/IP on workstations to verify that the
Ethernet controllers included with Dell systems
communicates with the network as specified in the industry
standard TCP/IP architecture;
(iv) Configuration of Linuxcare Labs Certified onboard devices
which consist of:
Network Interface Controller (NIC)
Disk Drives
Video adapters
memory
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
1
<PAGE>
Processors
Tape Back up units
Disk drive controllers
Audio controllers
(vi) Assistance with basic system administration tasks such as
adding a user, changing password;
(vii) 14x7 (local region time) English based phone, email, and web-
based support
(viii) Local language support provided as available at no additional
charge; Local language support will be available from Linuxcare
for the following: Japan October 31, 1999 German, French,
Dutch, Spanish, Italian November 31, 1999
Linuxcare will provide 2 Linuxcare certification support contacts for
Dell to utilize as technical resources
Extended Support Offering
- -------------------------
In the event that the customer's support requirement falls outside the
previously described installation support, the customer may take advantage of
Linuxcare Extended Support offerings. These incident packs may be purchased at
time of system purchase or within the 90-Day Installation Support period only
and cover the Linux Distributions Unused incidents will expire one year from
purchase date.
Description of Services included:
- ---------------------------------
Post 90-day installation support coverage includes English based phone, email,
and web-based support, and local language phone and written support provided as
available. In the event consulting services are necessary, an incident coupon
can be used as a credit equal to the dollar amount or amounts of the incident
coupon(s), towards the agreed upon consulting rate.
Incident coverage consists of the following:
(i) Identifying and solving software and hardware issues
(excluding "Windows"', RAID systems, WAN Networking
products and USB devices) that have prescribed solutions,
existing patches, prior fixes;);
(ii) configuration of new non "Windows" hardware utilizing
existing functional device drivers;
(iii) basic re-configuration of the operating system;
(iv) configuration of professional user space applications
These services may require multiple e-mail and/or telephone communications
between Linuxcare support technician and the end user. The incident support
coverage requires that covered support issues be reported and handled on a
single incident basis, restricting communication to a single incident within the
scope of the problem/issue reported.
Pricing for Incident Packs:
---------------------------
*for 5 incident pack (* incident)
*for 10 incident pack (* incident)
*for 25 incident pack (* incident)
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
2
<PAGE>
Escalation Support
------------------
Escalation support will be handled by Linuxcare in the manner
proscribed in Supplement No.2 as attached.
II. PAYMENT TERMS
For all amounts to be paid to Linuxcare for all of the services stated in
this Agreement (including those hereinafter defined as training and
certification services), Dell will pay Linuxcare the fees stated herein.
Linuxcare will receive from Dell a weekly reporting stating how many of
Dell's customers who had a Linux Distribution installed, chose Linuxcare as
a provider of support. From this data Linuxcare will generate an acceptable
invoice to Dell for payment. Linuxcare will also send out a letter to
Dell's customers, who have chosen Linuxcare as their support provider,
advising the customer of what the support offering will consist of and the
hours of operation, along with a toll free number for the customer to call
into for service.
III. TRAINING
Scope of Training Services
--------------------------
Linuxcare will provide training to Dell on site for class sizes between ten
and fifteen students per day. Training Services will be provided at the
current rate of [*] /person/day plus reasonable and actual travel and
shipping training materials expenses incurred per Dell's request and in
accordance with Dell's policy attached as Supplement X or found at (url).
Training will be in English only. If Dell chooses to do translations,
Linuxcare can do the translation at Dell's request and Dell shall
reimburse Linuxcare at cost for such translations. . Custom courseware
development fees may apply for courses developed or tailored to Dell's
specific needs.
Dell will pay or reimburse Linuxcare for any applicable sales, use, and
similar taxes associated with Dell's acquisition of the Services, except
that Dell will have no liability for any taxes based on Linuxcare's net
assets or net income, or for which Dell has an appropriate resale or other
exemption. Dell will reimburse Linuxcare for all pre-approved actual,
reasonable, documented out-of-pocket expenses, including travel expenses,
incurred by Linuxcare at Dell's request which are in accordance with Dell
policy (attached or found at
http://inside.us.dell.com/travel/vid/policy1.htm#statement.) Payment terms
are thirty (30) days from Dell's receipt of an acceptable Linuxcare
invoice. All payments will be in U.S. currency unless otherwise agreed to
in writing. No invoice will be sent prior to the performance of the related
Services. In the event that Linuxcare is in default of any of its
obligations under this Agreement, Dell may withhold payment of any part of
the unpaid price for the Services specifically in dispute until Linuxcare
has, to Dell's satisfaction, completely remedied the breach. All Services
purchased by Dell from Linuxcare will aggregate for calculating any
discounts, if applicable.
Linuxcare courseware is available for licensing by Dell for replication at
for an additional cost as referenced on Exhibit ____. Dell has the option
to use any training mechanism or provider that it deems, in conjunction
with any of its Linux offerings Therefore, nothing in this contract is
deemed to give Linuxcare exclusive Dell business.
Linuxcare hereby gives Dell the right to use and reproduce, any Linuxcare
trademarks and or logs in the marketing and distribution of Linuxcare
services.
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
3
<PAGE>
IV. CERTIFICATION SERVICES
Scope of Certification Services
-------------------------------
Linuxcare Labs, a division of Linuxcare, Inc will provide hardware
certification services for certain Dell configurations and components for
the platforms referenced in Supplement No. 1. Such services will consist of
the following:
(i) Dell has the option to submit up to 45 System Configurations per Linux
Distribution for certification, during a 12 month period;
(ii) Certifications will be for all previously defined Linux Distributions
(iii) Linuxcare will certify a system 96 hours after receipt of the Dell
system configuration, if the Dell submitted system passes Linuxcare Labs
certification;
(iv) Linuxcare will certify Japanese versions of TurboLinux against all
submitted Dell System Configurations;
(v) Linuxcare will also certify French, German, Dutch and English beginning
December, 1999
(vi) Linuxcare will certify Italian and Spanish as soon as it becomes
available from Linuxcare Labs;
(vii) Dell will have the option to self certify its configured systems when
such certification tests are available from Linuxcare Labs;
(viii) Linuxcare will provide 2 dedicated contacts for Dell certification
support, with specified contacts for backup in the event that the
designated contacts are unavailable;
(ix) Linuxcare will certify and provides support for IA64 code architecture
as designed by IBM when it becomes available for the core Linux operating
system as designated by Linus Torvald.
Pricing and Payment Terms
-------------------------
The price for each separate certification of each of the above referenced
distributions is * per System. New releases (e.g., 1.1 to 1.2) of the
Linux Distributions will be included in the * fee, new versions
(e.g., 1.0 to 2.0) will require a separate certification.
Metrics
-------
Linuxcare will employ a scientific and replicable process that measures the
success or failure of a computer system's system initialization, booting,
launching of necessary services, networking, video, and other included
components. Upon request, Linuxcare will provide to Dell documentation of
this process.
Deliverables
------------
A configuration is certified if it is made fully operational with the
currently available Linux Distribution software and patches. Linuxcare will
post all Linuxcare Labs Certified machines on its web site and maintain
links from associated partners web sites and Linuxcare will provide Dell a
document describing the System Configuration which was certified. Linuxcare
will provide a separate document for Linux individual distributions to Dell
within 3 days of certification.
V. CONSULTING SERVICES
Linuxcare will provide consulting, development, optimization, benchmarking,
etc. to Dell, if requested by Dell, at current contract pricing, subject to
availability of Linuxcare resources.. Projects and long-term contracts, if
any, will be negotiated on a case-by-case basis if necessary, and a
separate
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
4
<PAGE>
Statement of Work ("SOW"), will be executed by the parties and made an
addendum to this agreement.
VI. SERVICE LEVEL GUARANTEES
Linuxcare agrees to provide the following service levels for Dell
customers who choose Linuxcare as their Linux operating system support
provider:
FIRST TIME CLOSURE RATE: 85%
(known to Dell as First Time Resolve "FTR")
EMAIL SUPPORT LEVEL "SL": acknowledge receipt of email within 4 hrs
L1 issues within 12 hrs
L2 issues within 24 hours
WEB SL: L1 issues within 12 hrs
L2 issues within 24 hours
PHONE SL: L1 issues resolved on the call
L2 issues within 4 hours
VII. TERM
The Agreement shall have an initial term of one (1) year commencing on
the date this agreement is fully executed by both parties ("Initial
Term"). It shall be automatically renewed for successive one (1) year
terms at Linuxcare's then current rates for the selected Services,
unless and until terminated by either party by written notice to the
other at least sixty (60) days prior to the expiration of the Initial
Term or any then-current renewal term. If Linuxcare's rates for any
selected services shall be increased for any renewal term, DELL may,
no longer than thirty (30) days from the receipt of notice of such
increase, elect to terminate such Services by written notice to
Linuxcare. As used herein, "Term" shall mean the Initial Term and any
renewals thereof.
VIII. TERMINATION AND DEFAULT
If Dell fails to pay any invoice in full within a period of forty-five
(45) days after the same is due and such failure continues for a
period of thirty (30) days after Linuxcare gives notice to DELL
thereof, then in addition to all other rights and remedies at law or
otherwise, Linuxcare shall have the right to terminate this Agreement
upon thirty (30) days notice to DELL. Except for Dell's failure to
make payments, as herein above set forth, either party may terminate
this Agreement on written notice if the other party has breached any
material provision of this Agreement, or becomes insolvent, invokes as
a debtor any laws relating to the relief of debtors' or creditors'
rights, or has such laws invoked against it as a debtor. Such
termination shall be effective thirty (30) days after notice, unless
such breach has been cured or the terminating party is satisfied with
the other party's solvency within that time.
Termination for convenience. Dell may upon 30 days written notice to
Linuxcare, terminate this agreement for convenience, unless Dell is in
breach of this agreement as stated in Section VIII. If Dell is in
breach of the agreement, as stated in Section VIII, Dell shall have to
cure such breach prior to exercising this termination for convenience
option.
5
<PAGE>
IX. WARRANTY
Linuxcare warrants that they have all necessary authorization to
perform support and certification on all of the Linux Distributions.
Linuxcare further will provide written evidence of such authorization
for the manufactures of the referenced Distributions, to Dell within
60 days of the Effective Date of this agreement.
Linuxcare warrants to DELL that Services hereunder will be performed
in a professional manner and in accordance with good usage and
accepted practices as established in the community in which such
Services are performed. If such Services prove to be not so performed
and if DELL provides written notification to Linuxcare within a ninety
(90) day period commencing on the date of completion of the Service,
Linuxcare will, at DELL'S option, either correct any defects and
deficiencies for which it is responsible or render prorated refund or
credit based on the original charge for the Services.
THE FOREGOING WARRANTIES ARE EXCLUSIVE AND ARE IN LIEU OF ALL OTHER
EXPRESS AND IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO
WARRANTIES OF MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
X. INDEMNITY
LINUXCARE AGREES TO DEFEND, INDEMNIFY, AND HOLD HARMLESS DELL PRODUCTS
L.P., DELL COMPUTER CORPORATION ("DCC"), AND ANY OF DCC'S SUBSIDIARIES OR
AFFILIATES, AND THEIR RESPECTIVE DIRECTORS, OFFICERS, EMPLOYEES,
REPRESENTATIVES, AND AGENTS (THE "INDEMNITEES") FROM AND AGAINST ANY AND
ALL CLAIMS, ACTIONS, DEMANDS, LEGAL PROCEEDINGS, LIABILITIES, DAMAGES,
LOSSES, JUDGMENTS, AUTHORIZED SETTLEMENTS, COSTS OR EXPENSES, INCLUDING
WITHOUT LIMITATION REASONABLE ATTORNEYS' FEES, (THE "DAMAGES") ARISING OUT
OF OR IN CONNECTION WITH ANY ALLEGED OR ACTUAL:
(i) INFRINGEMENT BY LINUXCARE AND/OR A DELIVERABLE(S) OF A COPYRIGHT,
PATENT, TRADEMARK, TRADE SECRET OR OTHER PROPRIETARY OR INTELLECTUAL
PROPERTY RIGHT OF ANY THIRD PARTY;
(ii) CLAIM THAT LINUXCARE AND/OR GOODS AND DELIVERABLES PROVIDED UNDER
THIS AGREEMENT HAS CAUSED BODILY INJURY (INCLUDING DEATH) OR HAS DAMAGED
REAL OR TANGIBLE PERSONAL PROPERTY;
(iii) BREACH OF ANY OF LINUXCARE'S WARRANTIES CONTAINED IN THIS AGREEMENT;
(iv) ANY VIOLATION BY LINUXCARE OF ANY GOVERNMENTAL LAWS, RULES,
ORDINANCES, OR REGULATIONS; AND/OR,
(v) CLAIM BY OR ON BEHALF OF LINUXCARE'S SUBCONTRACTORS, SUPPLIERS,
EMPLOYEES OR AGENTS.
LINUXCARE WILL PROVIDE THE ABOVE INDEMNITY EVEN IF LOSSES ARE DUE, OR
ALLEGED TO BE DUE, IN PART TO ANY INDEMNITEE'S CONCURRENT NEGLIGENCE OR
OTHER FAULT, BREACH OF CONTRACT OR WARRANTY, VIOLATION OF THE TEXAS
DECEPTIVE TRADE PRACTICES ACT, OR STRICT LIABILITY WITHOUT REGARD TO FAULT;
PROVIDED, HOWEVER,
6
<PAGE>
THAT LINUXCARE'S CONTRACTUAL OBLIGATION OF INDEMNIFICATION SHALL NOT EXTEND
TO THE PERCENTAGE OF THE THIRD PARTY CLAIMANT'S DAMAGES OR INJURIES OR THE
SETTLEMENT AMOUNT ATTRIBUTABLE TO THE INDEMNITEE'S NEGLIGENCE OR OTHER
FAULT, BREACH OF CONTRACT OR WARRANTY, OR BREACH OF THE TEXAS DECEPTIVE
TRADE PRACTICES ACT, OR TO STRICT LIABILITY IMPOSED UPON INDEMNITEE AS A
MATTER OF LAW.
IN THE EVENT OF ANY SUCH CLAIMS, DELL SHALL: (1) PROMPTLY NOTIFY LINUXCARE,
(2) COOPERATE WITH LINUXCARE IN THE DEFENSE THEREOF, AND (3) NOT SETTLE ANY
SUCH CLAIMS WITHOUT LINUXCARE'S CONSENT WHICH LINUXCARE AGREES NOT TO
UNREASONABLY WITHHOLD. LINUXCARE SHALL KEEP DELL INFORMED AT ALL TIMES AS
TO THE STATUS OF LINUXCARE'S EFFORTS AND CONSULT WITH DELL (OR DELL'S
COUNSEL) CONCERNING LINUXCARE'S EFFORTS; AND, LINUXCARE SHALL NOT SETTLE
THE CLAIM WITHOUT DELL'S PRIOR WRITTEN CONSENT, WHICH SHALL NOT BE
UNREASONABLY WITHHELD.
XI. LIMITATION OF LIABILITY
IN NO EVENT, SHALL EITHER PARTY BE LIABLE TO THE OTHER OR ANY PERSON
OR ENTITY USING ANY SERVICE SUPPLIED UNDER THIS AGREEMENT, FOR LOSS OF
TIME, INCONVENIENCE, LOSS OF USE OF ANY SOFTWARE PRODUCT OR EQUIPMENT
OR THEIR FAILURE TO WORK, OR FOR ANY DAMAGE CAUSED BY ANY SOFTWARE
PRODUCT OR EQUIPMENT OR THEIR FAILURE TO WORK, OR FOR ANY OTHER
INDIRECT, SPECIAL, RELIANCE, INCIDENTAL OR CONSEQUENTIAL LOSS OR
DAMAGE ARISING OUT OF THIS AGREEMENT OR ANY OBLIGATION RESULTING
THEREFROM OR THE USE OR PERFORMANCE OF ANY SOFTWARE OR PRODUCTS
WHETHER IN AN ACTION FOR OR ARISING OUT OF ALLEGED BREACH OF WARRANTY,
ALLEGED BREACH OF CONTRACT, DELAY, NEGLIGENCE STRICT TORT LIABILITY OR
OTHERWISE.
EXCEPT FOR THE SPECIFIC INDEMNITIES PROVIDED FOR IN THIS AGREEMENT,
THE PARTIES EXPRESSLY AGREE THAT IN NO EVENT SHALL EITHER PARTY BE
LIABLE OR RESPONSIBLE TO THE OTHER PARTY FOR ANY INCIDENTAL, INDIRECT,
PUNITIVE, SPECIAL OR CONSEQUENTIAL DAMAGES WHATSOEVER, INCLUDING
WITHOUT LIMITATION LOST PROFITS AND DAMAGES RESULTING FROM LOSS OF USE
OR LOST OR CORRUPTED DATA OR SOFTWARE EVEN IF SUCH PARTY HAS BEEN
ADVISED, KNEW OR SHOULD HAVE KNOWN OF THE POSSIBILITY THEREOF. BOTH
PARTIES EXPRESSLY WAIVE ANY CLAIMS DESCRIBED IN THE PRECEDING
SENTENCE.
NOTWITHSTANDING THE FOREGOING, THE LIMITATIONS OF LIABILITY SET FORTH
ABOVE IN SECTION XI, SHALL NOT APPLY TO PROVIDER'S OBLIGATIONS AND
LIABILITIES UNDER SECTION X ABOVE.
X. NONWAIVER
No course of dealing, course of performance, or failure of either
party strictly to enforce any term, right or condition of this
Agreement shall be construed as a waiver of any term, right, or
condition. No waiver of breach of any provision of this Agreement
shall be construed to be a waiver of any subsequent breach of the same
of any other provision.
XI. FORCE MAJEURE
7
<PAGE>
Neither Party shall be liable to the other Party for any failure to
perform any of its obligations hereunder during any period in which
such performance is delayed by fire, flood, war, embargo, strike, riot
or the intervention of any governmental authority or similar
circumstances (a "Force Majeure"). In such event, however, the delayed
Party must: (a) promptly provide the other Party with written notice
of the Force Majeure; and (b) use its best efforts to resume or
commence performance under this Agreement. The delayed Party's time
for performance will be excused for the duration of the Force Majeure,
but if the Force Majeure event lasts longer than forty-five (45) Days,
the other Party may immediately terminate this Agreement.
XII. CHOICE OF LAW
Laws of the State of Texas shall govern the construction,
interpretation, and performance of, and all transactions under this
Agreement.
XIII. ENTIRE AGREEMENT
The terms and conditions contained in this Agreement supersede all
prior oral or written understandings between the parties, shall
constitute the entire agreement between the parties with respect to
the subject matter of this Agreement and shall not be contradicted,
explained or supplemented by any course of dealing between Linuxcare
or any of its affiliates and DELL or any of its affiliates. Linuxcare
employees' statements and Linuxcare advertisements or descriptions
other than its published specifications do not constitute warranties
or other contractual obligations, and shall not be relied upon by Dell
as such. This Agreement shall not be modified or amended except by
writing signed by an authorized representative of both parties.
XIV. ASSIGNMENT
This Agreement may not be assigned by either party without the prior
written consent of the other party. Such consent shall not be
unreasonably withheld.
XV. PARTIES BOUND
This Agreement shall be binding upon and shall inure to the benefit of
the parties hereto and their respective legal representatives, heirs,
successors and assignees.
XVI. NOTICES
All notices under this Agreement (except for requests for Service)
shall be in writing and shall be given by telegram or similar
communication, or by U.S. Certified mail, postage prepaid addressed to
DELL at the address set forth on the front page of this Agreement and
to Linuxcare at the address listed in the Section WRITTEN NOTICES, or
to such other address as either party may designate by written notice
pursuant hereto. Such notice shall be deemed to have been given when
received.
Any statement, notice, request or other communication shall be deemed
to be sufficiently given to addressee and any delivery hereunder
deemed made when sent by certified mail addressed to DELL at its
office specified in the Agreement or to Linuxcare at the appropriate
address specified in this section.
8
<PAGE>
Each party to this Agreement may change an address relating it by
written notice to the other party.
XVII. SEVERABILITY
If any paragraph, or clause thereof, in this Agreement shall be held
to be invalid or unenforceable in any jurisdiction in which this
Agreement is being performed, then the meaning of such paragraph or
clause shall be severed from this Agreement and the remainder shall
remain in full force and effect. However, in the event such paragraph
or clause is considered an essential element of this Agreement, the
parties shall promptly negotiate a replacement thereof. If the parties
are unable to agree upon a replacement term within thirty (30) days of
the final ruling rendering such term invalid or unenforceable, either
party may terminate this Agreement upon ten (10) days prior written
notice.
XIII. TAXES
Any tax or related charge resulting from this Agreement or any
activities hereunder, exclusive of any tax based on or measured by net
income, which Linuxcare shall be required to pay or collect for any
government shall be billed to Dell as a separate item and shall be
paid by DELL unless a valid exemption certificate is furnished by Dell
to Linuxcare.
XX. WRITTEN NOTICES AND PAYMENTS
Payments and all correspondence to either party relating to this
Agreement shall be sent to:
Linuxcare, Inc. DELL Products, LP
ATTN:
Strategic Commodity Manager Software
One Dell Way
Round Rock, Texas 78682
Linuxcare: DELL:
/s/ Thomas W. Phillips /s/ Sharon Peterson
Name: Name:
Title: VP Worldwide Sales Title: WWSP, Dir.
------------------ ----------
Signature: Thomas W. Phillips Signature: Sharon Peterson
------------------ ---------------
Date: 10/13/99 Date: 10/22/99
-------- --------
9
<PAGE>
Supplement No: 1
SUPPORTED PLATFORMS
<TABLE>
<CAPTION>
Dell Red Hat Linux
Hardware Dell Diag Name Diag Red Hat Linux File and
Location Configuration Tool Command Diags
<S> <C> <C> <C> <C>
A. Base In Box
System GX1 Dell Diagnostics File Boot Install /proc/pci.
GX1p Library /proc/cpuinfo
B. Base In Box
System 410 Dell Ver.3.92B/A03 or File Boot Install /proc/pci.
610 higher, P/N 33260 Library /proc/cpuinfo
C. (1) Single In Box, kernel.rpm for
or Dual Dell Diagnostics File single, kernel- /proc/pci,
Processor Library smp.rpm for multi /proc/cpuinfo
(2) Any RAM In Box,
up to 1 GIG Dell Diagnostics File Boot Install /proc/meminfo
Library
(3) Onboard In Box,
IDE Dell Diagnostics File Boot Install /proc/pci.
controllers Library /proc/ide
(4) Onboard In Box,
add-on Dell Diagnostics File Boot install /proc/pci
Adaptec SCSI Library /proc/scsi
CTRL
(5) Any SCSI In Box, /proc/pci
or IDE hard Dell Diagnostics File Boot Install /proc/scsi
disk Library /proc/ide
(6) Any SCSI In Box, /proc/pci
or IDE Dell Diagnostics File Boot Install /proc/scsi
CDROM Library /proc/ide
(7) ATAPI ZIP In Box, /proc/pci,
100 or 250 Dell Diagnostics File /etc/fstab /proc/scsi,
Library /proc/ide
(8) Onboard In Box, pnpdump,
Crystal Dell Diagnostics File Sndconfig /etc/isapnp.conf,
CS4236/Audio Library /etc/conf.modules
(9) Onboard Dell Diagnostics or 3Com In Box, pnpdump,
3Com 3c90x Diagnostics File Snconfig /etc/isapnp.conf,
NIC Library /etc/conf.modules
(10) Onboard
ATI Rage In Box, /proc/pci,
Video for Dell Diagnostics File Xconfigurator /etc/X11/XF86Con
Optiplex Library fig
Precision WorkStations
(11) Permedia Diamond 8MB AGP File /proc/pci,
2 8MB video Diagnostics Library Xconfigurator /etc/X11/XF86Con
card WSDMDDIA.EXE fig
(12) Diamond TBD /proc/pci,
Viper 770D (Not RTSed at this time) TBD Xconfigurator /etc/X11/XF86Con
</TABLE>
10
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
16MB video fig
card
(13) STB ?? ??
NVIDIA TNT Xconfigurator ??
16MB video
card
(14) any in Box, use
keyboard PS/2 Dell Diagnostics File Mouseconfig ??
library fig
(15) Microsoft In Box, ??
Intellimouse Dell Diagnostics File Mouseconfig use,
PS/2 Library /etc/X11/F86Con
fig
(16) Logitech In Box, /etc/sysconfig/mo
3 button Dell Diagnostics File Mouseconfig use,
mouse PS/2 Library /etc/X11/XF86Con
fig
(17) Logitech In Box, /etc/sysconfig/mo
Mouseman Dell Diagnostics File Mouseconfig use,
Wheel PS/2 Library /etc/X11/XF86Con
fig
(18) any 2 In Box, /etc/sysconfig/mo
button PS/2 Dell Diagnostics File Mouseconfig use,
mouse Library /etc/X11/XF86Con
fig
</TABLE>
The current Linuxcare contact for technical support
is:
Name: Gaylen Brown
Electronic Mail: [email protected]
Facsimile:
Voice: 415-354-4878x337
11
<PAGE>
[INTENTIONALLY LEFT BLANK]
12
<PAGE>
SUPPLEMENT NO: 2
ESCALATION PROCEDURE MATRIX
ESCALATION PROCEDURES ARE OUTLINED AT:
http://www.Linuxcare.com/support_info/
- --------------------------------------
13
<PAGE>
[CHART OMITTED]
Login: dell
Password: dellway
14
<PAGE>
SUPPLEMENT 3
GEOGRAPHICAL REGIONS SUPPORTED
United States
Canada
Mexico
South America
Europe
Japan
Asia Pacific
Australia
15
<PAGE>
EXHIBIT 10.2.3
Agreement Number: __________
MASTER SERVICES AGREEMENT
This Master Services Agreement, including Exhibits A, B, C and D attached
hereto (the "AGREEMENT"), is entered into as of the last date signed by either
party on the signature page below (the "EFFECTIVE DATE") between Linuxcare,
Inc., a Delaware corporation with an office at 650 Townsend Street Suite 3244A,
San Francisco, CA 94103, USA (Phone: 415-354-4878; Fax: 415-701-7457)
("LINUXCARE") and "COMPANY" listed below.
Company: Hewlett-Packard Company Contact: Kristy Ward
Software Services Division
Address: 100 Mayfield Ave MS 36LA Phone: 650-691-5361
Mountain View CA 94043 Fax: 650-691-5152
E-Mail: [email protected]
SERVICES INFORMATION
Service Level: Level 3 Support and Level 4 Support
Service Fee: Level 3 Support: * per hour
Level 4 Support: * per hour
Invoice Period: monthly
Term of Contract: 1 year (renewable)
Technical Support Set Up Fee: *
SERVICES PROVIDED
Subject to payment of all applicable fees, Linuxcare will use reasonable
commercial efforts to perform the services specified in the Statement of Work
("SOW") attached hereto as Exhibit B ("SERVICES") and incorporated herein, in
accordance with the Terms and Conditions attached hereto as Exhibit A, and
incorporated herein. Exhibits C (a Confidential Disclosure Agreement) is also
attached hereto and made a part hereof (collectively, Exhibits A, B and C shall
be called the "EXHIBITS"). Company understands that Linuxcare's performance is
dependent in part on Company's actions. Accordingly, any dates or time periods
relevant to performance of Services by Linuxcare shall be appropriately and
equitably extended to account for any delays resulting from changes to Company
products or otherwise due to Company. Company may request additional hours or
levels of Services ("EXTENDED SERVICES"), which Linuxcare may provide at
Linuxcare's sole discretion, provided that Company pays Linuxcare's then current
fees for such Extended Services and enters into such amendments to this
Agreement as mutually agreed upon by the parties hereto.
The Exhibits contain, among other things, warranty disclaimers and
------------------------------------------------------------------
liability limitations. Any different or additional terms of any related purchase
- ---------------------
order, confirmation, or similar form even if signed by the parties after the
date hereof shall have no force or effect. References in this Agreement or the
Exhibits to a capitalized term appearing on this cover page shall have the
meaning or value of such term on this cover page.
Company: Hewlett - Packard Linuxcare, Inc.:
By: /s/ MIKE RIGODANZO By: /s/ Thomas W. Philips
Name: MIKE RIGODANZO Name: Thomas W. Philips
-------------- -----------------
Title: VP & GM Software Services Division Title: VP Sales
---------------------------------- --------
Date: 6 Jan. 2000 Date: 12/28/99
----------- --------
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT A
---------
TERMS AND CONDITIONS
1. Linuxcare Obligations. Upon commercial release any version of the Linux
---------------------
Software (as defined in Section 1 of the SOW attached hereto as Exhibit B),
Linuxcare will provide (i) Level 3 Support (as defined in Section 1 of the
SOW) in accordance with Section 2 of the SOW, and (ii) Level 4 Support (as
defined in Section 1 of the SOW attached hereto as Exhibit B) in accordance
with Section 3 of the SOW, to the staff of Company with respect to any such
commercially released Linux Software which is also supported by Company, in
English only.
2. Company Obligations. Company will (1) provide Level 1 Support and Level 2
-------------------
Support (as defined in Section 1 of the SOW) to End-Users; and (2) pay the
Technical Support Set Up Fee, all Services fees, and any other fees
hereunder in accordance with Section 5 of this Exhibit A.
3. Training. When mutually agreed upon by both Linuxcare and Company, and
--------
subject to payment of all fees, Linuxcare will provide any training
requested or required by Company in accordance with Linuxcare's current,
published "Linuxcare Training Programs" documentation. Unless otherwise
arranged between Company and Linuxcare, all training shall occur at
Linuxcare's facilities in San Francisco, California on such date(s) and
time(s) as determined by Linuxcare. The fees for training will be
Linuxcare's then current published training fees ("CURRENT TRAINING FEES"),
less a discount equal to ten percent (10%) of such Current Training Fees
("Training Fees").
4. Consulting Services. In the event that Company requires additional levels
-------------------
of services outside the scope of Sections 2 and 3 of Exhibit B, or as
otherwise agreed upon by Linuxcare and Company, Linuxcare will perform such
consulting services for Company as mutually agreed upon by Linuxcare and
Company, provided that the fees associated with such consulting services
payable by Company shall be at the Linuxcare's then current consulting
services rate ("Consulting Fee"). The consulting services rate as of the
Effective Date of this Agreement is * per hour; however, this rate is
subject to change in accordance with Section 5 of this Exhibit A.
5. Fees and Payment. Company will pay the Technical Support Set Up Fee within
----------------
90 days of the Effective Date. Company will pay Linuxcare's fees for
Services provided under Section 2 and 3 of Exhibit B (the "SERVICE FEES")
incurred for any Invoice Periods within 90 days after receipt of
Linuxcare's invoice therefor. Company will also pay Linuxcare all other
fees, including, but not limited to, Extended Services fees, Training Fees,
and Consulting Fees, within 90 days after receipt of Linuxcare's invoice
therefor. All payments shall be made in U.S. Dollars and are non-
refundable. Service Fees, Training Fees and fees for Extended Service under
this Agreement are subject to change annually and will be reviewed by
Linuxcare and Company annually during the term of the Agreement, commencing
30 days prior to the expiration of the Initial Term in order to discuss
appropriate fee and/or price levels. If the parties are unable to agree on
new fees and prices or are unable to meet, Linuxcare shall have the right
to make a reasonable adjustment in the fee and/or price upon notice to
Company; provided, however, that Company shall have the right to terminate
-------- -------
this Agreement upon thirty (30) days written notice to Linuxcare if the
adjusted fees are not acceptable. Consulting Fees may be subject to change
by Linuxcare at any time upon at least thirty (30) days prior notice to
Company.
6. Proprietary Rights. As between the parties, Linuxcare will retain all
------------------
right, title and interest in and to any software, tools, techniques, and
other materials used in connection with providing the Services contemplated
hereunder ("LINUXCARE MATERIALS"). As between the parties, Company will
retain all right, title and interest in and to any software, products,
documentation and other materials it supplies. Linuxcare hereby assigns to
Company all right, title and interest, in any work product created as part
of the Services ("WORK PRODUCT"), but this assignment does not include any
portion of the Linuxcare Materials or any other work product generally
applicable to Linuxcare's business, and will not prevent Linuxcare from
using the expertise, ideas and know-how learned while performing Services
for other
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
purposes (including, without limitation, for itself or on behalf of third
parties).
7. Confidential Information.
------------------------
7.1 Confidential Information. Confidential information arising under this
------------------------
Agreement shall be governed by the Confidential Disclosure Agreement
attached hereto as Exhibit C (the "CDA"); provided, however, that any
-------- -------
conflict or inconsistency between any provision of the CDA and this
Agreement shall be governed by this Agreement without regard to
Exhibit C. The disclosure period covered by the CDA shall commence on
the Effective Date of this Agreement and end upon the termination or
expiration of this Agreement. Thereafter, the period during which the
confidentiality obligations of the parties survive begins, and
continues for the duration of time specified in the CDA.
<PAGE>
7.2 Publicity Linuxcare and Company agree that neither party will, except
---------
as may be required by law, disclose or issue any press release with
respect to this Agreement or any transactions contemplated by this
Agreement, without the prior written consent of the other party to
this Agreement.
7.3 Non-Solicitation. Linuxcare hereby agrees that it will not actively
----------------
solicit End-Users (as defined in Section 1 of the SOW) which are
referred to Linuxcare by Company under this Agreement; provided,
--------
however, that nothing shall prohibit Linuxcare from providing services
-------
to End-Users who are not referred to Linuxcare by Company, and to End-
Users who are initially referred to Linuxcare by Company and who
subsequently seek services from Linuxcare independently.
8. Term and Termination.
--------------------
8.1 Term. This Agreement will commence on the Effective Date of this
----
Agreement and remain in force for a term of one year thereafter (the
"INITIAL TERM"), unless earlier terminated in accordance with the
terms of this Agreement. This Agreement will automatically renew at
the end of such Initial term for successive one year periods (each, a
"RENEWAL TERM") for a period of four years thereafter.
8.2 Termination for Breach. In the event that either party commits a
----------------------
material breach of its obligations hereunder, the other party may, at
its option, terminate this Agreement by written notice of termination,
which notice shall identify and describe the basis for such
termination; provided, however, that such termination shall not take
place if the defaulting party shall have cured the default within
thirty (30) days from the date of receipt of such notice.
8.3 Termination at Will. This agreement may be terminated by either party
-------------------
upon at least thirty (30) days written notice prior to the expiration
of the Initial Term or any Renewal Term. In addition, Linuxcare may
terminate this Agreement at any time in its sole discretion in the
case of non-payment by Company of any undisputed fees, unless Company
pays such fees in full within ten (10) days after receiving notice of
non-payment from Linuxcare.
8.4 Termination for Insolvency. Each party shall have the right to
--------------------------
terminate this Agreement on written notice if the other party ceases
to do business in the ordinary course or is insolvent (i.e., unable to
pay its debts in the ordinary course as they come due), or is declared
bankrupt, or is the subject of any liquidation or insolvency
proceeding which is not dismissed within ninety (90) days, or makes
any assignment for the benefit of creditors.
8.5. Termination Upon Change in Control. Either party may terminate this
----------------------------------
Agreement at any time upon at least thirty (30) days written notice to
the other party, in the event such other party is merged into,
consolidated with, or sells all or substantially all of its assets to
a third party which the terminating party determines, in its good
faith commercially reasonable judgment, is a competitor of the
terminating party.
8.6 Survival. Sections 6, 7, 8, 9, 10, 11, 12 and 13, of this Exhibit A,
--------
as well as those portions of the covering page, Exhibit B, and Exhibit
C which expressly contain terms that shall survive expiration or
termination of this Agreement, and all accrued rights to payment,
shall survive termination or expiration of this Agreement. All accrued
but unpaid obligations of Company shall become immediately due and
payable upon termination or expiration of this Agreement.
8.7 Non-Exclusive Remedy. Termination is not an exclusive remedy and all
--------------------
other remedies will be available whether or not termination occurs.
9. Warranty and Disclaimer. Linuxcare hereby warrants to Company that all
-----------------------
services provided by Linuxcare under this Master Services Agreement shall
be performed in a professional and workmanlike manner. THE PARTIES
ACKNOWLEDGE THAT THIS IS AN AGREEMENT FOR SERVICES AND NOT FOR THE SUPPLY
OF GOODS. EXCEPT FOR THE FOREGOING, LINUXCARE MAKES NO OTHER WARRANTIES OR
REPRESENTATIONS AS TO THE SERVICES RENDERED, AND HEREBY DISCLAIMS ALL
EXPRESS AND IMPLIED WARRANTIES, INCLUDING BUT NOT LIMITED TO, IMPLIED
WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, AND
NONINFRINGEMENT. LINUXCARE FURTHER DISCLAIMS ANY WARRANTY THAT THE SERVICES
WILL
<PAGE>
SUCCEED IN RESOLVING ANY PROBLEM, OR THAT ANY WORK PRODUCT OF THE SERVICES
WILL BE FREE FROM PROGRAM ERRORS
10 Limitation of Liability NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR
-----------------------
OTHERWISE, NEITHER PARTY SHALL BE LIABLE OR OBLIGATED WITH RESPECT TO THE
SUBJECT MATTER OF THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE, STRICT
LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY (1) FOR ANY AMOUNTS IN EXCESS
IN THE AGGREGATE OF THE FEES PAID HEREUNDER WITH RESPECT TO THE PERFORMANCE
OF OBLIGATIONS, (II) FOR ANY COST OF
<PAGE>
PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY, SERVICES OR RIGHTS; OR (III)
FOR INTERRUPTION OF USE OR LOSS OR CORRUPTION OF DATA.
NEITHER PARTY TO THIS AGREEMENT SHALL BE LIABLE OR OBLIGATED WITH RESPECT
TO THE SUBJECT MATTER OF THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE,
STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY: (I) FOR ANY MATTER
BEYOND ITS REASONABLE CONTROL, OR (II) FOR ANY INCIDENTAL, INDIRECT OR
CONSEQUENTIAL DAMAGES OR LOST PROFITS OF ANY NATURE, WHETHER ARISING UNDER
STATUTE, TORT (INCLUDING NEGLIGENCE) OR CONTRACT, EVEN IF SUCH PARTY HAS
BEEN ADVISED BY THE OTHER PARTY OF THE POSSIBILITY OF SUCH DAMAGES.
11. Export Control. Both parties shall comply with the U.S. Foreign Corrupt
--------------
Practices Act and all applicable export laws, restrictions, and regulations
of the U.S. and foreign agency or authority.
12. Indemnification.
---------------
12.1 By Linuxcare. Linuxcare agrees to defend, indemnify an hold Company
------------
harmless from any liability or expense paid to third parties
(including without limitation reasonable attorneys' fees) incurred by
Company as a result of any judgment or adjudication against Company
or final settlement arising from any claim that Linuxcare infringed
any patent, trademark, copyright, or trade secret of any third party
with respect to original code and original patches and related
documentation created by Linuxcare and provided to Company pursuant
to this Agreement ("INDEMNIFIED MATERIALS"); provided that Company
provides Linuxcare with (a) prompt written notice of any such
claim(s), (b) promptly tenders to Linuxcare sole control over the
defense and settlement of such claim(s) at Linuxcare's expense and
with Linuxcare's choice of counsel, and (c) full information and
reasonable assistance to Linuxcare permitting it to defend and/or
settle such claim(s). Company may not settle any such claim(s)
without Linuxcare's prior written consent. In the event that any
Indemnified Materials possessed by Linuxcare are held, or in
Linuxcare's sole opinion, may be held to constitute an infringement,
Linuxcare, at its option and expense, may either (x) modify the
Indemnified Materials so they becomes non-infringing, (y) procure for
Company a license to use the infringing Indemnified Materials, or (z)
accept a return of the Indemnified Materials and create new, non-
infringing, functionally equivalent materials, in lieu of all other
claims by Company except for the above stated indemnification.
12.2 Exclusions. Notwithstanding the foregoing, Linuxcare shall have no
----------
liability if the alleged infringement arises from (a) the
modification of the Indemnified Materials by any party other than
Linuxcare, or (b) the use of any hardware or software product with
the Indemnified Materials or a combination of the Indemnified
Materials with any software or hardware product not approved by
Linuxcare, if the infringement would not have occurred using the
Indemnified Materials either alone or in combination with any
software or hardware product approved by Linuxcare, or (c) use of the
Indemnified Materials except as specified by Linuxcare.
13. General Terms.
-------------
13.1 Governing Law: Jurisdiction. This Agreement shall be deemed to have
---------------------------
been made in, and shall be construed pursuant to the laws of the
State of California and the United States without regard to conflicts
of laws provisions thereof. Any disputes between the parties related
to or arising out of this Agreement shall be litigated in San
Francisco, California.
13.2 Attorney's Fees. The prevailing party in any action to enforce this
---------------
Agreement will be entitled to recover its reasonable attorney's fees
and costs in connection with such action.
13.3 Assignment. This Agreement is not assignable or transferable by
----------
either party without the prior written consent of the other party,
and any attempt to do so shall be void; provided, however, that this
-------- -------
Agreement may be assigned by either party, upon written notice to the
other party, in connection with a merger or a sale of all or
substantially all of the assets of the party subject to Section 8.5.
Either party may subcontract the performance of its obligations to
third parties. However, any contact to Linuxcare under this Agreement
must come from
<PAGE>
Company's designated contacts per Section 2.1 of Exhibit B.
13.4 Severability. If any provision of this Agreement, or portion thereof,
------------
shall be adjudged by any court of competent jurisdiction to be
unenforceable or invalid, that provision shall be limited or
eliminated to the minimum extent necessary so that this Agreement
shall otherwise remain in full force and effect and enforceable.
13.5 Relationship of the Parties. The parties agree that they are
---------------------------
independent contractors and that this Agreement and relations between
Linuxcare and Company hereby established do not constitute a joint
venture, agency or
<PAGE>
contract of employment between them, or any other similar
relationship. Neither party has the right or authority to assume or
create any obligation or responsibility on behalf of the other.
13.6 Waiver. No failure or delay in exercising any right hereunder will
------
operate as a waiver thereof, nor will any partial exercise of any
right or power hereunder preclude further exercise. Any waivers or
amendments shall be effective only if made in writing and signed by
an authorized representative of the parties hereto.
13.7 Notices. Any notice, report, approval or consent required or
-------
permitted hereunder shall be in writing and shall be deemed given
when faxed, personally delivered, delivered by courier, or three days
after being sent by prepaid certified or registered U.S. mail to the
address of the party to be notified as set forth herein or such other
address as such party last provided to the other by written notice.
13.8 Entire Agreement. The Master Services Agreement, and Exhibits A, B,
----------------
and C to the Master Services Agreement represent the complete and
exclusive statement of the mutual understanding of the parties and
supersedes and cancels all previous written and oral agreements and
communications relating to the subject matter of this Agreement.
13.9 Force Majeure. Neither party shall be liable to the other for
-------------
inability to perform its obligations under the Agreement due to
causes beyond its reasonable control, including, but not limited to
acts of God, war, riot, embargo, earthquake, act of government or any
other force majeure event.
<PAGE>
EXHIBIT B
---------
STATEMENT OF WORK
1. Definitions
-----------
1.1 A "CRITICAL PROBLEM" shall exist when there is an emergency condition
that causes critical impact to a user's schedule, or that makes
performance or continued performance of any feature or function
impossible or impractical by the End-User. It includes, but is not
limited to, situations when the product will not function, has a
severe negative impact on the system, or is causing data corruption.
1.2 "END-USER" shall mean the end-user of Company's Products who reports
an Incident to Company.
1.3 A "FIX" involves resolution of an Incident and involves taking the
appropriate steps to resolve a request for assistance. This may
include providing circumvention work-arounds, temporary or permanent
source code fixes, fix distribution technical information, how-to
assistance and other similar information.
1.4 "INCIDENT" shall mean any one single identified End-User issue or
problem. One contact by the End-User may include multiple Incidents,
and a single Incident may require more that one contact to resolve.
1.5 "LEVEL 1 SUPPORT" shall mean identifying and solving any issue that is
covered in the operating system installation guide, and relates only
to the existing pre-installed operating system and pre-configured
hardware.
1.6 "LEVEL 2 SUPPORT" shall mean identifying and solving software and
hardware (excluding Microsoft products, RAID systems, WAN Networking
products, and USB devices) issues that have prescribed solutions,
existing patches, prior fixes, etc. This also covers basic re-
configuration of the operating system which is not covered in the
installation guide, configuration of professional user space
applications (providing that the existing system configuration allows
installation), and configuration of new hardware (excluding Microsoft
products, RAID systems, WAN Networking products, and USB devices)
utilizing existing functional device drivers. This may require
multiple e-mail and/or telephone communications between support
engineers and the users. This level is restricted to a single
Incident, strictly within the scope of the problem at hand.
1.7 "LEVEL 3 SUPPORT" shall mean identifying and solving software and
hardware (excluding Microsoft products) issues that have undocumented
solutions or fixes; any mid-level and higher system reconfiguration
not covered at the Level 1 Support or Level 2 Support. This level of
support may require multiple e-mail communications, telephone
communications, and remote sessions between support engineers and the
user to fix or resolve, such as reviewing system logs, long
configuration files, or gaining root access.
1.8 "LEVEL 4 SUPPORT" shall mean any issues, above Level 3 Support, which
involve development, such as original code writing or patch writing,
to resolve.
1.9 "LINUX SOFTWARE" shall mean (a) all major distributions (including but
not limited to Caldera, RedHat, Debian, SuSe, and TurboLinux) of the
Linux operating system which are open source code and authorized under
the GNU General Public License (GPL), now existing or hereafter
developed, including Update Releases, and (b) open source applications
which run on the Linux operating systems described in (a) and listed
on the Linuxcare web site (www.linuxcare.com), including but not
limited to Samba, Apache and Sendmail.
1.10 A "MEDIUM PROBLEM" shall exist when an important product function has
an intermittent problem, or a common, non-essential operation is
failing consistently for the End-User. The problem is not critical in
regards to performance, and use can be continued without difficulty or
loss of data by easy circumvention or avoidance by the End-User. The
inconvenience can be tolerated until the next scheduled release.
1.11 A "MINOR PROBLEM" shall exist when an error causes the user a slight
inconvenience but is not critical. The error can be tolerated or can
easily be avoided or circumvented by the user.
1.12 "RESPONSE TIME" is defined as that time beginning when Linuxcare
receives a call about an Incident from Company, and ending when
that/those individual(s) update(s) the Company on the status of the
problem and the action plan for resolution.
1.13 A "SERIOUS PROBLEM" shall exist when a major product function has a
reproducible problem which significantly affects a user's schedule,
causes a minor security breach or which makes performance or continued
performance of any feature or function difficult, and can not be
circumvented or avoided on a
<PAGE>
temporary basis by the user causing the user significant
inconvenience.
1.14 "SYSTEM RESTORATION" shall mean a solution which stabilizes the user
system by providing an alternative which allows the use of the product
without negative impacts or data corruption to the system. This
solution can be an existing patch work around or a set of
recommendations for optimizing the End-User's
<PAGE>
situation. It shall include a documented plan for a permanent
resolution, which resolution may require Level 4 Support.
1.15 "UPDATE RELEASE" shall mean a new version release of the Linux
Software distributed by third parties, including but not limited to
Caldera, RedHat, Debian, SuSe, or TurboLinux, which are open source
code and authorized under the GNU General Public License (GPL), now
existing or hereafter developed, that contains maintenance fixes,
major functional enhancements and feature additions.
2. Delivery of Level 3 Support. Company and Linuxcare agree that the Level 3
---------------------------
Support shall be delivered as described in Section 2.1 and Section 2.2
below.
2.1. Company Obligations. Company will receive all initial End-User contact
-------------------
for technical assistance. Company will determine the End-User's issue,
diagnose and isolate the problem, search the database of known
problems for resolution, and determine whether it is an issue that
requires Level 1 Support, Level 2 Support, Level 3 Support, or Level 4
Support. If the issue requires Level 1 Support or Level 2 Support, it
will be resolved within Company. If the issue requires Level 3
Support, it will be referred to Linuxcare for completion of
resolution. Company shall designate twelve (12) individuals as
authorized technical contacts for this Agreement. Company shall give
prompt notice to Linuxcare of any changes to such authorized contacts.
If Linuxcare support is required, an authorized contact of Company,
and only an authorized contact, will contact Linuxcare via telephone,
communicating in the English language only, and insure that any
required information about the End-User and the issue is included in
the transfer call. After receiving the Fix from Linuxcare, Company
will deliver that Fix to the End-User. Linuxcare Coverage hours,
Response times, and Fix times will depend on the call severity level
and will meet the delivery specifications as shown in Table 1. In the
event that such delivery specifications cannot be met, Linuxcare will
notify Company, and Linuxcare shall assign a technical account manager
("TAM") for that Incident(s) to Company. The TAM will contact the
Company's authorized contact (or such other contact as designated by
the authorized contact), communicate the reason for failing to meet
the delivery specifications, and the TAM and Company's authorized
contact will create an action plan on how to solve the Incident in the
most efficient manner.
2.2. Linuxcare Obligations. Upon receiving the support call from Company,
---------------------
Linuxcare will assign a support engineer that will be responsible for
managing the diagnosis and resolution of the call, and for
communicating the status of the problem resolution to Company.
Coverage hours, Response Times, and Fix times will depend on the call
severity level and will meet the delivery specifications as shown in
Table 1. The Linuxcare support engineer will provide all necessary
information to Company that is required to implement the Fix on the
End-User's issue. The Linuxcare support engineer will provide Company
with any assistance required to resolve the End-User's problem and
close the Incident. After resolution, Linuxcare will provide Company
information as it relates to the solved/closed Incidents in order to
assist Company in solving future Incidents.
TABLE 1 - DELIVERY SPECIFICATIONS FOR LEVEL 3 AND LEVEL 4 SUPPORT:
<TABLE>
<CAPTION>
Call Permanent Status
Severity Coverage Response System Solution Reporting
Level Hours Time Restoration (Fix)1 to Company
- --------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Critical 24 hrs/day, 4 hours 24 hours 3 days daily or as
Problem 365 days/year mutually agreed
- --------------------------------------------------------------------------------------------------
Serious 24 hrs/day, 8 hours 48 hours 10 days daily or as
Problem 365 days/year mutually agreed
- --------------------------------------------------------------------------------------------------
Medium 24 hrs/day, 24 hours not required 15 days as needed
Problem 365 days/year
- --------------------------------------------------------------------------------------------------
Minor 24 hrs/day, 48 hours not required next Update as needed
Problem 365 days/year Release
- --------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
1 Linuxcare will use commercially reasonable efforts to provide
permanent solutions or Fixes within the indicated number of
calendar days after being informed of the problem by Company.
<PAGE>
3. Delivery of Level 4 Support. Level 4 Support shall be delivered in
---------------------------
accordance with the same procedures outlined in Sections 2.1 and 2.2 above and
the delivery specifications as shown in Table 1 above. In the event that such
delivery specifications cannot be met, Linuxcare will notify Company, and
Linuxcare shall assign a TAM for that Incident(s) to Company. The TAM will
contact the Company's authorized contact (or such other contact as designated by
the authorized contact), communicate the reason for failing to meet the delivery
specifications, and the TAM and Company's authorized contact will discuss how to
solve the Incident in the most efficient manner.
4. Reporting.
---------
4.1. Metrics Report. Linuxcare shall provide a metrics report to Company
--------------
which will give a summary description of Incidents in a manner and
with content that is mutually agreeable to the parties, and any other
generally available reports reasonably requested by Company.
4.2. Incident Report. Linuxcare shall make Incident reports available
---------------
online to Company upon receiving a call from Company which requires
Linuxcare to provide Services. The reports shall be password
protected, and will allow Company immediate access to updates on the
reported Incident.
5. Quarterly Distribution Reports. Linuxcare shall provide Company with
------------------------------
information relating to new Linux Software releases and Update Releases on
a quarterly basis.
<PAGE>
EXHIBIT C
---------
CONFIDENTIAL DISCLOSURE AGREEMENT
<PAGE>
CONFIDENTIAL DISCLOSURE
AGREEMENT
Effective Date: December 12 1999
In order to protect certain confidential information, Hewlett-Packard Company
and its corporate affiliates ("HP"), and the "Participant" identified below,
agree that:
1. DISCLOSING PARTY: The party disclosing confidential information
----------------
("Discloser") is Linuxcare Inc
-------------
2. PRIMARY REPRESENTATIVE: Each party's representative for coordinating
----------------------
disclosure or receipt of confidential information is:
HP: _____
PARTICIPANT: John Hayes
----------
3. DESCRIPTION OF CONFIDENTIAL INFORMATION: The confidential information
---------------------------------------
disclosed under this Agreement is described as:
HP: _____
PARTICIPANT: Services Protocol
-----------------
4. USE OF CONFIDENTIAL INFORMATION: The party receiving confidential
-------------------------------
information ("Recipient") shall make use of the confidential information only
for the following purpose (e.g., "evaluation and testing for a make/buy decision
on project xyz."):
HP: _____
PARTICIPANT: Support Services and Certification
----------------------------------
5. CONFIDENTIALITY PERIOD: This Agreement and Recipient's duty to hold
----------------------
confidential information in confidence expire on: 12/12//2000
-----------
6. DISCLOSURE PERIOD: This Agreement pertains to confidential information that
-----------------
is disclosed between the Effective Date and 12/ 12/ /2000
-------------
7. STANDARD OF CARE: Recipient shall protect the disclosed confidential
----------------
information by using the same degree of care, but no less than a reasonable
degree of care, to prevent the unauthorized use, dissemination, or publication
of the confidential information as Recipient uses to protect its own
confidential information of a like nature.
8. MARKETING: Recipient's obligations shall only extend to confidential
---------
information that is described in paragraph 3, and that: (a) comprises specific
materials individually listed in paragraph 3; or, (b) is marked as confidential
at the time of disclosure; or, (c) is unmarked (e.g. orally disclosed) but
treated as confidential at the time of disclosure, and is designated as
confidential in a written memorandum sent to Recipient's primary representative
within thirty days of disclosure, summarizing the confidential information
sufficiently for identification.
9. EXCLUSIONS: This Agreement imposes no obligation upon Recipient with
----------
respect to information that: (a) was in Recipient's possession before receipt
from Discloser; (b) is or becomes a matter of public knowledge through no fault
of Recipient; (c) is rightfully received by Recipient from a third party without
a duty of confidentiality; (d) is
<PAGE>
disclosed by Discloser to a third party without a duty of confidentiality on the
third party; (e) is independently developed by Recipient; (f) is disclosed under
operation of law; or (g) is disclosed by Recipient with Discloser's prior
written approval.
10. WARRANTY: Each Discloser warrants that it has the right to make the
--------
disclosures under this Agreement. NO OTHER WARRANTIES ARE MADE BY EITHER PARTY
UNDER THIS AGREEMENT. ANY INFORMATION EXCHANGED UNDER THIS AGREEMENT IS PROVIDED
"AS IS".
11. RIGHTS: Neither party acquires any intellectual property rights under this
------
Agreement except the limited rights necessary to carry out the purposes set
forth in paragraph 4. This Agreement shall not restrict reassignment of
Recipient's employees.
MISCELLANEOUS
- -------------
12. This Agreement imposes no obligation on either party to purchase, sell,
license, transfer or otherwise dispose of any technology, services or products.
13. Both parties shall adhere to all applicable laws, regulations and
rules relating to the export of technical data, and shall not export or reexport
any technical data, any products received from Discloser, or the direct product
of such technical data to any proscribed country listed in such applicable laws,
regulations and rules unless properly authorized.
14. This Agreement does not create any agency or partnership relationship.
15. All additions or modifications to this Agreement must be made in
writing and must be signed by both parties.
16. The Parties agree that this Agreement shall be governed by and construed
in accordance with the laws of the State of California, without regard to choice
of law provisions.
17. Participant acknowledges that HP may transfer the HP business activity
to which this Agreement relates to Agilent Technologies, Inc. ("Agilent") or to
an Agilent affiliate during this Agreement. Participant agrees that as part of
such a transfer of that business activity, HP may, upon prior written notice to
Participant, assign its rights and obligations under this Agreement to Agilent
or to an Agilent affiliate.
HEWLETT-PACKARD COMPANY PARTICIPANT
Entity SSD Company: LINUXCARE
Address: 100 Mayfield Ave Mtn View Address:
By /s/ MIKE RIGODANZO By: /s/ ANTHONY V. POLLACE
(Functional Manager's Signature) (Authorized Signature)
Name: MIKE RIGODANZO Name: ANTHONY V. POLLACE
Title VP & GM Title CFO
Copies to Legal Dept. Participant HP Functional Manager
HP Representative
Rev 9/99
<PAGE>
EXHIBIT 10.2.4
Agreement Number: DTT'S-1
-------
MASTER SERVICES AGREEMENT
This agreement ("Agreement") is made as of June 1, 1999 ("Effective Date"),
between Linuxcare, Inc., a Delaware corporation with an office at 650 Townsend
Street, San Francisco, CA 94103, USA (Phone: 415-354-4878; Fax: 415.701.7457)
("Linuxcare") and the "Customer" listed below.
Customer: Densa Techno Tokyo Co., Ltd Contact: Kenichi Kataoka
Address: 1-23-14 Ebisu Shibuya-ku Phone: +81-3-5421-3331
Tokyo, Japan 150-0013 Fax: +81-3-5421-3330
E-Mail: [email protected]
SERVICES INFORMATION
Service Level: Silver Plus SLA as defined in
Exhibit B
Service Fee Period: July 25, 1999 - July 24, 2000
Service Incident Cap: [*]
Service Fee: [*]
SERVICES PROVIDED
Subject to payment of all applicable fees, Linuxcare will use reasonable
commercial efforts to perform the support services specified in the Statement of
Work ("SOW") attached hereto as Exhibit B ("Services") and incorporated herein,
in accordance with the Terms and Conditions attached hereto as Exhibit A , and
incorporated herein (collectively the "Exhibits"). Linuxcare may change the SOW,
the Service Fee, and the services that will be performed for a particular
Service Level, at any time; such changes will take effect at the beginning of
the next Service Fee Period. Customer understands that Linuxcare's performance
is dependent in part on Customer's actions. Accordingly, any dates or time
periods relevant to performance of Services by Linuxcare shall appropriately and
equitably extended to account for any delays resulting from changes to Customer
products or otherwise due to Customer. Customer may request additional hours or
levels of Services ("Extended Services"), which Linuxcare may provide at
Linuxcare's sole discretion, provided that Customer pays Linuxcare's then
current fees for such Extended Services.
The Exhibits contain, among other things, warranty disclaimers and
------------------------------------------------------------------
liability limitations. Any different or additional terms of any related purchase
- ---------------------
order, confirmation, or similar form even if signed by the parties after the
date hereof shall have no force or effect. References in this Agreement or the
Exhibits to a capitalized term appearing on this cover page shall have the
meaning or value of such term on this cover page.
Customer: Linuxcare:
By: /s/ IKUICHI TAKEYAMN By: /s/ FERNAND SARRAT
Name: IKUICHI TAKEYAMN Name: FERNAND SARRAT
Title: PRESIDENT & CEO Title: PRESIDENT & CEO
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT A
TERMS AND CONDITIONS
1. Training. Subject to payment of all fees, Linuxcare will provide the
--------
training specified in Linuxcare's current, published "Linuxcare Training
Programs" documentation. Unless otherwise arranged between Customer and
Linuxcare, all training shall occur at Linuxcare's facilities in San
Francisco, California. The fees for training will be Linuxcare's current,
published training fees, less the Training Discount ("Training Fees").
2. Fees and Payment. Customer shall pay Linuxcare the fees for the selected
----------------
Service Level shown in the Services Information section of this Master
Services Agreement for each Service Fee Period. ("Service Fees"). Customer
will pay the Service Fees for the initial Service Fee Period within 30 days
of the Effective Date. Customer will pay the Service Fees for subsequent
Service Fee Periods within 30 days after receipt of Linuxcare's invoice.
Customer will also pay Linuxcare all Training Fees and Extended Services
fees within 30 days after receipt of Linuxcare's invoice therefor. All
payments are non-refundable. Any payments over 15 days overdue will bear a
late payment fee of the lower of 1.5% per month of the outstanding balance
or the maximum rate allowed by law. Linuxcare shall refund to Customer any
amounts actually paid to Linuxcare by Customer which exceed amounts due
hereunder, minus any costs, fees, taxes, duties or other implications, if
any, arising in connection with such overpayment.
3. Proprietary Rights. As between the parties, Linuxcare will retain all
------------------
right, title and interest in and to any software, tools, techniques, and
other materials used in connection with providing the Services ("Linuxcare
Materials"). As between the parties, Customer will retain all right, title
and interest in and to any software, products, documentation and other
materials it supplies. Linuxcare hereby assigns to Customer all right,
title and interest, in any work product created as part of the Services
("Work Product"), but this assignment does not include any portion of the
Linuxcare Materials, and will not prevent Linuxcare from using the
expertise, ideas and know-how learned while performing Services for other
purposes (including, without limitation, for itself or on behalf of third
parties).
4. Confidential Information. Each party ("receiving party") agrees that all
------------------------
code, inventions, algorithms, know-how and ideas and all other business,
technical and financial information it obtains from the other party
("disclosing party"), but not including work product that is assigned to
Customer by Linuxcare pursuant to Section 3, are the confidential property
of the disclosing party ("Confidential Information" of the disclosing
party). Except with the consent of the disclosing party, the receiving
party shall hold in confidence and not use or disclose any Confidential
Information of the disclosing party for at least seven (7) years after this
Agreement expires or otherwise terminates. The receiving party's
nondisclosure obligation shall not apply to information it can document:
(i) is generally available to the public other than through breach of this
Agreement; (ii) is rightfully disclosed to the receiving party by a third
party; or (iii) is independently developed by the receiving party without
use of any Confidential Information of the disclosing party. Because of the
unique and proprietary nature of the Confidential Information, it is
understood and agreed that the disclosing party's remedies at law for a
breach by the receiving party of its obligations under this Section will be
inadequate and that the disclosing party shall be entitled to equitable
relief (including without limitation provisional and permanent injunctive
relief and specific performance). Nothing stated herein shall limit any
other remedies provided under this Agreement or available to the disclosing
party at law. Upon expiration or termination of this Agreement for any
reason, each party will return all copies of all Confidential Information
of the other party in its possession or control.
5. Termination. This Agreement will have an initial term of the earlier of one
-----------
year from the Effective Date or the date that Customer uses up its
Incidences under its Service Level (initial "Service Fee Period") and shall
automatically renew on each anniversary of the initial Service Fee Period
for subsequent Service Fee Periods (subject to payment of Linuxcare's then
current rates for additional Incidences) unless terminated by either party.
For the purposes of this Agreement, "Incident" shall mean a single
identified customer issue or problem. Each Incident is only valid
<PAGE>
during the Service Fee Period it was purchased in. One call or e-mail may
include multiple Incidents, and a single Incident may require more than one
call or e-mail to resolve. Either party may terminate this Agreement upon
thirty (30) days written notice to the other party, except if Linuxcare is
terminating the Agreement such termination will not be effective until the
end of any fully paid-up Service Fee Period. Linuxcare may terminate this
Agreement at any time in the case of non-payment by Customer of any fees,
unless Customer pays such fees in full within ten (10) days after such
notice. Sections 4, 5, 7, 8, and 9 of this Agreement, and all accrued
rights to payment, shall survive termination. Termination is not an
exclusive remedy and all other remedies will be available whether or not
termination occurs.
6. Warranty and Disclaimer. Linuxcare hereby warrants to Customer, and only
-----------------------
Customer, that all Services shall be performed in a professional and
workmanlike manner. THE PARTIES ACKNOWLEDGE THAT THIS IS AN AGREEMENT FOR
SERVICES AND NOT FOR THE SUPPLY OF GOODS. EXCEPT FOR THE FOREGOING,
LINUXCARE MAKES NO OTHER WARRANTIES OR REPRESENTATIONS AS TO THE SERVICES
RENDERED. AND HEREBY DISCLAIMS ALL EXPRESS AND IMPLIED WARRANTIES,
INCLUDING BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT. LINUXCARE FURTHER
DISCLAIMS ANY WARRANTY THAT THE SERVICES WILL SUCCEED IN RESOLVING ANY
PROBLEM, OR THAT ANY WORK PRODUCT OF THE SERVICES WILL BE FREE FROM PROGRAM
ERRORS.
7. Limitation of Liability. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR
-----------------------
OTHERWISE, AND EXCEPT FOR BODILY INJURY, LINUXCARE SHALL NOT BE LIABLE OR
OBLIGATED WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT OR UNDER ANY
CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY:
(I) FOR ANY AMOUNTS IN EXCESS IN THE AGGREGATE OF THE FEES PAID TO IT
HEREUNDER WITH RESPECT TO THE APPLICABLE SERVICES; (II) FOR ANY COST OF
PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY, SERVICES OR RIGHTS; OR (III)
FOR INTERRUPTION OF USE OR LOSS OR CORRUPTION OF DATA.
8. NEITHER PARTY TO THIS AGREEMENT SHALL BE LIABLE OR OBLIGATED WITH RESPECT
TO THE SUBJECT MATTER OF THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE,
STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY: (I) FOR ANY MATTER
BEYOND ITS REASONABLE CONTROL, OR (II) FOR ANY INCIDENTAL, INDIRECT OR
CONSEQUENTIAL DAMAGES OR LOST PROFITS.
9. Export Control. Customer shall comply with the U.S. Foreign Corrupt
--------------
Practices Act and all applicable export laws, restrictions, and regulations
of the U.S. and foreign agency or authority.
10. Miscellaneous. This Agreement is not assignable or transferable by Customer
-------------
without the prior written consent of Linuxcare; any attempt to do so
shall be void. Linuxcare may assign this Agreement in whole or in part, or
subcontract the performance of Services to third parties. Services may be
used solely by Customer for Customer's internal use for Customer's own
benefit. The parties agree that they are independent contractors and that
this Agreement and relations between Linuxcare and Customer hereby
established do not constitute a, joint venture, agency or contract of
employment between them, or any other similar relationship. Neither party
has the right or authority to assume or create any obligation or
responsibility on behalf of the other. Any notice, report, approval or
consent required or permitted hereunder shall be in writing. No failure or
delay in exercising any right hereunder will operate as a waiver thereof,
nor will any partial exercise of any right or power hereunder preclude
further exercise. If any provision of this Agreement shall be adjudged by
any court of competent jurisdiction to be unenforceable or invalid, that
provision shall be limited or eliminated to the minimum extent necessary so
that this Agreement shall otherwise remain in full force and effect and
enforceable. Any waivers or amendments shall be effective only if made in
writing. This Agreement is the complete and exclusive statement of the
mutual understanding of the parties and supersedes and cancels all previous
written and oral agreements and communications relating to the subject
matter of this Agreement. The prevailing party in any action to enforce
this Agreement will be entitled to recover its attorney's fees and costs in
connection with such action.
Page 2 of 3
<PAGE>
11. Governing Law and Jurisdiction. This Agreement which is in English, shall
------------------------------
be interpreted in accordance with the commonly understood meaning of
the words and phrases hereof in the United States of America. Any dispute,
controversy or claim arising out of or relating to this Agreement or to a
breach thereof, including its interpretation, performance or termination,
shall be finally resolved by arbitration. The arbitration shall be
conducted in English and in accordance with the commercial rules of the
International Chamber of Commerce, which shall administer the arbitration
and act as appointing authority. The arbitration, including the rendering
of the award, shall take place in San Francisco, California which shall be
the exclusive forum for resolving such dispute, controversy or claim. For
the purposes of this arbitration, the provisions of this Agreement and all
rights and obligations thereunder shall be governed and construed in
accordance with the laws of the State of California. United States of
----------
America, without regard to the conflicts of laws provisions thereof. The
decision of the arbitrators shall be binding upon the parties hereto, and
the expense of the arbitration (including without limitation the award of
attorneys' fees to the prevailing party) shall be paid as the arbitrators
determine. The decision of the arbitrators shall be executory, and judgment
thereon may be entered by any court of competent jurisdiction.
Notwithstanding anything contained in this Paragraph, each party shall have
the right to institute judicial proceedings against the other party or
anyone acting by, through or under such other party in order to enforce the
instituting party's rights hereunder through reformation
Page 3 of 3
<PAGE>
EXHIBIT B
STATEMENT OF WORK
CONTROL
Document ID DTTS SOW 1.0
Location /Documents/Linuxcare/DTTS/DTTS SOW 1.0.doc
Originator Jay Powell
Issue Date 6/29/1999
Status Approved
Version 1.0
DISTRIBUTION
LINUXCARE JAY POWELL, JIM FISHER
DTT'S KENICHI KATAOKA
<TABLE>
<CAPTION>
VERSION MODIFIED BY DATE DESCRIPTION
------- ----------- ---- -----------
<S> <C> <C> <C>
0.1 Jay Powell 05/24/99 Draft Proposal
0.2 Jay Powell 06/02/99 Content and Formatting changes
0.3 Jay Powell 06/10/99 Changes as discussed with DTT'S
0.4 Jay Powell 06/19/99 Changes as discussed with DTT'S
0.5 Jay Powell 06/21/99 Final Draft for Approval
0.6 Jay Powell 06/29/99 Modified Line 1 of section 4 at DTT'S request
1.0 Jay Powell 07/07/99 Approved Final Version
</TABLE>
Page 1 of 8
<PAGE>
<TABLE>
<CAPTION>
TABLE OF CONTENTS
-----------------
<S> <C>
1 INTRODUCTION 3
2 RELATIONSHIP OBJECTIVES 4
2.1 SHORT TERM OBJECTIVES 4
2.2 LONG TERM OBJECTIVES 4
3 SERVICE PROPOSAL 5
3.1 SLA SERVICES 5
3.1.1 Hours of Operation: 5
3.1.2 Distribution: 5
3.1.3 Platforms: 5
3.1.4 Phone, Web, e-mail support: 5
3.1.5 Acknowledgment of incident: 5
3.1.6 Resolution or report: 5
3.1.7 First point of contact: 5
3.1.8 Assigned Support Engineer: 5
3.1.9 Dedicated Support Engineer: 6
3.1.10 Authorized customer contacts: 6
3.1.11 Telnet access to customer's system: 6
3.1.12 View Active Incident Status online: 6
3.1.13 Software updates: 6
3.1.14 Access to Script library: 6
3.1.15 Access to online configuration DB: 6
3.1.16 Pager notification service: 6
3.1.17 Nextel Instant connect dispatch service: 6
3.1.18 Peak season escalation of service: 6
3.1.19 On site support: 7
3.2 PROBLEM REPORTING PROCEDURES 7
3.3 SERVICE RESTRICTIONS 7
3.4 SLA SERVICE PERIOD AND RENEWAL 7
4 TRAINING 8
</TABLE>
Page 2 of 8
<PAGE>
1 INTRODUCTION
This Statement of Work ("SOW") serves to establish the framework of the
relationship between Linuxcare Inc. and Densa Techno Tokyo ("DTT'S") for
providing Linuxcare support services. These support services are to be used by
DTT'S both internally and externally through their support center in Akihabara.
This document is an addendum to the standard Linuxcare Master Service Agreement,
the terms of which are incorporated herein by reference ("Agreement").
This document is intended solely for DTT'S and Linuxcare and is not be
circulated outside of these organizations without written consent from Linuxcare
Inc.
Page 3 of 8
<PAGE>
2 RELATIONSHIP OBJECTIVES
2.1 Short Term Objectives
DTT'S and Linuxcare shall undertake a 12 months trial composed of primarily
backline support for DTT'S Linux support center to be opened in Akihabara Japan
in June of 1999. During this period the companies intend to determine their
ability to cooperate in the Japanese market with the goal of promoting Linux
solutions in Japan. This is to be accomplished with the Linuxcare providing
fundamental backline support to DTT'S thereby allowing DTT'S to provide a
comprehensive support solution to Japanese companies which are beginning to
investigate the strengths of Linux and the unique opportunities which Linux
presents.
2.2 Long Term Objectives
DTT'S desires to become a Linuxcare Certified partner with the ability to offer
solutions across all lines of business currently being offered by Linuxcare. It
is projected that the strength and value of Linuxcare services coupled with the
strength of DTT'S in the Japanese market will produce a situation in which both
companies will enjoy significant gains. This relationship will entail base price
of becoming a Linuxcare Certified Solutions provider and will incorporate a
revenue sharing plan to be worked out upon evaluation of the short term trial
objectives defined above.
Assuming success of the trial in Tokyo DTT'S will expand services to other
companies within the Densa Techno Group throughout Japan. It is envisioned that
these companies will then investigate trial service periods with Linuxcare along
the same lines as defined in section 2.1 for DTT'S.
Page 4 of 8
<PAGE>
3 SERVICE PROPOSAL
Linuxcare will use reasonable commercial efforts to provide an elevated level of
Silver SLA, which for purposes of this document has been deemed "Silver Plus"
Service Level Agreement ("SLA"). These services are to be used by DTT'S to
support Japan Linux users at their newly established Linux support facility in
Akihabara.
3.1 SLA Services
The Silver Plus SLA is unique to DTT'S and is based on a compromise of the
following Linuxcare standard Silver and Gold options. These services will be
used to reach the short term objectives of the business relationship with
Linuxcare and DTT'S as defined above (Ref. 2.1).
3.1.1 Hours of Operation:
9am - 6pm (JST) weekdays excluding national holidays
3.1.2 Distribution:
Distribution support is limited to Turbo Linux and Red Hat 5.2J and 6.0J as it
becomes available. (Note: Distribution interface is Japanese.)
3.1.3 PLATFORMS:
All major (include Alpha, Intel, MIPS, and SPARC)
3.1.4 PHONE, WEB, E-MAIL SUPPORT:
All 3 services will be available. (Note: Phone support will be frontline
Japanese support as rapidly as Linuxcare can staff its Japanese office, in the
meantime it is agreed that DTT'S and Linuxcare will work together to provide a
viable short term solution.)
3.1.5 ACKNOWLEDGMENT OF INCIDENT:
All incidents will be acknowledged within 3 business hours as defined by the
Hours of Operation (Ref. 3.1.1).
3.1.6 RESOLUTION OR REPORT:
Resolution or Report will be issued one business day as defined by the Hours of
Operation (Ref. 3.1.1).
3.1.7 FIRST POINT OF CONTACT:
Initially this is to be a level 1 engineer. As soon as a Linuxcare level 2
engineer is placed full time in Linuxcare's Japanese operations this will be
elevated to level 2 at no additional cost to DTT'S.
3.1.8 ASSIGNED SUPPORT ENGINEER:
This service option is not available for Silver Plus SLA customers.
Page 5 of 8
<PAGE>
3.1.9 Dedicated Support Engineer:
This service option is not available for Silver Plus SLA customers.
3.1.10 AUTHORIZED CUSTOMER CONTACTS:
DTT'S will have 4 Authorized customer contacts. These are the individuals whom
Linuxcare will accept support calls from.
3.1.11 TELNET ACCESS TO CUSTOMER'S SYSTEM:
Telnet access into the Akihabara based servers however not into the DTT'S
customer's site.
3.1.12 VIEW ACTIVE INCIDENT STATUS ONLINE:
Detailed online incident reports will be provided for each DTT'S incident.
3.1.13 SOFTWARE UPDATES:
Software updates will be made available to DTT'S through the Linuxcare web pages
(http://www.linuxcare.com).
- --------------------------
3.1.14 ACCESS TO SCRIPT LIBRARY:
Access to the Linuxcare Script Library will be made available to DTT'S through
the Linuxcare web pages (http://www.linuxcare.com). These scripts are not to be
--------------------------
released to DTT'S customers without written consent from Linuxcare for each
instance.
3.1.15 ACCESS TO ONLINE CONFIGURATION DB:
Access to the Linuxcare online configuration database will be made available to
DTT'S through the Linuxcare web pages (http://www.linuxcare.com). This access is
--------------------------
solely granted to DTT'S and is not to be released to DTT'S customers.
3.1.16 PAGER NOTIFICATION SERVICE:
This service option is not available for Silver Plus SLA customers.
3.1.17 NEXTEL INSTANT CONNECT DISPATCH SERVICE:
This service option is not available for Silver Plus SLA customers. (Note: This
is a radio dispatch service and is not available in Japan.)
3.1.18 PEAK SEASON ESCALATION OF SERVICE:
This service option is not available for Silver Plus SLA customers.
Page 6 of 8
<PAGE>
3.1.19 ON SITE SUPPORT:
This service option is not available for Silver Plus SLA customers.
3.2 Problem reporting procedures
When DTT'S contacts Linuxcare with a problem report the following information is
required
1. Name of DTT'S engineer placing the call. This individual must be one
of the Authorized customer contacts (Ref. 3.1.10)
2. Name of individual and individual's company that logged the initial
call with DTT'S.
3. Description of the problem.
4. Description of the steps taken by DTT'S to resolve the problem
locally.
Linuxcare will track this information; DTT'S shall not purposely mislead
Linuxcare regarding any of these points.
3.3 Service Restrictions
The services provided by Linuxcare are to be used at DTT'S Akihabara support
center and are intended to allow for DTT'S to support external end users. This
contract does not make allowances for Linuxcare services to be used in selling
corporate Linux support in Japan.
DTT'S shall not:
* Sell Linux support packages to Japanese corporate customers without
written consent from Linuxcare for each sale.
* Make any additional or conflicting representations or warranties on
behalf of Linuxcare.
* Use the trademark Linuxcare name, logo, or catch phrase "At the
Center of Linux" without written consent from Linuxcare in each case.
3.4 SLA Service period and Renewal
The Trial SLA shall consist of 12 months of service or 375 Incidents, whichever
comes first, unless otherwise terminated under this Agreement. All SLA contracts
are self renewing however 2 months prior to expiration of existing SLA contracts
(or at 350 Incidents) DTT'S and Linuxcare will take steps to evaluate the
results of the previous year. This process will allow the companies to determine
the required SLA level for the upcoming year or take steps to strengthen the
relationship as defined in section 2.2 (Long Term Objectives) for the upcoming
year.
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<PAGE>
4 TRAINING
Included in the price of the Linuxcare solution being provided to DTT'S is 2
weeks of training for 10 engineers, covering Linuxcare University courses 101,
201, & 301. These courses are to be conducted in Japan with DTT'S providing the
following:
1. A dedicated training room. This room must be allocated solely for
training, as having other events occurring at the same time will be a
distraction to the students and the trainer. The training room should
be equipped with a white board and pens as well as a projector.
2. Enough "Linux capable" computers for each student. Typically we
provide 1 DELL machine per student however since the course will be
at DTT'S location we will not be shipping our training machines
internationally. The hardware is to be used is at DTT'S discretion
however we must be sure that they are Linux capable. We also request
that these machines have network cards and ideally an isolated
network on which training can occur.
3. DTT'S must decide which distribution(s) they want to use for
training. We prefer to offer training across multiple distributions
to ensure that students come away with a greater appreciation of
Linux and not just an understanding of a single distribution.
(Suggested distributions are Turbo Linux and Red Hat 5.2J)
4. Copies of the distribution(s) DTT'S will use for training. As these
distributions are Japanese we would like to request this in advance
so that our instructor can at least familiarize himself with the
Japanese front end.
5. Interpreter. This cost is to be borne by DTT'S so it is our
recommendation that DTT'S provide the interpreter. If you are not
able to do this we need enough notice to hire a local interpreter in
Japan to provide this service.
The cost of sending training and support staff for this training will be billed
to DTT'S. These costs typically include but are not limited to the following:
1. Airfare - Linuxcare policy is business class for flights over 7
hours.
2. Hotel - Linuxcare representatives in Japan stay in the Ebisu Westin
hotel. This is also close to DTT'S training facilities making this
hotel an ideal choice.
3. Meals.
4. Transit - Any travel required by Linuxcare staff to and from training
and meetings with DTT'S will be incurred by DTT'S.
A minimum advance notice of 3 weeks will be required to allow Linuxcare to
adequately schedule and prepare for these training courses.
Page 8 of 8
<PAGE>
EXHIBIT 10.2.5
STATEMENT OF WORK
BETWEEN IBM GLOBAL SERVICES AND LINUXCARE
1.0 OVERVIEW
- -------------
This Statement of Work ("SOW") describes the agreement between IBM Global
Services and Linuxcare, where Linuxcare will provide Level 3 support and fix
distribution to IBM for Linux and Linux related products. This SOW is not a WA.
This SOW is an attachment to the IBM Customer Agreement (ICA) signed on 10/18/99
by Linuxcare and 10/21/99 by IBM.
2.0 KEY DEFINITIONS
- --------------------
PROBLEM RESOLUTION involves taking the appropriate steps to resolve a
request for assistance. This may include providing Error Corrections.
ERROR CORRECTIONS shall mean circumventions, work-arounds, temporary or
permanent source code fixes, fix distribution technical information, how-to
assistance and other similar information.
SEVERITY involves the impact the problem has on business operations.
LEVEL 1 SUPPORT shall mean the services in response to a customer's initial
notification of a suspected problem. These services include call-logging
and validation, determination of whether a solution is contained in product
information and a review of symptoms/solutions database for known
resolutions.
LEVEL 2 SUPPORT shall mean the services to a customer to attempt to
reproduce and correct the suspected problem.
LEVEL 3 SUPPORT shall mean services provided by Linuxcare engineers to
resolve Problems.
PROBLEMS shall mean requests for Problem Resolution that are determined to
be, or are highly probable to be, the result of a design or manufacturing
defect or the result of a complex interaction between the product and
another product that cannot be resolved by IBM, and which requires product
design engineering knowledge or expertise to isolate and effect a Problem
Resolution.
LINUX: Any distribution of the Linux operating system or other products
supported by Linuxcare.
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<PAGE>
3.0 PROJECT SCOPE
- ------------------
IBM plans to independently market and perform product support services for IBM
customers using Linux. Under this SOW, in consideration for the payments
described in Section 5.4, Linuxcare will provide IBM with certain technical
assistance which will facilitate IBM's ability to provide such support services.
IBM will be responsible for providing Level 1 and Level 2 support to the IBM
customers in an attempt to resolve customer problems. Linuxcare will provide IBM
access to certain Linuxcare technical databases, information and materials as
described in Section 4.1 for IBM's use in providing such Level 1 and Level 2
support. Linuxcare also will be responsible for providing Level 3 support to IBM
to isolate and resolve source code defects, resolve complex technical issues and
provide fixes in furtherance of IBM's support services to IBM customers.
4.0 LINUXCARE RESPONSIBILITIES
- -------------------------------
4.1 PRODUCT
- ------------
Provide to IBM for IBM's internal use only:
* Access to existing Linuxcare technical informational databases and
technical informational archives.
* A complete listing of all components included in supported Linux and the
scope of support for each of the components.
4.2 TECHNICAL ASSISTANCE
- -------------------------
Linuxcare technical assistance responsibilities include:
* Accept and provide Problem Resolution to all IBM requests. This includes
requests for technical assistance as well as code defect assistance, source
code corrections and fix distribution.
* Work directly with IBM customers, when requested by IBM, to expedite
Problem Resolution.
* Maintain Problem record documentation in an agreed to database that is
accessible to both companies.
* Update Problem records with a current status.
* Sev 1 - Update every 4 hours
* Sev 2 - Update daily
* Sev 3 - Update weekly
* Sev 4 - Update/Close with comment and provide in next release.
* Upon final Problem closure, provide a complete description of the Problem
Resolution.
* Test all fixes to ensure defect is resolved and no system regression has
occurred.
* Problems shall be considered closed when the Error Correction or corrective
action resolves the outstanding issue or is mutually agreed to be a code
restriction or "working as designed" issue, and when IBM, on behalf of the
customer, conveys acceptance to Linuxcare.
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<PAGE>
* For the term of this SOW, Linuxcare shall make available to IBM customers
Error Corrections for Linux as the Error Corrections are available, but in
no event later than the general availability of such Error Corrections, and
the following minimum service in accordance with the terms and conditions
defined in this SOW:
(1) Isolate all Problems in Linux and promptly provide Error Corrections
to IBM in accordance with the following "time is of the essence"
parameters:
(a) for Problems that result in an emergency condition that cause
critical impact to an IBM schedule or that make performance or
continued performance of any feature or function impossible or
impracticable by the end user ("Severity Level 1 Error"),
Linuxcare shall provide a response within 4 hours and use best
efforts to provide Error Corrections within 3 calendar days of
the earlier of Linuxcare discovering the Problem or being
informed of the Problem by IBM, IBM subsidiaries or end users who
have entered into a support agreement with Linuxcare.
(b) for Problems that significantly affect an IBM schedule, cause a
minor security breach or which make the performance or continued
performance of any feature or function difficult that cannot be
circumvented or avoided on a temporary basis by the end user
("Severity Level 2 Error"), Linuxcare shall provide a response
within 8 hours and use commercially reasonable efforts to provide
Error Corrections within 10 calendar days of the earlier of
Linuxcare discovering the Problem or being informed of the
Problem by IBM, IBM subsidiaries or end users who have entered
into a support agreement with Linuxcare.
(c) for Problems that are not critical in that performance can be
continued without difficulty or loss of data by easy
circumvention or avoidance by the end user ("Severity Level 3
Error"), Linuxcare shall provide a response within 24 hours and
use commercially reasonable efforts to provide Error Corrections
within 15 days of the earlier of Linuxcare discovering the
Problem being informed of the Problem by IBM, IBM subsidiaries or
end users who have entered into a support agreement with
Linuxcare.
(d) for Problems that are minor which can be easily avoided or
circumvented by the end user ("Severity Level 4 Error"),
Linuxcare shall provide a response within 48 hours and use
commercially reasonable efforts to provide Error Corrections in
the next commercial release of the Deliverable.
SUMMARY CHART
- -------------
Severity Response to Initial Time to Resolution *
Contact
1 4 hours 24 Hours
2 8 Hours 10 Days
3 24 Hours 15 Days
4 48 Hours 30 Days
* From time of Linuxcare being informed of the Problem
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<PAGE>
4.3 MANAGEMENT
- ---------------
Linuxcare management responsibilities include:
* Identify a management contact(s) to oversee the support and service
responsibilities defined in this SOW.
* Work with IBM management to resolve issues related to the execution of this
SOW.
* Participate in status meetings with IBM management on a mutually agreeable
basis.
* Notify IBM management of pending changes or decisions that potentially may
cause a negative impact to IBM's ability to deliver Linuxcare product
support.
5.0 IBM RESPONSIBILITIES
- -------------------------
5.1 PROBLEM MANAGEMENT TOOL
- ----------------------------
IBM will provide a WEB based tool that will be used for:
* Requesting assistance from Linuxcare
* Providing initial Problem information and severity
* Maintaining appropriate Problem documentation by both IBM and Linuxcare on
such items as status, updates, priority, Problem descriptions, customer
environment and all other pertinent information that is necessary to
resolve customer problems
5.2 TECHNICAL ASSISTANCE
- --------------------------
IBM will provide the following Level 1 and Level 2 technical assistance to IBM
customers:
* Provide initial customer contact and entitlement
* Create initial Problem record and ensure all appropriate information is
recorded
* Establish proper priority/severity of Problem based on its impact to the
customer
* Search databases for known problems
* Assist customer with the installation of corrective service/fixes obtained
by customer
* Attempt to determine if the error is due to improper installation of the
Linuxcare product
* Attempt to determine if the suspected error is due to prerequisite or
operationally related equipment or software
* Attempt to recreate the Problem
* Communicate solution or recommended action to the customer
* If no resolution and the Problem appears to be a newly discovered Code or
documentation error, request assistance from Linuxcare for further analysis
and documentation
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<PAGE>
5.3 MANAGEMENT
- ---------------
IBM management responsibilities include:
* Identify a management contact(s) to oversee the support and service
responsibilities defined in this SOW.
* Work with Linuxcare management to resolve issues related to the execution
of this SOW.
* Participate in status meetings with Linuxcare management on a mutually
agreeable basis.
* Notify Linuxcare management of pending changes or decisions that
potentially may cause a negative impact to Linuxcare's ability to deliver
Linuxcare product support.
5.4 COMPENSATION FOR SERVICES PROVIDED
- ---------------------------------------
Pricing for Linuxcare Support services will be based on an hourly charge of
$180.00. This hourly rate will be calculated in 15 minute increments and billed
monthly on net 30 terms. IBM agrees to commit to a minimum monthly usage of 27
hours. Unused hours may be carried forward to the following month until used.
5.5 YEAR 2000 SERVICES
- -----------------------
This SOW does not address the capability of Linuxcare's systems to handle date
data within and between the twentieth and twenty-first centuries. Linuxcare
acknowledges that it is Linuxcare's responsibility to assess its current systems
and take appropriate action to migrate to Year 2000 ready systems.
6.0 SUPPORT AVAILABILITY
- -------------------------
Both companies shall be available to meet the responsibilities of this SOW on
all hours seven (7) days a week.
Both companies shall be available via defined call out processes to meet the
responsibilities of this SOW on all hours, seven (7) days a week.
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<PAGE>
7.0 OWNERSHIP AND LICENSES
- ---------------------------
LINUXCARE AND IBM: ANY MATERIALS PROVIDED BY IBM OR LINUXCARE ARE PROVIDED ON AN
- -----------------
"AS IS" BASIS WITHOUT WARRANTY OF ANY KIND INCLUDING THE IMPLIED WARRANTIES OF
MERCHANTABILITY AND FITNESS FOR A PARTICULAR PURPOSE.
8.0 STATEMENT OF WORK PERFORMANCE PERIOD AND CHANGES
- -----------------------------------------------------
This SOW will be valid from September 23, 1999 through September 23, 2000.
All change requests shall be submitted through e-mail to the Project Manager.
10.0 CONTACT INFORMATION
- ------------------------
IBM MANAGEMENT CONTACTS: LINUXCARE MANAGEMENT CONTACTS:
Larry Bucklew Fernand Sarrat
Business Executive, Remote Workstation Services CEO
11400 Brunet Rd. 650 Townsend
Austin, TX 78758 San Francisco, CA 94103
(512) 823-5600 (415) 354-4878
Ross Mikosh Renee Harwood
Linux Service and Support Consultant Director, Technical Support
11400 Brunet Rd. 650 Townsend
Austin, TX 78758 San Francisco, CA 94103
(512) 823-5600 (415) 354-4878
11.0 SUPPORTED PRODUCTS
- -----------------------
A list of supported products will be maintained by Linuxcare at URL:
www.linuxcare.com/ibmdistsupport
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<PAGE>
12.0 TERMINATION
- ----------------
After a period of twelve months from the date of execution of this SOW, either
party shall have the right to terminate this SOW with or without cause upon
sixty (60) days notice to the other party.
ACCEPTED AND AGREED TO: ACCEPTED AND AGREED TO:
/s/ Thomas W. Phillips /s/ Larry W. Bucklew
By-----------------------------10/22/99 By-----------------------------10/22/99
Authorized Signature Date Authorized Signature Date
Thomas W. Phillips Larry W. Bucklew
Printed Name Printed Name
VP WORLD WIDE SALES BUSINESS EXEC - IGS
Title & Organization Title & Organization
7 of 7
<PAGE>
EXHIBIT 10.2.6
MASTER OUTSOURCING AGREEMENT
(MAINTENANCE SERVICES)
This Master Outsourcing Agreement (Maintenance Services) (the "Agreement")
is made as of the 13th day of December, 1999 by and between Motorola, Inc., a
Delaware corporation, through its Motorola Computer Group, with its principal
office located at 2900 South Diablo Way, Tempe, AZ 85282 ("MCG"), and LinuxCare,
Inc, with its principal office located at 650 Townsend St. San Francisco, CA
94103 (VENDOR).
RECITALS
A. MCG manufactures, sells, distributes and licenses certain computer hardware
and software products and other third party products in connection with such
computer products.
B. MCG provides installation, maintenance and other services for such computer
products and such third party products.
C. VENDOR is in the business of providing engineering support, training,
development, and consulting services for Linux products.
D. MCG desires to establish a contractual relationship with VENDOR whereby
VENDOR will provide a significant portion of MCG's support and other support
related services directly to MCG pursuant to the terms and conditions of this
Agreement.
AGREEMENT
NOW, THEREFORE, MCG and VENDOR agree as follows:
1. DEFINITIONS
As used in this Agreement, the following terms shall have the following
meanings (such definitions to be equally applicable to both the singular and the
plural forms of the terms defined). Unless otherwise indicated, references to
Schedules and Exhibits shall mean Schedules and Exhibits to this Agreement, as
such Schedules and Exhibits may be amended, supplemented or modified from time
to time.
(a) "Base Term" shall have the meaning set forth in Section 3(a) of this
Agreement.
(b) "Customer Data" shall mean the customer contract files and other
information pertaining to the customers, as communicated and provided to
VENDOR by MCG in its sole discretion, whose service maintenance will be
provided by VENDOR on behalf of MCG hereunder.
(c) "Effective Date" shall mean December 13, 1999.
-1-
<PAGE>
(d) "Eligible Products" shall mean all Linux operating system software
currently or in the future supported by MCG or any of its affiliates
subject to any third party contractual terms between MCG and the third
party.
(e) "Loaned Equipment" shall mean equipment identified by MCG for the
support or servicing of Eligible Products which is to be loaned to VENDOR
as provided in Section 5 (c) herein.
(f) "Major Facilities" shall mean the Major Parts Facilities and VENDOR's
facilities in 650 Townsend St. San Francisco, CA 94103.
(g) "Service Area" shall mean the geographic location identified in
Schedule 1(h).
(h) "Services" shall mean the obligations, duties and services described
in an attached Statement of Work.
(i) "Statement of Work" shall mean all of the obligations, duties and
services of VENDOR in respect of the support and servicing of Eligible
Products including, without limitation, remote customer service, call
management, and customer tracking, as set forth in detail in the Statement
of Work attached hereto as an exhibit.
-------
(j) "Technical Documentation" shall mean diagnostic software and tools
(including without limitation, operations and maintenance manuals, training
materials, logic diagrams, service aids and know-how related to the
Eligible Products that are necessary or appropriate, as communicated and
provided to VENDOR by MCG in its sole discretion and to the extent MCG is
permitted under third party licenses to communicate and provide such items
to VENDOR, for VENDOR's engineers to support the Eligible Products
properly.
(k) "Transition Completion Date" shall mean the date when the transition
is completed in full and VENDOR is capable of performing the in accordance
with the standards and requirements specified in the Transition Plan, as
such date may be modified from time to time in connection with revisions to
such Transition Plan.
(l) "Transition Coordinator" shall mean an individual identified by VENDOR
who shall be acceptable to MCG and who shall serve as the Transition
Coordinator for purposes of Section 4(c) hereof.
(m) "Transition Plan" shall mean the plan created through joint effort of
VENDOR and MCG as set forth in Section 4(a), below.
(n) "Transition Phase" shall mean the period commencing on the Effective
Date and ending on the Transition Completion Date.
(o) "VENDOR Onsite Project Manager" shall have the meaning set forth in
Section 4(c).
-2-
<PAGE>
2. APPOINTMENT AS SERVICE CONTRACTOR
(a) Appointment. Upon and subject to the terms and conditions of this
-----------
Agreement, MCG hereby appoints VENDOR, as its contractor, to perform the Support
for or with respect to the Eligible Products within the Service Area. VENDOR may
subcontract its obligations under this Agreement to third parties provided that
(i) such third parties agree to the terms and provisions of this Agreement
applicable to the services provided by such third parties, which provisions
shall at minimum require full compliance with Section 9 - Confidential
Information; (ii) VENDOR provides MCG prior notice of the full identity (i.e.,
name, telephone number and address) of such third party and a description of the
services being so provided, and (iii) VENDOR obtains MCG's prior written consent
of such third party for the particular subcontract, which consent shall not be
unreasonably withheld. VENDOR shall indemnify MCG for any and all claims made
against MCG resulting out of any acts or omissions of such third parties in
accordance with the provisions of Section 10(a), below.
(b) Acceptance of Appointment. VENDOR hereby accepts such appointment and
-------------------------
agrees to perform the Services on or with respect to the Eligible Products
within the Service Area. VENDOR agrees to perform the Services promptly, in a
skillful, competent and workmanlike manner, and in accordance with the standards
of skill and care exercised by equipment maintenance and service providers with
respect to similar equipment.
(c) Non-exclusivity. MCG and VENDOR hereby acknowledge and agree that the
---------------
appointment of VENDOR hereunder is not exclusive. At any time, and at its sole
discretion, MCG, Motorola, Inc., and any of their respective divisions,
subsidiaries or affiliates may perform and/or may engage any third party to
perform any or all of the Services (or any other services) within or outside of
the Service Area. Nothing in this Agreement is intended to limit or restrict
VENDOR's right to provide maintenance services (including services comparable to
the Services) on behalf of other equipment vendors; provided, that any such
--------
services performed by VENDOR on behalf of any other vendor shall not interfere
with or limit VENDOR's ability to fully and timely perform the Services.
3. TERM OF AGREEMENT
(a) Base Term. Subject to Section 3(b) hereof, the term of this Agreement
---------
will commence on the Effective Date and will, unless sooner terminated in
accordance with the provisions hereof, and subject to the requirements of
Section 12, end on the third (3rd) anniversary thereof.
(b) Automatic Annual Extension. The term of this Agreement shall
--------------------------
automatically be extended for successive periods of one year each; provided,
--------
that the term of this Agreement shall not be extended under this Section 3(b) if
either party shall have delivered, not later than twelve (12) months prior to
the then scheduled expiration date, written notice to the other party of its
election not to have the term of Services to be provided under this Agreement
automatically extended pursuant to this Section 3(b).
-3-
<PAGE>
4. TRANSITION PHASE
(a) Transition Management. VENDOR will be responsible for all transition
---------------------
management and transition planning. To the extent MCG has any suggested
additions or modifications, the parties shall immediately confer and in good
faith attempt to resolve any disagreements that may arise. Both MCG and VENDOR
will diligently and timely perform their respective duties and tasks under a
mutually agreed-upon Transition Plan in accordance with the provisions of this
Agreement, the Statement of Work and the Transition Plan so that the Transition
Phase will be completed successfully within the schedule established in the
Transition Plan.
(b) Failure to Meet Transition Completion Date. In addition to MCG's right
------------------------------------------
to recover actual damages, in the event that VENDOR fails to perform its
obligations hereunder with respect to the Transition Phase in accordance with
the Statement of Work and the Transition Plan such that the Transition
Completion Date does not occur on or before the date set by mutual agreement of
the parties:
(i) VENDOR shall make available to MCG all personnel, equipment and
other resources in addition to such personnel, equipment and other
resources then dedicated to the MCG Transition Phase that are necessary
under the circumstances to maintain MCG's service and maintenance
operations fully operational at the same service level at which it was
operating on the Effective Date. VENDOR shall be reimbursed for use of the
technical people at the telephone only support rates. On site services
performed by VENDOR during this period will be reimbursed by the Flat Rate
Per Incident On-site Labor Rate as set forth in the Statement of Work.
(ii) If the Transition Completion Date has not occurred by the
mutually agreed date, VENDOR shall as soon as possible submit to MCG a
written plan to complete the Transition. MCG shall have a mutually agreed
to time period in which, by written notice to VENDOR, to (A) accept the
written plan, (B) terminate this Agreement as of a date specified in the
termination notice, without any further financial obligations to VENDOR or
(C) elect to stay at current implementation level of the Transition Plan.
If MCG does not provide a written response, it shall be deemed to have
elected to stay at the current implementation level. Nothing in this
Section 4 shall be intended to restrict or limit MCG's right to initiate
discussions and/or negotiations with any other maintenance service provider
during or after the Transition Phase.
5. GENERAL COVENANTS RELATING TO THE SERVICES
(a) Personnel. VENDOR agrees to maintain sufficient staffing levels to
---------
cause all Services to be performed in accordance with, and within the
time frames specified in, the Statement of Work. VENDOR shall assign to
maintenance services only trained and experienced personnel. Such personnel must
be technically qualified by MCG to the appropriate level required, and as
determined by MCG, for the Eligible Products to be maintained by VENDOR pursuant
to this Agreement.
-4-
<PAGE>
(b) Loaned Equipment. MCG shall deliver to VENDOR and VENDOR shall accept
----------------
the delivery of the Loaned Equipment set forth in Schedule 5(c),
attached hereto, as prescribed in the Transition Plan and such other
Loaned Equipment as MCG shall determine is required from time to time.
Such Loaned Equipment shall be used by VENDOR solely in the
performance of the Services. Unless otherwise agreed to by MCG in
writing, such Loaned Equipment shall remain the property of MCG. Upon
delivery to VENDOR, VENDOR assumes the cost of labor for safekeeping,
maintaining and repairing the Loaned Equipment and shall keep such
Loaned Equipment in good working order and repair, subject to
reasonable wear and tear that does not adversely affect the utility or
efficiency of such Loaned Equipment. MCG shall provide the parts to
the Loaned Equipment as requested by VENDOR in connection with the
safekeeping, maintenance and repair of the Loaned Equipment. VENDOR
shall maintain complete and accurate records of the location and
condition of the Loaned Equipment and shall execute precautionary UCC-
1 financing statements and any other documents that are reasonably
necessary to protect MCG's ownership interest in such Loaned
Equipment. VENDOR shall keep all such Loaned Equipment prominently
marked with clear and readable labels, signs, or notices indicating
"MOTOROLA, INC. PROPERTY." Upon delivery of Loaned Equipment to
VENDOR, VENDOR assumes all risk of loss, theft, damage or casualty to
such Loaned Equipment including, without limitation, any such loss,
theft, damage or casualty occurring during any subsequent transfer of
such Loaned Equipment to other VENDOR facilities or to customer
locations and shall indemnify and hold MCG harmless from and against
any such loss, theft, damage or casualty.
(c) Customer Data. MCG shall provide Customer Data to VENDOR as described
-------------
in the Statement of Work.
(e) Technical Documentation. MCG shall provide to VENDOR reasonably
-----------------------
sufficient copies of the Technical Documentation at no charge to
VENDOR. All such Technical Documentation shall, to the extent owned by
MCG, remain the property of MCG including, without limitation, all
modifications, enhancements, improvements and translations
("Improvements to Technical Documentation") made to it by any party.
However, MCG hereby grants to VENDOR a non-exclusive, royalty free,
right and license, limited as further described herein, to use the
MCG-owned Technical Documentation solely for the purpose of providing
services for customers pursuant to contracts such customers have with
MCG only. To the extent Technical Documentation is licensed to MCG
from a third party, MCG shall to the extent permitted by such third
party license provide VENDOR rights under the terms of such third
party license. VENDOR shall abide by all restrictions, limitations and
conditions imposed on or in connection with such Technical
Documentation as mutually agreed by the parties. Upon termination,
expiration or cancellation of this Agreement, VENDOR shall return all
Technical Documentation, including all copies thereof, to MCG. VENDOR
shall have no right or license to copy or modify the Technical
Documentation, unless otherwise agreed to in writing by MCG. VENDOR
agrees to preserve and not remove or obscure any proprietary
information notices or other use restrictions, including without
limitation, any copyright notices, trademarks and
-5-
<PAGE>
restricted government rights legends. The Technical Documentation are
provided hereunder "As Is" with no representation or warranty
whatsoever. Specifically, MCG does not represent or warrant that the
Technical Documentation does not infringe any third party intellectual
property rights.
(f) Reports. VENDOR shall prepare such reports, summaries, analyses and
-------
shall supply such data and other material as specified in the
Statement of Work, and as otherwise reasonably requested by MCG.
(g) Inspections. After notification by MCG, VENDOR shall attempt to
-----------
accommodate immediately but shall in no case later than 2 days allow
MCG to visit and inspect during VENDOR's normal business hours without
interference to VENDOR's business at any facility of VENDOR where
Services are performed or Loaned Equipment, Customer Data or Technical
Documents are used or stored and to inspect all records of VENDOR kept
or maintained in connection with the Services. Such representatives
from MCG may be required to be escorted by VENDOR for security
purposes. Such inspections shall include the opportunity to monitor
VENDOR's compliance with every aspect of the Statement of Work. VENDOR
will at all times requested by MCG cooperate with and assist such
persons in locating and gaining access to such facilities and records.
(h) Financial Information. VENDOR shall provide immediately notice to MCG
---------------------
of any event or condition that in VENDOR's reasonable judgment results
in or is reasonably likely to result in a material adverse change to
the solvency, financial condition or business operations of VENDOR.
(i) Quality Metric Measurements and Reporting of VENDOR's Performance. MCG
-----------------------------------------------------------------
and VENDOR will, on a regularly scheduled basis, meet to define and
mutually agree upon the Quality Metric goals for the Quality Metrics
defined in Exhibit D. VENDOR agrees to present, at MCG's monthly
quality meeting in Tempe, Arizona, the performance data for the goals
set above and provide root cause analysis and corrective action plans
for all quality metric goals missed. If the quality goals missed are
not resolved to MCG's satisfaction for a period of 3 consecutive
months, MCG shall provide written notice to VENDOR stating the
specific deficiencies and missed goals and requesting that an
appropriate member of VENDOR's senior staff at the Vice President or
Senior Vice President level attend the next MCG monthly quality
meeting and to be present at such time. Such senior staff person shall
attend the noticed MCG monthly quality meeting and shall present an
executive action plan which will define how VENDOR plans to resolve
the deficiencies and missed goals. Unless otherwise agreed to by the
parties, all such deficiencies and missed goals must be successfully
rectified within 90 days thereafter.
6. FEES
In consideration of VENDOR performing its obligations hereunder, MCG shall
pay VENDOR the fees and charges as specified in the Statement of Work. All
billable service
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<PAGE>
performed in each month shall be invoiced the following month. All payments
required to be made by MCG hereunder shall be due and payable within thirty (30)
days from receipt of an accurate invoice. VENDOR will be permitted to increase
its prices for services as set forth in the Statement of Work no greater than 5%
for each year, after expiration of the Base Term. Notwithstanding anything to
the contrary, MCG shall be entitled to the most favorable prices for services
for equivalent type and volume of services. MCG shall provide VENDOR evidence of
tax exemption for each applicable state as required, otherwise, applicable tax
will be included with invoices.
7. TITLE
MCG shall retain all rights (including, without limitation, all
intellectual property rights), title, and interest in and to all Technical
Documentation, Customer Data, Loaned Equipment and Parts delivered to and/or
retrieved by VENDOR hereunder. VENDOR shall not make any contrary
representations to any third party. VENDOR shall not use, sell or encumber the
Technical Documentation, Customer Data, and Loaned Equipment for its own
account. VENDOR agrees to take all additional actions reasonably requested by
MCG to preserve MCG's rights in all Technical Documentation, Customer Data, and
Loaned Equipment, including, without limitation, keeping all Technical
Documentation, Customer Data, Loaned Equipment secure and separate from any
other inventory or materials which do not belong to MCG, placing and maintaining
signs on VENDOR's premises or tags on the property announcing MCG's ownership
and executing any documents reasonably necessary to preserve MCG's ownership
interest. VENDOR shall at all times keep all Technical Documentation, Customer
Data, and Loaned Equipment free and clear of any claims, liens, charges and
legal processes of VENDOR's creditors and shall defend, at is own cost and
expense, MCG's title to or rights in all such Technical Documentation, Customer
Data, and Loaned Equipment against all claims, liens, charges and legal
processes of creditors of VENDOR and shall indemnify, defend and hold MCG
harmless from and against any such claims, liens, charges and processes.
8. REPRESENTATIONS AND WARRANTIES
Each party ("Representing Party") represents and warrants to and for the benefit
of the other party that on the Effective Date:
(a) Representing Party is validly existing and in good standing under the
laws of the state in which its principle office is located and is duly licensed
or qualified and is in good standing wherever necessary to carry on its present
business and operations and to own or lease its properties and has the power and
authority and all necessary licenses and permits to carry on its present
business and operations (including carrying on its business as presently
conducted), to own or lease its properties and to enter into and perform its
obligations under this Agreement.
(b) This Agreement has been duly authorized, executed and delivered by
Representing Party and constitutes legal, valid and binding obligations of
Representing Party enforceable against Representing Party in accordance with its
respective terms, subject to bankruptcy, insolvency, reorganization, fraudulent
conveyance, moratorium, or similar laws affecting creditors' rights generally
and subject to general principles of equity.
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<PAGE>
(c) The execution and delivery of this Agreement and compliance by
Representing Party with all of the provisions hereof do not require any partner
(or any partner or shareholder of any partner) approval and do not and will not
contravene any law, rule, regulation, judgment or decree applicable to or
binding on Representing Party or require any consent of a third party or
contravene the provisions of, or constitute a default under, or result in the
creation of any lien on the property of Representing Party under, a general
partnership agreement or any indenture, mortgage, contract or other agreement or
instrument to which Representing Party is a party or by which it or any of its
property may be bound or affected.
(d) Representing Party is not in default, and no event or condition exists
which after the giving of notice or lapse of time or both would constitute an
event of default, under any mortgage, indenture, contract, agreement, judgment
or other undertaking to which Representing Party is a party or upon any of the
assets of Representing Party, except for any such default, event or condition
which, individually or in the aggregate, would not materially adversely affect
Representing Party financial condition, business or operations or adversely
affect Representing Party's ability to perform its obligations under this
Agreement.
(e) There are no proceedings pending or, to the knowledge of Representing
Party, threatened, and to the knowledge of Representing Party there is no
existing basis for any such proceedings, against or affecting Representing Party
or any subsidiary thereof by or before any court, arbitrator, administrative
agency or other governmental authority which, if adversely determined,
individually or in the aggregate might be reasonably expected to materially
adversely affect the properties, business, prospects, profits or condition of
Representing Party or adversely affect Representing Party's ability to perform
its obligations under this Agreement. Neither Representing Party nor any of its
subsidiaries is in default with respect to any order of any court, arbitrator,
administrative agency or other governmental authority, the violation of which
individually or in the aggregate might be reasonably expected to materially
adversely affect the properties, business, prospects, profits or condition of
Representing Party or adversely affect Representing Party's ability to perform
its obligations under this Agreement.
(f) Neither the execution and delivery by Representing Party of this
Agreement, nor the performance by Representing Party of its obligations
hereunder require the consent, approval or authorization of, the giving of
notice to, or the filing, registration, qualification or taking of any other
action with, any Federal, state, or foreign government authority or agency.
(h) This Agreement, Representing Party's written response to the other
party's due diligence requests, and the documents referenced or delivered to the
other party, individually or in the aggregate, in connection with this Agreement
do not contain any untrue statement of a material fact or omit to state a
material fact necessary to make the statements and facts contained in such
documents or writings not false or misleading.
(g) VENDOR chief executive office (as such term is used in Article 9 of
the Uniform Commercial Code) is located at 650 Townsend St. San Francisco, CA
94103 and VENDOR hereby agrees to notify MCG in writing of any change in such
location within 30 days of such change.
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<PAGE>
(i) In connection with Representing Party's business, there are no
collective bargaining agreements or other labor agreements to which Representing
Party is a party or by which it is bound. There is and has been no unfair labor
practice complaint against Representing Party in connection with its business
which materially or adversely affects the business of Representing Party. There
are and have been no labor strike or other material labor trouble affecting its
business and no pending representation question respecting the employees of
Representing Party in connection with its business.
(j) Representing Party and its affiliates have filed or caused to be filed
all Federal, state, local and foreign tax returns required to be filed and have
paid or caused to be paid all taxes shown to be due and payable on such returns
or any assessment received by Representing Party or any of its subsidiaries, to
the extent such taxes are due and payable (except to the extent (i) such taxes
are being contested in good faith, or (ii) such failure to file tax returns or
pay taxes would not have any material adverse effect on the properties,
business, prospects, profits, or condition of Representing Party).
9. CONFIDENTIAL INFORMATION
(a) Except as provided hereinafter, for a period of five (5) years after
termination or expiration of this Agreement, each party shall not disclose,
publish or disseminate information received from the other party which may be
required to carry out this Agreement and which the disclosing party deems
proprietary and confidential, and which has been reduced to a tangible medium
and marked confidential (hereinafter "Confidential Information"). In order for
oral information to be considered Confidential Information, it must be confirmed
in writing within thirty (30) days of disclosure.
(b) The receiving party agrees to employ the same care (which shall be at
least reasonable) and discretion with respect to Confidential Information of the
disclosing party that it employs with similar information of its own which it
does not desire to disclose, publish or disseminate.
(c) The receiving party shall limit use and access of such Confidential
Information to only VENDOR employees and others whose use or access is necessary
to effect the purposes of this Agreement and who have executed confidentiality
agreements substantially equivalent to the terms in this Section 9.
(d) At the termination or expiration of this Agreement, the receiving
party shall promptly return all Confidential Information which are in written
form or on other media, including copies thereof, back to the disclosing party.
(e) VENDOR agrees that the following constitutes Confidential Information
of MCG without further markings or written notice:
(i) the identity of Customers as compiled in a database;
(ii) the identity of equipment used by a Customer, and
(iii) the service history of such Customers.
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<PAGE>
(f) VENDOR further agrees to take all actions necessary to prevent any
Confidential Information from being used or accessed by the product marketing or
sales departments of any other Company.
(g) The obligations specified in this Section 9 will not apply to any
information:
(i) that is already in the possession of the receiving party
without obligation of confidence;
(ii) that is independently developed at any time by the
receiving party;
(iii) that is or becomes publicly available without breach of
this Agreement;
(iv) that is rightfully received by the receiving party from a
third party without restriction on disclosure;
(v) that is disclosed in response to a valid order of a court
or other governmental body of the United States of America
or any political subdivision thereof; provided, however,
that the disclosing party shall first have made a good
faith effort to obtain a protective order requiring that
the information and/or documents so disclosed be used only
for the purpose for which the order was issued;
(vi) where its disclosure is otherwise required by law; or
(vii) where its disclosure is necessary to establish the
disclosing party's rights under this Agreement.
10. INDEMNIFICATION
(a) VENDOR assumes liability for, and shall defend, indemnify and keep
harmless from MCG, and its respective officers, directors, employees, successors
and assigns (each, an "Indemnified Party") from and against any and all
liabilities, obligations, losses, damages, penalties, claims, demands, actions,
suits, costs and expenses (including, without limitation, reasonable legal fees
and expenses), arising from claims of third parties, of whatsoever kind or
nature, imposed on, incurred by or asserted against any Indemnified Party,
resulting from, arising out of, or incurred with respect to (i) the breach of
any covenant or warranty made by VENDOR under Section 8 or a material breach of
this Agreement, or (ii) the performance of the Services by VENDOR but not to the
extent such claim arises from or relates to VENDOR acting at MCG's direction or
instruction or VENDOR's use of the Technical Documentation or other MCG-supplied
materials; provided, however, that VENDOR shall not be required under this
--------
Section 10(a) to defend, indemnify or keep harmless any Indemnified Party for
loss or liability resulting from any negligence, willful misconduct or gross
negligence of such Indemnified Party.
The foregoing states VENDOR's sole liability for its breach of warranties
in Section 8. MCG shall (i) promptly notify VENDOR of any such claim, (ii) allow
VENDOR full control over
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<PAGE>
the defense and settlement of such claim, and (iii) provide VENDOR full
cooperation in the defense and settlement of such claim.
(b) MCG assumes liability for, and shall defend, indemnify and keep
harmless VENDOR, and its respective officers, directors, employees, successors
and assigns (each, an "Indemnified Party") from and against any and all
liabilities, obligations, losses, damages, penalties, claims, demands, actions,
suits, costs and expenses (including, without limitation, reasonable legal fees
and expenses), arising from claims of third parties, of whatsoever kind or
nature, imposed on, incurred by or asserted against any Indemnified Party,
resulting from, arising out of, or incurred with respect to the breach of any
covenant or warranty made by MCG under Section 8 or a material breach of this
Agreement; provided, however, that MCG shall not be required under this Section
--------
10(b) to defend, indemnify or keep harmless any Indemnified Party for loss or
liability resulting from any negligence, willful misconduct or gross negligence
of such Indemnified Party.
The foregoing states MCG's sole liability for its breach of warranties in
Section 8. VENDOR shall (i) promptly notify MCG of any such claim, (ii) allow
MCG full control over the defense and settlement of such claim, and (iii)
provide MCG full cooperation in the defense and settlement of such claim.
11. TERMINATION
(a) Termination by Either Party. This Agreement may be terminated at any
---------------------------
time by either party (the terminating party is referred to as the "Acting
Party"), effective upon the giving of written notice of such termination to the
other party (the other party is referred to herein as the "Affected Party") with
such notice stating the basis upon which such termination was made, upon the
occurrence of any of the following events of default:
(i) the Affected Party shall fail to perform or observe any material
covenant, condition or agreement to be performed or observed on the part of
such Affected Party with respect to this Agreement and such failure shall
continue unremedied for thirty (30) days after the earlier of (A)the date
upon which a responsible officer of such Affected Party obtains knowledge
of such failure, or (B)the date on which written notice of such default and
demand that the same be remedied shall be given by the Acting Party to such
Affected Party; provided, however, that if the nature of such failure is
such that more than thirty (30) days are reasonably required for its cure,
then the Affected Party shall be entitled to an additional thirty (30) days
to cure if the Affected Party had diligently attempted to cure during the
initial thirty (30) day cure period.
(ii) any representation or warranty made by the Affected Party herein
or in any document, report, certificate or financial or other statement now
or hereafter furnished by such party to the Acting Party in connection with
this Agreement shall prove at any time to have been untrue or misleading in
any material respect as of the time when made;
(iii) the Affected Party shall (A)be generally not paying its debts
as they become due, (B)file, or consent by answer or otherwise to the
filing against it of a petition for relief or reorganization or liquidation
or to take advantage of any bankruptcy or
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<PAGE>
insolvency law of any jurisdiction, (C)make an assignment for the benefit
of its creditors, (D)consent to the appointment of a custodian, receiver,
trustee or other officer with similar powers of itself or any substantial
part of its property, or (E)take corporate action for the purpose of any of
the foregoing; or
(iv) as to the Affected Party, a court or governmental authority of
competent jurisdiction shall enter an order appointing, without the consent
of the such Affected Party, a custodian, receiver, trustee or other officer
with similar powers with respect to it or with respect to any substantial
part of its property, or constituting an order for relief or approving a
petition for relief or reorganization or any other petition in bankruptcy
or for liquidation or to take advantage of any bankruptcy or insolvency law
of any jurisdiction, or ordering the dissolution, winding-up or liquidation
of such Affected Party and any such order or petition is not dismissed or
stayed within 60days after the earlier of the entering of any such order or
the approval of any such petition.
(b) Termination by MCG. MCG with twelve months prior written notice may
------------------
terminate this Agreement in the event of the occurrence or notice of (i) the
sale, lease or conveyance of substantially all of VENDOR's property, assets or
business; or (ii) a conflict of interest in its role as a major provider of the
services under this Agreement or shall create an image problem which is
deleterious to MCG.
(c) Termination for Convenience. Either party may terminate this Agreement
---------------------------
for convenience upon providing the other party twelve months written notice
after the Base Term.
(d) Survival of Rights. Neither the expiration nor the early termination
------------------
of this Agreement shall release either party from the obligation to pay any sum
which may then be owing to the other party or from the obligation to perform any
other duty or discharge any other liability incurred prior to the effective date
of such expiration or termination.
12. TERMINATION ASSISTANCE
(a) Transfer Obligations. Immediately upon written notice of termination,
--------------------
expiration or cancellation of this Agreement for any reason, VENDOR shall use
its commercially reasonable efforts to transfer the Services and otherwise
cooperate fully with MCG to transfer such Services, from VENDOR's facilities to
MCG or to any third party maintenance or servicing provider designated by MCG in
a manner that (i) minimizes the time to complete such transfer, (ii) maintains
the highest quality of Services provided, and (iii) minimizes any disruption to
customer requirements. Such cooperation shall include, without limitation, the
following:
(i) At MCG's election, MCG may require VENDOR to continue to perform
all or any portion of the Services for a period not to exceed twelve (12)
months (the "Transfer Period") as part of the transfer of MCG's service and
maintenance operations out of VENDOR's facilities; provided, that in the
--------
event that the automatic renewal of the term of this Agreement does not
occur as provided in Section 3(b), VENDOR shall provide the termination
assistance under this Section 12 during the remaining term of this
Agreement.
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<PAGE>
(ii) VENDOR shall make available, at the request of MCG, all
appropriate employees as consultants during the Transfer Period to assist
MCG in transferring the Services from VENDOR to MCG or such third party.
VENDOR shall make available the highest skilled support personnel who have
performed the Services to train personnel of MCG or such third party.
(iii) VENDOR shall immediately make available to MCG a machine-
readable copy of all Customer Data which is in a machine-readable form and
which is then in VENDOR's possession or being stored by or on behalf of
VENDOR, together with all other copies of any Customer Data that may exist
in any form.
(iv) VENDOR shall immediately upon MCG's request begin delivering to
MCG or such third party all Technical Documentation, and Loaned Equipment
then in VENDOR's possession or being stored by or on behalf of VENDOR, such
transfer to be made at such time, and with respect to Parts at such times
and in such quantities, to permit the orderly transfer of Services to MCG
or such third party while providing VENDOR with all such items for the time
and to the extent necessary for VENDOR to continue to perform the Services
to the extent that MCG has required VENDOR to so perform as provided in
Section 12(a)(i). Preparation and movement of the above mentioned property
to VENDOR's shipping docks shall be at VENDOR's expense; however, expenses
related to picking up said property from VENDOR's shipping docks and
charges related to shipment of the property to MCG-designated destinations
outside of VENDOR's facilities shall be borne by MCG.
Upon delivery of said property to VENDOR's shipping docks or MCG-
designated destinations outside of VENDOR's facilities, MCG assumes all
risk of loss, theft, damage or casualty to said property including, without
limitation, any such loss, theft, damage or casualty occurring during any
subsequent transfer of such Loaned Equipment to other locations and shall
indemnify and hold VENDOR harmless from and against any such loss, theft,
damage or casualty.
(v) VENDOR shall exercise its commercially reasonable efforts to
cooperate and assist MCG in obtaining the use of any non-proprietary,
commercially available software that VENDOR itself used in connection with
the Technical Documentation while it was performing under this Agreement.
(b) Compensation and Reimbursement. VENDOR shall be reimbursed for its
------------------------------
Transfer Obligations under its normal schedule of fees, except that the
provision of all consultants as set forth in above Section 12(a)(ii) shall be
reimbursed at VENDOR's "direct cost" if the termination is due to the exercise
by MCG of its termination rights based upon Section 11(a), above. Such "direct
cost" shall consist of VENDOR's direct cost for each employee's salary, the
employee's standard personnel benefits program, and the employee's standard
incentive package; said incentive package, if any, not to exceed 20% of gross
salary.
(c) VENDOR and MCG agree that being able to provide and maintain the
service and support as set forth in this Agreement is critical to MCG's goodwill
with its customers. The parties acknowledge that unless VENDOR performs its
obligations under Section 12, MCG will
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<PAGE>
suffer irreparable injury and VENDOR therefore agrees that MCG should be
entitled to specific performance from VENDOR as to such obligations as defined
in a Statement of Work if so determined.
(d) The Transfer Obligations. If the termination of this Agreement is due
------------------------
to the exercise by VENDOR of its termination rights based upon (1) the
nonpayment by MCG of invoices for services when due or (2) MCG's refusal to pay
VENDOR for VENDOR's performance of its obligations as required under this
Agreement, and MCG is not in material breach of this Agreement such that the
breach would render VENDOR incapable of performing its obligations, then VENDOR
may as a precondition to performing such Transfer Obligations require MCG to pay
the amounts allegedly owed to VENDOR into an interest-bearing escrow account
pending resolution of the dispute. Upon resolution, such amounts which are
placed in escrow shall be distributed in accordance with the terms of settlement
between the parties or court decision.
13. USE OF MOTOROLA NAME AND MOTOROLA TRADEMARK
(a) VENDOR acknowledges that (1) Motorola, Inc. owns all right, title and
interest in the Motorola name and logotype, (2) that Motorola is the owner of
certain trademarks and trade names used in connection with certain product lines
and software, and (3) that VENDOR will acquire no interest in any such
trademarks or trade names by virtue of this Agreement, its activities under it
or its affiliation with Motorola. During the term of this Agreement VENDOR may
indicate to the trade and to the public that it is an authorized maintenance
provider for the Eligible Products, but it will not adopt or use such
trademarks, trade names or Motorola's company name nor (to the extent it may
have any power to prevent such use) allow such marks or names to be used by
others for any other purpose. At the expiration or termination of this
Agreement, VENDOR shall immediately discontinue any and all use of the Motorola
name and any other name (or combination of words, designs, trademarks or trade
names) that would indicate that VENDOR was or is in any way an agent or
contractor of Motorola.
(b) MCG acknowledges that (1) VENDOR owns all right, title and interest in
the VENDOR name and logotype, (2) that VENDOR is the owner of certain trademarks
and trade names used in connection with certain product lines and software, and
(3) that MCG will acquire no interest in any such trademarks or trade names by
virtue of this Agreement, its activities under it or its affiliation with
VENDOR. During the term of this Agreement MCG may indicate to the trade and to
the public that VENDOR is an authorized maintenance provider for the Eligible
Products. But it will not adopt or use such trademarks, trade names or VENDOR's
company name nor (to the extent it may have any power to prevent such use) allow
such marks or names to be used by others. At the expiration or termination of
this Agreement, MCG shall immediately discontinue any and all use of the VENDOR
name and any other name (or combination of words, designs, trademarks or trade
names) that would indicate that MCG is providing services to customers through
VENDOR.
14. COMPLIANCE WITH EXPORT CONTROLS
VENDOR agrees that it will not in any form export, reexport, resell, ship
or divert or cause to be exported, reexported, resold, shipped or diverted
directly or indirectly any product,
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<PAGE>
parts, software, documentation, technical data or a direct product thereof to
any country for which the U.S. Government, any agency thereof, or any other
sovereign government, requires an export license or other governmental approval
without first obtaining such license or approval.
15. PROHIBITION AGAINST GIFTS OR PAYMENTS
No official, employee or agent of any government, governmental agency or
political party shall be given any benefit, share in this Agreement, or receive
any item of value --- directly or indirectly --- related to this Agreement. MCG
and VENDOR warrant that:
(a) they have not and will not pay, donate, give, offer or promise
anything of value to any such person or entity on behalf of VENDOR or MCG in
connection with this Agreement;
(b) they are familiar with the terms of the United States Foreign Corrupt
Practices Act (15 United States Code Section 78dd-1 and -2) and with all laws
and regulations of the United States including (without limitation) those
regarding corrupt payments; and
(c) they are familiar with the general principles and spirit of the
Motorola Code of Conduct Policy attached hereto as Exhibit B.
16. EQUAL EMPLOYMENT OPPORTUNITY AND AFFIRMATIVE ACTION
VENDOR agrees to comply with the EEO provisions set forth in Schedule 16,
attached hereto.
17. GOVERNMENT SUBCONTRACT
IF ANY CUSTOMER CONTRACT COVERED BY THIS AGREEMENT INDICATES THAT IT IS
SUBJECT TO A PRIME CONTRACT WITH FEDERAL, STATE AND LOCAL GOVERNMENT AGENCY, OR
A HIGHER TIER SUBCONTRACT WITH A U.S. GOVERNMENT PRIME CONTRACTOR OR
SUBCONTRACTOR, THEN VENDOR AGREES TO COMPLY WITH ALL TERMS AND CONDITIONS OF THE
GOVERNMENT CONTRACT WHICH APPEAR ON EXHIBIT C ATTACHED HERETO AND MADE A PART
HEREOF, AND ANY OTHER PERTINENT LAWS, DIRECTIVES AND EXECUTIVE ORDERS TO THE
EXTENT THAT THEY APPLY TO THE SUBJECT MATTER OF THE ORDER.
18. DISASTER RECOVERY
VENDOR shall provide certain backup procedures as set forth in the
Statement of Work to continued operation in the event of certain catastrophic
events. VENDOR shall use its commercially reasonable efforts at its own cost to
regenerate MCG's Customer Data and to bring back on-line in the event of such a
disaster. In the event that part of VENDOR's facilities are operable, VENDOR
should provide for MCG's service and maintenance operations in no less favorable
position than that given to VENDOR's other customers.
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19. INSURANCE.
VENDOR shall at its sole cost and expense maintain at all times during the
term of this Agreement policies of at least the following insurance coverage and
amounts:
(a) Worker's Compensation and Employers Liability Insurance for its
employees who perform services for MCG. Worker's Compensation shall be as
required by statute and Employer's Liability shall be no less than $1,000,000.
VENDOR agrees to waive its right of subrogation against Motorola in connection
said Worker's Compensation and Employers Liability Insurance. Motorola agrees to
waive its right of subrogation against VENDOR in connection with its own
Worker's Compensation and Employer's Liability Insurance.
(b) Comprehensive General Liability insurance, including broad form
contractual liability and products and completed operations coverage. The
limits shall be no less than $5,000,000 each for bodily injury and/or
property damage and $10,000,000 for the aggregate. Motorola shall be named
as additional insured under such coverage.
(c) Automobile Liability insurance covering bodily injury and property
damage liability arising out of the use by or on behalf of VENDOR and its
employees. The limits shall be no less than $5,000,000 and Motorola shall
be named as additional insured.
(d) Errors and Omissions insurance covering the VENDOR for loss or damage
arising out of negligent acts or errors or omissions which arise from
providing Designated Services under this Agreement with limits of no less
than $5,000,000 per occurrence.
(e) Umbrella or excess coverage, including professional liability, in the
amount of $5,000,000 with MCG named as additional insured.
(f) Fidelity insurance which covers VENDOR's employees. The limits shall
be at least $1,000,000.
(g) Fire insurance in an amount to cover the repair or replacement of
MCG's property provided to VENDOR's care. Business Interruption Insurance
sufficient to continue operations for six (6) months. Motorola shall be
named as loss payee under these policies.
(h) Special Provisions.
(i) VENDOR shall deliver to MCG a certificate(s) of insurance stating
that the foregoing insurance policies are in full force and effect and
shall name MCG, MCG, their directors and officers, representatives and
employees as additional insured and/or loss payee, with the exception of
workers compensation coverage with the foregoing insurance above, as their
interests may appear.
(ii) Policies shall be placed with a company rated not less than A/VII
in the A.M. Best Company Rating Guide. VENDOR shall require each
insurer to give MCG thirty (30) days written notice before the policy
or policies are canceled or materially altered.
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(iii) Insurance shall include cross liability, severability of
interests endorsement.
(iv) Insurance shall stipulate that the VENDOR's insurance is
primary insurance.
(v) In the event that MCG agrees to a "claims-made" policy pursuant
to the provision of the required insurance listed above, such claims-
made policy must be maintained by VENDOR for at least five (5) years
after completion of work unless this obligation is waived in writing
in whole or in part by MCG.
(vi) The foregoing requirements as to the types and limits of
insurance coverage to be maintained by VENDOR, and any approval or
waiver of said insurance by MCG is not intended to and shall not in
any manner limit or qualify the liabilities and obligations otherwise
assumed by VENDOR pursuant to this Agreement, including but not
limited to the provisions concerning the indemnification provision.
(vii) At MCG's sole option, some insurance requirements contained in
this Section 19 may be fulfilled by a self-insurance program of
VENDOR. In the event that VENDOR is self-insured, this shall not in
any way limit the liabilities assumed by VENDOR under this Agreement.
(viii) Should any of the work under this Agreement be subcontracted,
VENDOR shall either require each of its subcontractors to provide the
aforementioned coverage, or VENDOR may insure subcontractor(s) under
its own policy(ies). Irrespective of the option so selected by VENDOR,
VENDOR shall retain the sole obligations to comply with the insurance
policy requirements. Any subcontracting must be approved in writing by
MCG.
(ix) The procurement and maintenance of insurance specified in this
Section 19 shall not limit or affect any liability which VENDOR might
have by virtue of this Agreement or otherwise.
20. LIMITATION OF LIABILITY
(a) Each party's liability for actual damages from any cause whatsoever,
except as otherwise stated in this section, will be limited to $2,000,000 in
aggregate per year. This limitation will apply, regardless of the form of
action, whether in contract or tort, including negligence.
(b) IN NO EVENT SHALL EITHER PARTY BE LIABLE FOR ANY LOST PROFITS, LOST
SAVINGS, INCIDENTAL DAMAGES, OR CONSEQUENTIAL DAMAGES THAT MAY RESULT FROM THIS
AGREEMENT, EVEN IF THE OTHER PARTY HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH
DAMAGES.
(c) The foregoing limitations of Section 20(a) will not apply to claims by
either party for bodily injury or damage to real property or tangible personal
property for which the other party is legally
-17-
<PAGE>
liable. The foregoing limitations also shall not limit any of MCG's rights to
recover fully against matters for which VENDOR has insurance coverage as set
forth in Section 19.
21. GENERAL PROVISIONS
(a) Independent Contractor. At all times in its performance of the
----------------------
Services under this Agreement, VENDOR will be acting solely as an independent
contractor and MCG shall exercise no control, other than as specified herein,
over the activities or operations of VENDOR. The parties understand and agree
that MCG is in no way associated with or otherwise connected with the
performance of this Agreement by VENDOR, nor the employment by VENDOR of labor
or the incurring by VENDOR of expenses in connection herewith (except as
otherwise expressly provided for herein).
(b) Force Majeure. Neither party shall be liable for delays caused by
-------------
revolution, insurrection, riot, war, act of the public enemy, national
emergency, strike, flood, fire, act of God, or by any other cause, whether
similar or dissimilar, not within the control of the party.
(c) No Implied Licenses. Except as otherwise stated herein, no licenses
-------------------
are implied or granted by this Agreement under any patents or other industrial
property rights owned or controlled by or licensed to MCG, in particular, VENDOR
acknowledges that no rights to manufacture the Eligible Products are granted by
this Agreement.
(d) Assignment. Neither party shall, directly or indirectly, sell,
----------
transfer or assign its rights or delegate performance of any of its obligations
under this Agreement to a third party, without the prior written consent of the
other party (which consent shall not be unreasonably withheld), except that
either party may make such an assignment in connection with a merger, sale or
transfer of all or substantially all of its assets, provided that such party
shall notify the other party of such assignment as soon as permitted under
contract and law. Subject to the foregoing, this Agreement shall be binding upon
and inure to the benefit of the parties and their legal representatives,
successors and assigns.
(e) Entire Agreement; No Third Party Beneficiaries. This Agreement
----------------------------------------------
constitutes the entire understanding between the parties in respect of the
matters set forth herein. Nothing in this Agreement or in any schedule or
exhibit referenced herein is intended to confer on any person or entity, other
than the parties hereto, any rights, benefits or remedies under or by reason of
this Agreement. Notwithstanding the foregoing, this subsection 21(e) shall not
apply to subsection 12(c) above.
(f) Notice. Any notices, consents, objections, demands, requests or other
------
communications required or permitted to be given pursuant to this Agreement
shall be in writing, and shall be sent by certified mail, return receipt
requested, to the addresses of the parties set forth in the heading to this
Agreement. Either party may designate, by notice, a change of address hereunder.
Notices shall be deemed to have been given when deposited in the United States
mail.
(g) Choice of Law and Dispute Resolution. This Agreement shall be governed
------------------------------------
and interpreted by the laws of the State of Arizona (excluding its conflict of
laws principles and
-18-
<PAGE>
excluding that law known as the United Nations Convention for the International
Sale of Goods). The parties agree to attempt to settle any claim or controversy
arising out of this Agreement through consultation and negotiation in the spirit
of mutual friendship and cooperation. If such attempts fail, the dispute shall
first be submitted to a mutually-acceptable neutral advisor for non-binding
mediation, fact-finding or other form of non-binding alternative dispute
resolution (ADR) selected by the parties. Neither party may unreasonably
withhold acceptance of such an advisor, and his or her selection must be made
within 45 days after written notice by the party demanding the use of ADR. The
cost of such mediation or other ADR procedure shall be shared equally by the
parties. Any dispute which cannot be resolved between the parties within six
months of the date of the initial demand shall be finally determined by the
courts within Arizona. The use of an ADR procedure under this subsection shall
not be construed (under such doctrines as laches, waiver or estoppel) to have
affected adversely either party's ability to pursue its legal remedies. And
nothing in this subsection shall prevent either party from resorting to judicial
proceedings if (1) good faith efforts to resolve a dispute under these
procedures have been unsuccessful or (2) interim resort to a court is necessary
to prevent serious and irreparable injury to either party or to others. In such
proceedings, the prevailing party shall be entitled to reasonable attorney's
fees and costs.
(h) Headings. The headings of this Agreement are for convenience only and
--------
are in no way intended to affect the meaning or interpretation of any provision
of this Agreement.
(i) Waivers, Amendments and Modifications. No provisions of this Agreement
-------------------------------------
or any Schedule or Exhibit attached hereto shall be deemed waived, amended or
modified by either party unless such waiver, amendment or modification is in
writing and signed by both parties hereto.
(j) Hazardous Substances and Materials. MCG does not require in any way
----------------------------------
that VENDOR use any "hazardous substances" as defined in 29 CFR 1910.1200.
VENDOR shall indemnify and hold MCG harmless for any such use on its own.
(k) Counterparts. This Agreement may be executed by both MCG and VENDOR
------------
with original signatures on one or more documents. Duplicate original documents
or copies of this document shall be deemed to have the same force and effect as
a signed original document. VENDOR agrees that it will take all actions required
by law in order to ensure that all workers assigned to perform services under
this Agreement are authorized to engage in such employment in accordance with
the Immigration Reform and Control Act of 1986. VENDOR further agrees that, upon
request by MCG, it shall provide MCG with a copy of the Form I-9 completed for
any of its employees assigned to perform services.
-19-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first-above written.
MCG VENDOR
- --- ------
MOTOROLA, INC. COMPUTER GROUP LINUXCARE, INC.
By: /s/ Christine M. Aumann By: /s/ Thomas W. Phillips
Name: Christine M. Aumann Name: Thomas W. Phillips
------------------- ------------------
Title: V.P. Customer Services Title: V.P. Sales
---------------------- ----------
Date: 12/13/99 Date: 12/13/99
-------- --------
-20-
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
effective as of the date first-above written.
MCG: VENDOR:
- --- ------
MOTOROLA, INC. COMPUTER GROUP LINUXCARE, INC.
By: ________________________________ By: /s/ Thomas W. Phillips
Name: ______________________________ Name: Thomas W. Phillips
-----------------
Title: _____________________________ Title: V.P. Sales
----------
Date: ______________________________ Date: 12/13/99
--------
-20-
<PAGE>
Exhibit A
STATEMENT OF WORK
Exhibit A - Page 1
<PAGE>
Exhibit B
MOTOROLA CODE OF CONDUCT
(AS AMENDED AUGUST 27, 1993)
POLICY
- ------
Since its inception, the keystone of Motorola's business success has been
integrity with respect to its dealing with customers, suppliers and governments.
The highest order of ethical conduct has and continues to be the very foundation
of our enterprise. These qualities have been instilled and transmitted
throughout the Company.
The following statement of business philosophy and objectives applies to
all components of our Company. It is intended to be read and applied as part of
and supplementary to our already widely disseminated statements on the subject
of business ethics and standards of conduct set forth in our For Which We Stand
document.
This Code of Conduct provides firm, uncompromising standards for each of us
in our dealings with agents, customers, suppliers, political entities and
others. The Code reemphasizes and provides further guidance regarding policies
which have been an integral part of Motorola's business philosophy from the
beginning.
Adherence to this Code is the responsibility of each employee of Motorola
and a condition of continued employment. It will be administered uniformly
throughout the company and independent of the practices of other companies.
Adherence to the Code will continue to be the subject of management attention,
periodic audits of our Internal Audit Department and review by the Business
Ethics Compliance Committee.
The terms "Motorola" and "Company" as used in this Code of Conduct include
Motorola, Inc. and all of its affiliated companies.
A. IMPROPER USE OF COMPANY FUNDS AND ASSETS
----------------------------------------
Section 1. The funds and assets of Motorola shall not be used, directly or
indirectly, for illegal payments of any kind.
Example: The payment of a bribe to a public official or the kickback of funds to
- -------
an employee of a customer would be in direct violation of this section of the
Code.
Exhibit B - Page 1
<PAGE>
Section 2. The funds and assets of Motorola shall not be used, directly or
indirectly, for payments, gifts or gratuities of any kind, whether legal or
illegal, which directly or indirectly inure to the personal benefit of any agent
or employee of any entity with which Motorola does business, with the following
exception:
(a) Unless prohibited by the policy of the Customer, Motorola may give as
social amenities to customer and employees of non-government customers normal
sales promotional items bearing the Company's name or items of insignificant
value such as flowers and candy.
Under no circumstances may the payment of a gratuity or fee (or gift of any
kind) be made to a government employee whether in recognition of efficient
service or otherwise.
Section 3. The funds and assets of Motorola shall not be used, directly or
indirectly, for political contributions, whether legal or illegal. The term
"political contributions" is used in its broadest sense and includes local,
state or national fund-raising dinners, banquets, raffles or any funds or gifts
(including the free or discounted use of property or services) which could be
routed, directly or indirectly, to a political candidate, party, committee or
organization.
Example: The foregoing prohibition of political contributions would be
-------
violated if a manager directed any employees to work for a political candidate
or party or used company funds to reimburse employees for political
contributions made with their private funds.
This section is not intended to limit or otherwise restrict: (1) the
personal political activities of Motorola employees, or (2) the right of
Motorola employees to make personal contributions to any Motorola political
action committee.
Section 4. Motorola shall not enter into any agreements with dealers,
distributors, agents or consultants:
(a) which are not in compliance with the applicable laws of the
United States and with the laws of any other country that may be involved; or
(b) which provide for a commission rate or fee that is not reasonable
and commensurate with the functions or services to be rendered.
Example: It would be a violation of this section of the Code to provide a
-------
sales agent with a commission on sales of Motorola products which the Motorola
employee knows is intended to be used in part as a kickback to employees of the
customer. (See the relevant Corporate Financial Practice for further guidance
regarding these matters.)
Section 5. The funds and assets of Motorola must be properly and
accurately recorded on the books and records of the Company in accordance with
generally accepted accounting principles and practices and no false or
artificial entries shall be made in the books, records or accounts of the
Company. No payment made on behalf of Motorola shall be approved or made with
the intention or understanding that any part of such payment is to be used for
any purpose other than that described by the documents supporting the payment.
Exhibit B - Page 2
<PAGE>
Example: It would be a violation of this section of the Code of Conduct to
-------
purposefully issue an invoice or other document which inaccurately reflects a
transaction.
B. CUSTOMER/SUPPLIER/GOVERNMENT RELATIONSHIPS
------------------------------------------
Section 1. Information disclosed by a customer to a Motorola employee and
clearly identified verbally or in writing as sensitive, private or confidential
shall be protected from disclosure to unauthorized persons inside and outside
the Company to the same extent as Motorola sensitive, private or confidential
information is protected, except where such information was already known to
Motorola, is available from other sources, or is generally known outside the
Motorola or customer organizations.
Example (a): A customer makes Motorola aware of a confidential project for
-----------
which he is contemplating use of Motorola products. He asks Motorola to hold the
discussion in confidence. His request will be honored. The information will not
be disclosed within the Company to persons without a reasonable need to know in
order to serve the best interests of that customer. Nor will the information be
disclosed to any persons outside the Company except where required to comply
with a law or regulation.
Example (b): Motorola's price and delivery quotation to a customer will
-----------
not be disclosed to Motorolans without a need to know and never outside the
Company unless the information has been released by the customer or supplier or
is required to be released by law or regulation.
Section 2. Employees of Motorola will respect the laws, customs and
traditions of each country in which they operate, but will, at the same time,
engage in no act or course of conduct which, even if legal, customary and
accepted in any such country, could be deemed to be in violation of the accepted
business ethics of Motorola or the laws of the United States relating to
business ethics.
Section 3. Employees of Motorola shall not accept payments or gifts (other
than advertising novelties or other items of nominal value), including any
favors which might be regarded as placing the employee under some obligation to
a third party dealing or desiring to deal with Motorola, provided, however, in
rare circumstances, where the refusal to accept a gift (other than gifts of
nominal value referred to above) may be impossible without injuring the
legitimate business interests of Motorola, such gifts may be accepted so long as
the gift inures to the benefit of Motorola and will not inure to the benefit of
the Motorola employee.
Example (a): Included within the scope of this prohibition is the
-----------
acceptance by Motorolans of presents from suppliers at Christmas as well as the
acceptance by Motorolans of money, property or services (e.g., free trips) from
business associates.
Example (b): A Motorolan traveling on Motorola business may accept the
-----------
courtesy of free lodging in a Customer facility so long as properly noted on
Motorolan's travel expense records.
Example (c): Suppliers win Motorola business on the basis of product or
-----------
service suitability, price, delivery and quality. There is no other basis.
-----------------------
Attempts to influence procurement decisions by offers of any compensation,
commission, kickback, paid vacation, special discount on
Exhibit B - Page 3
<PAGE>
a product or service, entertainment or any form of gift or gratuity must be
firmly rejected by all Motorolans.
Section 4. Motorola may, unless otherwise prohibited, pay the
transportation and lodging expenses incurred by customers, agents or suppliers,
prospective or otherwise, in connection with a visit to a Motorola facility or
product installation for any reasonable business purpose, including on-site
examination of equipment, the participation in a training session or contract
negotiations with Motorola, but (except for ground transportation provided by an
accompanying Motorolan) only in such cases where prior to any such visit:
(i) the written approval for the payment of such expenses has been
obtained from both the Office of the Division General Manager and the General
Counsel, and whenever practicable, the senior management of the traveler has
been informed of the payment of such expenses by Motorola, or
(ii) Motorola is obligated by contract to pay such expenses and the
obligation is specifically delineated.
All such expenses must be accounted for in accordance with standard travel
procedures. General accounts such as sales promotion, should not be charged for
---
travel expenses. Payment of such expenses by Motorola may only be made if they
are not otherwise prohibited. For example, payment of such expenses by Motorola
could be prohibited in a particular situation by applicable law or regulation,
by a contract, or by the policy of the customer, agent or supplier.
Section 5. Motorola will not employ any individuals known to be related,
by blood, marriage or adoption (except relations more remote than first cousin),
to any person having influence over the purchasing decisions of any private or
public entity to which Motorola sells any of its products unless such employment
is first disclosed to and approved in writing by (1) the senior management of
such private or public entity; and (2) the general manager of the Motorola
Group/Division involved.
C. CONFLICT OF INTEREST
Section 1. Secondary Employment
--------------------
(a) A Motorola employee shall not:
(i) be employed by any other firm or person, including self-
---------------
employment, if such firm or person is a competitor or supplier of Motorola, or
- ----------
(ii) be employed by any other firm or person, excluding self-
---------------
employment, if such firm or person is a customer of Motorola, or
- ----------
(iii) engage in any activity where the skill and knowledge the
employee develops or applies in the employee's Motorola position is transferred
or applied to such activity in derogation of the present or prospective business
interests of Motorola.
Exhibit B - Page 4
<PAGE>
(b) A Motorola employee shall not have any relationship with any other
business enterprise which might affect the employee's independence of judgment
in transactions between Motorola and the other business enterprise or otherwise
conflicts with the proper performance of the employee's duties at Motorola.
(c) A Motorola employee may not accept any appointment to membership of
the Board of Directors, standing committee, or similar body of any outside
company, organization, or government agency (other than charitable, educational,
fraternal, political, community or religious organizations or similar groups)
without first receiving the prior approval of Motorola's Chief Executive
Officer, whether or not a possible conflict of interest might result from the
acceptance of any such appointment.
Section 2. Personal Financial Interest
---------------------------
(a) Supplier-Customer Relationships. A Motorola employee may not have any
-------------------------------
interest in any supplier or customer of Motorola which interest could in any
respect compromise the employee's loyalty to Motorola.
(b) Competitor Relationships. A Motorola employee may not have any
------------------------
interest in another enterprise which might appear to adversely affect the
employee's judgment regarding the employee's job or loyalty to Motorola. The
proper application of criteria concerning the effect of a specific interest on
an employee's judgment and loyalty will vary somewhat with the circumstances of
each employee, but generally, the greater the job responsibility of the employee
within Motorola, the higher the employee's duties are in these regards. Careful
consideration must be given by all employees to investments in enterprises
similar to Motorola. For instance, investments in companies primarily engaged in
semiconductor manufacturing and major competitors in wireless communications
equipment manufacture should be avoided. Other limitations may arise from
investments in companies whose business is similar to the Motorola employee's
group or sector organization and even more so regarding investments which are
similar to the employee's day-to-day responsibilities.
In case of a remote or relatively minor business similarity which does not
adversely affect one's judgment or loyalty, an employee may find that there is
no conflict in owning interests:
(i) in a company, the shares of stock of which are publicly held and
traded on a national securities exchange or automated quotation system; and
(ii) where the amount of stock owned by the employee is (a) less than
one one-hundredth of one percent of the class outstanding, and (b) less than 5%
of the employee's net worth.
(c) Interest of Associates. The interest of a Motorola employee's associate
----------------------
in a supplier, customer or competitor of Motorola may create a conflict-of-
interest depending upon the facts and circumstances of the particular case.
"Associate" for purposes of this policy statement shall mean:
Exhibit B - Page 5
<PAGE>
(i) any relative of a Motorola employee, any person living in the
employee's household or to whom the employee furnishes support or any person
having a personal relationship, similar to the above, with a Motorola employee;
(ii) any business in which the employee has a financial interest, any
creditor or debtor of the Motorola employee, or any other person benefits to
whom could reasonably be expected to relieve the Motorola employee of some
obligation or obtain for the employee some personal advantage or gain; or
(iii) any trust or estate administered by such persons or in which
they may have a financial interest as a beneficiary.
(d) Business Involvement with Associates. A Motorola employee may not
-------------------------------------
cause or Motorola to do business with any business in which the employee or an
associate is interested. If an instance occurs where it is important to
Motorola's advantage to enter into such a transaction, the proposed situation
shall be submitted in writing to, and receive prior written approval of
Motorola's General Counsel before any commitment is made. Such approval will not
be granted unless it can be ascertained that the terms of the transaction are to
be determined by competitive bidding or are established by law, or are
determined under other conditions which clearly establish an arm's length
fairness of terms.
Section 3. Inside Information
------------------
(a) A Motorola employee may not buy or sell or recommend to others to buy
or sell, any security or other interest in property based on knowledge derived
from such person's employment. Employees should avoid transactions in the area
of real estate which Motorola may be considering buying or selling or has
decided to buy or sell.
(b) A Motorola employee may not disclose confidential Motorola information
to any person other than in the proper discharge of the employee's Motorola
duties.
D. OPERATING PROCEDURES
--------------------
Section 1. If at any time a Motorola employee (or a subordinate or an
associate of a Motorola employee) has engaged, or is about to engage in any
activity covered by the Code of Conduct, the employee should promptly make all
facts known to Motorola's Corporate Vice President and General Counsel who will:
* Give advice to employees concerning the Code of Conduct;
* Make factual investigations where indicated;
* Determine whether the facts give rise to a violation of the Code of
Conduct and advise the Chief Executive Office of each violation, and recommend
the remedial action to be taken; and
* Consider exceptions from the Code of Conduct on a case by case basis.
Exhibit B - Page 6
<PAGE>
Section 2. Motorola's Corporate Vice President and General Counsel will
cause the Code of Conduct to be circulated periodically to each officer,
director and certain other employees.
Section 3. In all substantive matters relating to the administration of
this Code of Conduct, the Corporate Vice President and General Counsel shall
confer with the Business Ethics Compliance Committee.
Exhibit B - Page 7
<PAGE>
Exhibit C
I. U.S. GOVERNMENT TERMS AND CONDITIONS
CLAUSES FOR A NEGOTIATED FIXED PRICE, TIME AND MATERIALS, OR LABOR HOUR
SUPPLY OR SERVICE CONTRACT.
This contract incorporates the following clauses by reference, with the
same force and effect as if they were given in full text. Upon request, a full
copy text will be made available.
<TABLE>
<CAPTION>
FAR FAR CLAUSE
CLAUSE NUMBER CLAUSE TITLE DATE
<S> <C> <C> <C>
52.202-1 252.202-0001 Definitions April 1984
52.203-1 252.203-0001 Officials Not to Benefit April 1984
52.203-3 252.203-0003 Gratuities April 1984
52.203-5 252.203-0005 Covenant Against Contingent Fees April 1984
52.203-6 252.203-0006 Restrictions on Subcontractor Sales to the July 1985
Government
52.203-7 252.203-0007 Anti-Kickback Procedures. The following October 1988
is added to paragraph (c)(2): "seller shall
notify Buyer when such action has been
taken." In the first sentence of paragraph
(c)(4) "the contracting officer may..." is
replaced by "after the contracting officer
has effected an offset at the contract level
or has directed Buyer to withhold any sum
from the Seller, Buyer shall...".
52.210-6 Listing of Used or Reconditioned Material, April 1984
Residual Inventory and Former
Government Surplus Property. Seller
discloses hereunder that spare and/or repair
parts provided under this Agreement may
include components which have been
refurbished. Such components will be
provided in "like new" condition and will
include warranty coverage equivalent to
new components.
</TABLE>
Exhibit C - Page 1
<PAGE>
<TABLE>
<CAPTION>
FAR FAR CLAUSE
CLAUSE NUMBER CLAUSE TITLE DATE
<S> <C> <C> <C>
52.212-8 Defense Priority and Allocation September
Requirements 1990
52.215-1 252.215-0001 Examination of Records by Controller April 1984
General
52.222-4 Contract Work and Safety Standards Act- March 1986
Overtime Compensation
52.222-24 Pre-award On-Site Equal Opportunity April 1984
Compliance Review
52.222-25 Affirmative Action Compliance April 1984
52.222-40 Service Contract Act of 1965, as amended April 1984
- Contracts of $2,500
52.222-41 1 Service Contract Act of 1965, As May 1989
Amended (Over $2,500)
52.222-42 1 Statement of Equivalent Rates for Hire May 1989
52.223-2 252.223-0002 Clean Air and Water (Over $100,000) April 1984
52.223-6 252.223-0006 Drug Free Workplace July 1990
52.225-13 Restrictions on Contracting With May 1989
Sanctioned Persons
52.227-2 Notice and Assistance Regarding Patent April 1984
and Copyright Infringement
52.227-14 Rights in Data - General June 1987
52.228-5 252.228-0005 Insurance - Work on Government April 1984
Installation
</TABLE>
______________________
1 Seller represents only that it shall pay its employees performing under
this Agreement not less than the minimum wage specified under 6(20(1) of the
Fair Labor Standards Act of 1938, as amended (29 U.S.C. 201-206), unless wage
determination(s) applicable to particular customer orders are provided to the
Seller for review and validation of affected employees' wages and fringe
benefits.
Exhibit C - Page 2
<PAGE>
<TABLE>
<CAPTION>
FAR FAR CLAUSE
CLAUSE NUMBER CLAUSE TITLE DATE
<S> <C> <C> <C>
52.232-23 252.232-0023 Assignment of Claims January 1986
52.232-28 Electronic Funds Transfer Payment April 1989
Method
52.243-1 252.243-0001 Changes - Fixed Price Alternate II August 1987
52.246-25 252.246-0025 Limitation of Liability - Services April 1984
52.249-1 Termination for Convenience of the
Government (Fixed-Price)(Short Forms)
</TABLE>
II. STATE & LOCAL TERMS AND CONDITIONS
Rules of the Procurement Policy Board of the City of New York dated August 1,
1990.
Exhibit C - Page 3
<PAGE>
Schedule 16
-----------
EQUAL EMPLOYMENT OPPORTUNITY
A) PROVISIONS OF FEDERAL ACQUISITION REGULATION (FAR) 52.222-26(B)(1)-
(11) PERTAINING TO EQUAL OPPORTUNITY CLAUSE;
B) ALL PROVISIONS OF 41 C.F.R. 60-250 AS IMPLEMENTED BY FAR 25.222-35 AND
- -37 PERTAINING TO EMPLOYMENT REPORTS AND AFFIRMATIVE ACTION FOR DISABLED
VETERANS AND VETERANS OF THE VIETNAM ERA; AND
C) ALL PROVISIONS OF C.F.R. 60-741 AS IMPLEMENTED BY FAR 52.222-36
PERTAINING TO AFFIRMATIVE ACTION FOR HANDICAPPED/DISABLED WORKERS.
VENDOR REPRESENTS THAT IT HAS SUBMITTED STANDARD FORM 100 (EEO-1).
COMPLIANCE REPORTS AS REQUIRED BY C.F.R. 60-1.7 AS IMPLEMENTED BY FAR 52.222-22.
VENDOR CERTIFIES THAT, IN COMPLIANCE WITH 41 C.F.R. 60-1.8 AS IMPLEMENTED BY FAR
52.222-21, IT DOES NOT AND WILL NOT MAINTAIN OR PROVIDE FOR ITS EMPLOYEES ANY
SEGREGATED FACILITIES AT ANY OF ITS ESTABLISHMENTS, AND THAT IT DOES NOT AND
WILL NOT MAINTAIN OR PROVIDE FOR ITS EMPLOYEES ANY SEGREGATED FACILITIES AT ANY
OF ITS ESTABLISHMENTS, AND THAT IT DOES NOT AND WILL NOT PERMIT ITS EMPLOYEES TO
PERFORM THEIR SERVICES AT ANY LOCATION UNDER ITS CONTROL WHERE SEGREGATED
FACILITIES ARE MAINTAINED. VENDOR AGREES THAT BREACH OF THIS CERTIFICATION IS A
VIOLATION OF THE EQUAL OPPORTUNITY CLAUSE INCORPORATED HEREIN. VENDOR FURTHER
AGREES THAT IT WILL EITHER (A) OBTAIN CERTIFICATIONS OF NONSEGREGATED FACILITIES
FROM PROPOSED SUBCONTRACTOR FOR SPECIFIC TIME PERIODS; OR (B) OBTAIN
CERTIFICATIONS OF NONSEGREGATED FACILITIES FROM PROPOSED SUBCONTRACTORS PRIOR TO
AWARD OF ANY SUBCONTRACT SUBJECT TO THE EQUAL OPPORTUNITY CLAUSE, WILL RETAIN
SUCH CERTIFICATIONS IN ITS FILES, AND FORWARD THE NOTICE SET FORTH IN FAR
52.222-21 TO PROPOSED SUBCONTRACTORS. VENDOR AGREES TO COMPLY WITH ANY AND ALL
STATE AND LOCAL GOVERNMENT EQUAL EMPLOYMENT OPPORTUNITY AND AFFIRMATIVE ACTION
LAWS, INCLUDING ANY AND ALL APPLICABLE STATUTES, RULES, REGULATIONS, ORDINANCES
AND OTHER GUIDELINES.
-1-
<PAGE>
Schedule 1(h)
-------------
SERVICE AREA
The Service Area under this Agreement shall be all major areas of the world
including, but not limited to, North America, South America, Europe, Asia
Pacific and Japan.
-1-
<PAGE>
EXHIBIT 10.2.7
CONSULTING SERVICES AGREEMENT
Effective August 30, 1999, ("Effective Date") Linuxcare, Inc., a Delaware
corporation with offices at 6034 Fulton Street, San Francisco, CA 94121
("Linuxcare") and Macmillan USA, Inc., a Maryland corporation (the "Company" or
"Macmillan") with offices at 201 West 103 Street, Indianapolis, IN 42690, agree
as follows (the "Agreement"):
1. Services. Linuxcare shall use reasonable commercial efforts to
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undertake and complete the technical support services specified in Schedule A
("Services") in accordance with and substantially on the schedule specified
therein. However, the Company understands that Linuxcare's performance is
dependent in part on the Company's cooperation with Linuxcare and Company's
provision of materials and data necessary for Linuxcare to complete the
Services. Accordingly, dates or time periods relevant to performance by
Linuxcare hereunder shall be appropriately and equitably extended to account for
any delays due to the Company. From time to time Company may propose additional
services that it wants Linuxcare to perform by providing an amended Schedule A.
Linuxcare will review such amended Schedule A reasonably and in good faith and
discuss with Company the proposed addition; each addition will become effective
upon signature by both parties hereto. Linuxcare may either perform the Services
itself, or through subcontractors, but the use of such subcontractors shall only
be permitted with the written consent of the Company. Linuxcare shall be solely
responsible for the selection and supervision of all subcontractors.
2. Payment and Forecast.
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a. Company shall make payments to Linuxcare for Services in accordance
with Schedule A. Each payment will be made in U.S. dollars in and from the
United States and will be made no later than forty five (45) days from the
receipt of Linuxcare's invoice for such amounts. Such amounts shall be billable
to Company each month for time spent in the immediately preceding month and
shall be submitted with a detailed report describing such Services rendered.
Company shall be responsible for any such taxes that accrue with the exception
of taxes on Linuxcare's net income. No payment to Linuxcare will be made with
government funds.
b. Linuxcare acknowledges and agrees that, except as provided in this
Section 2, it shall not be entitled to, and the Company shall not be obligated
to pay, any monies or other compensation for the Services provided and rights
granted under this Agreement.
c. Company shall provide a forecast to Linuxcare of the estimated
number of hours of Services per month needed hereunder in accordance with
Schedule A prior to the commencement of each calendar quarter.
3. Ownership. As between the parties, Company will retain or own all
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right, title and interest (including all patent rights, copyrights, trade secret
rights, mask work rights and
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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other rights throughout the world (collectively, "Intellectual Property
Rights")) in its Proprietary Information (as defined below) and in the results
that may be produced as part of the Services rendered hereunder ("Results"),
provided that Company shall have no ownership of or license to any Developer
Stock except as may be set forth in a license agreement executed between the
parties. "Developer Stock" means Linuxcare's Proprietary Information,
preexisting software, engines, development tools and routines, as well as
derivatives and modifications thereof; provided that if any such derivative or
modification is made in the course of performance under this Agreement, then it
will qualify as Developer Stock only if it (a) has substantially the same
functionality as other Developer Stock and (b) has general applicability apart
from the Services. The parties hereby make any assignments necessary to achieve
the foregoing ownership provisions and will reasonably assist each other in
perfecting such ownership.
4. Representations and Warranties.
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a. Linuxcare represents and warrants that: (i) the Services shall be
performed and Results created in accordance with, and shall not violate,
applicable laws, rules or regulations, and standards prevailing in the industry;
(ii) Linuxcare has full power and authority to enter into and perform its
obligations under this Agreement; this Agreement is a legal, valid, and binding
obligation of Linuxcare, enforceable against it in accordance with its terms
(except as may be limited by bankruptcy, insolvency, moratorium, or similar laws
affecting creditors' rights generally and equitable remedies); and (iii)
entering into this Agreement will not violate the Charter or By-laws of
Linuxcare or any material contract to which it is a party:
b. The Company represents and warrants that: (i) it has full power
and authority to enter into and perform its obligations under this Agreement;
(ii) this Agreement is a legal, valid, and binding obligation of the Company,
enforceable against it in accordance with its terms (except as may be limited by
bankruptcy, insolvency, moratorium, or similar laws affecting creditors' rights
generally and equitable remedies); and (iii) entering into this Agreement will
not violate the Charter or By-laws of the Company or any material contract to
which it is a party.
c. Indemnity by Linuxcare. Linuxcare will defend or settle, at its
sole expense, any action brought against Company, to the extent based on a third
party claim that the Services or Results provided by Linuxcare infringe any
third party U.S. patent, trademark, copyright or other proprietary right.
Linuxcare will indemnify, hold harmless and pay any settlement and other costs
and damages incurred by Company as a result of such claim; provided that
Linuxcare is (i) promptly informed in writing of such claim and action; (ii)
given exclusive authority and control to defend, settle or otherwise remove or
avoid such claim and action; and (iii) provided with all reasonable assistance
that it requests in connection with such claim and action. Linuxcare shall not
be responsible for costs or expenses incurred without its prior written
authorization. The remedy set forth in this Section 4c shall not apply to the
extent that such infringement claim arises from (i) use of the Results in a
manner for which it was not intended, (ii) use of the Results with any
equipment, hardware or software where the Results would not have infringed such
rights; (iii) modifications by or at the direction or request of Company or its
end users; (iv) willful infringement by Company or its end users; (v) the
negligence or misconduct of Company or its end users; or (vi) breach of this
Agreement or a Linux license by a
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party other than Linuxcare. Linuxcare shall have no obligation or responsibility
under this Section 4c for damages, costs, expenses and other losses to the
extent that Company knew of the possibility of, and failed to take reasonable
actions to, prevent or mitigate such losses, costs, expenses and damages. In the
event that Linuxcare reasonably believes that any aspect of the Services or
Results may infringe any intellectual property rights, Linuxcare may, at its
option, (i) procure for Company the right to continue obtain such Services; (ii)
modify the Service or Results to avoid such infringement; or (iii) immediately
terminate this Agreement. SECTION 4c STATES THE ENTIRE LIABILITY AND OBLIGATION
OF LINUXCARE AND THE EXCLUSIVE REMEDY OF COMPANY WITH RESPECT TO INFRINGEMENT OF
ANY INTELLECTUAL PROPERTY RIGHTS.
5. Confidentiality. Each party agrees that all code, inventions,
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algorithms, know-how and ideas and all other business, technical and financial
information it obtains from the other are the confidential property of the
disclosing party ("Proprietary Information" of the disclosing party). All
software, engines, tools and techniques used by Linuxcare to perform the
Services shall be Proprietary Information of Linuxcare. The parties hereto agree
and acknowledge that all Results shall be Proprietary Information of Company.
Except as expressly and unambiguously allowed herein, the receiving party, with
respect to the disclosing party's Proprietary Information, will: (i) hold such
Proprietary Information in strict confidence; (ii) not disclose such Proprietary
Information to any third party (except subcontractors) without the disclosing
party's consent; (iii) use diligent efforts to protect such Proprietary
Information, such efforts to be no less than the efforts used by disclosing
party to protect its own similar confidential and proprietary materials; and,
(iv) similarly bind its employees and subcontractors in writing. The receiving
party shall not be obligated under this Section 5 with respect to information
the receiving party can document:
(1) is or has become readily publicly available without restriction
through no fault of the receiving party or its employees or agents; or
(2) is received without restriction from a third party lawfully in
possession of such information and lawfully empowered to disclose such
information; or
(3) was rightfully in the possession of the receiving party without
restriction prior to its disclosure by the other party; or
(4) was independently developed by employees or consultants of the
receiving party without access to such Proprietary Information; or
(5) must be disclosed in order to comply with any relevant law,
regulation, or judicial order.
The parties hereby acknowledge that any breach of this Section 5 will cause
irreparable harm to the disclosing party, and that damages will not be an
adequate remedy for such a breach. Accordingly, the parties hereby agree that
the injured party will be free to seek equitable relief for such a breach,
including preliminary injunction if appropriate, without need to post a bond.
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6. Limited Liability.
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a. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR OTHERWISE,
LINUXCARE SHALL NOT BE LIABLE OR OBLIGATED UNDER ANY SECTION OF THIS AGREEMENT
OR UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE
THEORY (I) FOR ANY AMOUNTS IN EXCESS IN THE AGGREGATE OF THE FEES PAID TO IT
HEREUNDER OR (II) FOR ANY COST OF PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY,
SERVICES OR RIGHTS OR (III) FOR LOSS OR CORRUPTION OF DATA OR INTERRUPTED USE.
b. NEITHER PARTY SHALL BE LIABLE WITH RESPECT TO ANY SUBJECT MATTER
OF THIS AGREEMENT UNDER ANY CONTRACT. NEGLIGENCE, STRICT LIABILITY OR OTHER
THEORY FOR ANY INCIDENTAL OR CONSEQUENTIAL DAMAGES. NOTHING IN THIS SECTION 6B
SHALL AFFECT THE PARTIES' RIGHTS AND OBLIGATIONS UNDER SECTION 4C.
7. Warranty and Disclaimer. Linuxcare represents and warrants to Company
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that the Services performed under this Agreement will be performed in a
professional and workman-like manner. EXCEPT AS STATED IN THIS AGREEMENT,
LINUXCARE MAKES NO WARRANTIES TO ANY PERSON OR ENTITY WITH RESPECT TO ANY
DEVELOPER STOCK, ANY DELIVERABLE OR ANY SERVICES OR LICENSES AND DISCLAIMS ALL
WARRANTIES, EXPRESS AND IMPLIED, INCLUDING WITHOUT LIMITATION WARRANTIES OF
MERCHANTABILITY, NON-INFRINGEMENT OR FITNESS FOR A PARTICULAR PURPOSE. COMPANY'S
AND END USER'S SOLE AND EXCLUSIVE REMEDY, AND LINUXCARE'S SOLE AND EXCLUSIVE
LIABILITY, FOR ANY BREACH OF THE FOREGOING WARRANTY IS LINUXCARE'S COMMERCIALLY
REASONABLE EFFORTS TO RE-PERFORM THE SERVICES AT NO ADDITIONAL COST TO COMPANY.
8. Term and Termination.
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a. The term of this Agreement shall be for one (1) year from the date
hereof or until terminated in accordance with the express terms of this
Agreement.
b. Either party may terminate this Agreement upon 30 days notice to
the other party of a breach of this Agreement unless such breach is cured within
that period. Termination under this Section 7(a) shall be Company's sole remedy
for any delay or failure by Linuxcare to perform Services under this Agreement.
c. Company may terminate this Agreement at any time upon sixty (60)
days notice to Linuxcare, provided that Company pays all accrued amounts due for
Services rendered up to the effective date of such termination.
d. Sections 3 through 7 of this Agreement, any accrued rights to
payment, and any remedies for breach of this Agreement shall survive termination
or expiration of this Agreement.
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9. Publicity and Press Releases. Except to the extent necessary under
----------------------------
applicable laws or for ordinary marketing purposes, the parties agree that no
press releases or other publicity relating to the substance of the matters
contained herein will be made without joint approval.
10. Assignment. Neither party shall have any right or ability to assign,
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transfer, or sublicense any obligations or benefit under this Agreement without
the written consent of the other except that a party may assign and transfer
this Agreement and its rights and obligations hereunder to any third party who
succeeds to substantially all its business or assets.
11. Notice. All notices under this Agreement shall be in writing, and
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shall be deemed given when personally delivered or three days after being sent
by prepaid certified or registered U.S. mail to the address of the party to be
noticed as set forth herein or such other address as such party last provided to
the other by written notice.
12. Independent Contractor. Linuxcare agrees to perform the Services
----------------------
hereunder solely as an Independent Contractor. The parties to this Agreement
recognize that this Agreement does not create any actual or apparent agency,
partnership, franchise, or relationship of employer and employee between the
parties. Neither party is authorized to enter into or commit the other party to
any agreements. Further, neither party shall be entitled to participate in any
of the other party's benefits, including without limitation any health or
retirement plans. The Company shall not be liable for Worker's Compensation,
unemployment insurance, employers' liability, employer's FICA, social security,
or withholding tax, for or on behalf of Linuxcare or any other person consulted
or employed by Linuxcare in performing Services under this Agreement.
13. Miscellaneous.
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a. The failure of either party to enforce its rights under this
Agreement at any time for any period shall not be construed as a waiver of such
rights.
b. No changes or modifications or waivers are to be made to this
Agreement unless evidenced in writing and signed for and on behalf of both
parties.
c. In the event that any provision of this Agreement shall be
determined to be illegal or unenforceable, that provision will be limited or
eliminated to the minimum extent necessary so that this Agreement shall
otherwise remain in full force and effect and enforceable.
d. This Agreement shall be governed by and construed in accordance
with the laws of the State of New York without regard to the conflicts of laws
provisions thereof. Headings herein are for convenience of reference only and
shall in no way affect interpretation of the Agreement.
e. Except as otherwise expressly stated in this Agreement, the rights
and remedies of a party set forth herein with respect to failure of the other to
comply with the terms of this Agreement (including, without limitation, rights
of full termination of this Agreement) are not exclusive, the exercise thereof
shall not constitute an election of remedies and the aggrieved
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party shall in all events be entitled to seek whatever additional remedies may
be available in law or in equity.
f. No liability or loss of rights hereunder shall result to either
party from delay or failure in performance (other than payment) caused by force
majeure, that is, circumstances beyond the reasonable control of the party
affected thereby, including, without limitation, acts of God, fire, flood, war,
government action, compliance with laws or regulations (including, without
limitation, those related to infringement), strikes, lockouts or other serious
labor disputes, or shortage of or inability to obtain material or equipment.
g. EACH PARTY RECOGNIZES AND AGREES THAT THE WARRANTY DISCLAIMERS
AND LIABILITY AND REMEDY LIMITATIONS IN THIS AGREEMENT ARE MATERIAL BARGAINED
FOR BASES OF THIS AGREEMENT AND THAT THEY HAVE BEEN TAKEN INTO ACCOUNT AND
REFLECTED IN DETERMINING THE CONSIDERATION TO BE GIVEN BY EACH PARTY UNDER THIS
AGREEMENT.
LINUXCARE
/s/ Signature Illegible
By _______________
Address: 6034 Fulton St.
San Francisco, CA 94121
MACMILLAN USA, INC.
/s/ Signature Illegible
By _______________
Address: 201 W 103RD ST
INDIANAPOLIS IN 46290
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SCHEDULE A
SERVICES
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1. SERVICES: During the term of this Agreement, Linuxcare shall provide
technical support services to support end users of Macmillan Mandrake-branded
and Quake-branded products.
Hours. Linuxcare support personnel will be available to provide support to
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end users 24 hours a day/ 7 days a week.
Language. Support will be provided only in English.
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Method. Linuxcare shall provide standard support to end users via world
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wide web, e-mail and facsimile. In addition, Linuxcare shall make telephonic
support available at the cost of * for the first minute a call for telephone
support and * for each additional minute of such telephone call.
Resolution. Linuxcare will send an end user a resolution for an incident or
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a report detailing the status of resolution efforts within 24 hours of Linuxcare
being notified of the incident by end users.
Company Personnel. Linuxcare will provide technical support to the
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following two Company personnel: (1) Steve Schafer and (2) Jim Lefevere. Such
personnel may be changed by Company upon written notice to Linuxcare so long as
only two persons shall have such access. Linuxcare shall have no obligation to
provide support to additional Company personnel.
End User Assistance. Linuxcare's Services under this Agreement are
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conditional upon end user and Company providing reasonable assistance to
Linuxcare, including without limitation: (i) end users providing Linuxcare with
accurate information regarding an incident; and (ii) end users taking all steps
necessary to carry out procedures for the rectification of errors or
malfunctions.
Escalation. Where a reported incident meets the following guidelines, such
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incident shall be escalated to the status of "Linuxcare Professional Services"
and the parties may mutually agree in a separate writing upon the terms and
conditions under which Linuxcare will provide such services, including without
limitation, additional fees to be charged by Linuxcare.
Eligibility of Software. Linuxcare Services shall not include services
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requested as a result of, or with respect to, the following, and any such
services if provided by Linuxcare shall be provided (if at all) as part of a
separate Linuxcare Professional Services contract:
(i) accident; unusual physical, electrical or electromagnetic stress;
neglect; misuse; failure of electric power, air conditioning or humidity
control; failure of rotation media;
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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operation of the Software with other media not meeting or not maintained in
accordance with the manufacturer's specifications; or causes other than ordinary
use;
(ii) improper installation by End User or use of the software that
deviates from any operating procedures established by Company; or
(iii) modification, alteration or addition or attempted modification,
alteration or addition of the software undertaken by persons other than Company
or Company's authorized representatives.
Hardware Support:
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For Linux Operating System products, Linuxcare shall provide support in the
following areas: (i) installation of Linux distribution and (ii) installation
and support of drivers located on Linux distribution CD's.
For Quake and Quake II products, Linuxcare shall provide the following
support: (i) installation of Quake on hardware which meets the minimum
specifications for systems as set forth in the applicable documentation, and
(ii) configuration of support for hardware devices support by Quake CD's.
For Oracle Products, Linuxcare shall provide the following support: (i)
installation of Oracle on hardware which meets the minimum specifications for
systems as set forth in the applicable documentation, and (ii) configuration of
support for hardware devices support by Oracle.
2 FEES AND FORECAST. The fees for Services (exclusive of telephone support
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which is calculated separately in accordance with Section 1 above) will be
calculated based upon the following service level matrix:
LEVEL HOURS OF SERVICE FEES
DURING A CALENDAR MONTH
1 0-125 hours * per/hr
2 126-150 hours * per/hr
3 151-175 hours * per/hr
4 176-200 hours * per/hr
5 201-225 hours * per/hr
6 226-250 hours * per/hr
7 251-300 hours * per/hr
8 301-350 hours * per/hr
9 351-400 hours * per/hr
10 Over 401 hours * per/hr
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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Fee Calculation. Fees will be charged based upon the cumulative actual
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number of hours of Service provided by Linuxcare each month. For example, if
Company utilized 306 hours of Service during a calendar month, Company would be
obligated to pay Linuxcare U.S. (306 hours charged at per hour) or if
Company utilized 224 hours of Service during a calendar month, Company would be
obligated to pay Linuxcare U.S. $ (224 hours charged at per hour).
Forecasts. No more than seven days prior to each calendar quarter, Company
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shall provide notice to Linuxcare of the estimated hours of Service for each
month during the next calendar quarter ("Forecast"). This Forecast will be non-
binding on the level of hourly support required hereunder, but will constitute
Company's good faith estimate of its use of Linuxcare Services.
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EXHIBIT 10.2.8
Agreement Number: NES 99-1
MASTER SERVICES AGREEMENT
This agreement ("Agreement") is made as of June 1, 1999 ("Effective Date"),
between Linuxcare, Inc., a Delaware corporation with an office at 650 Townsend
Street, San Francisco, CA 94103, USA (Phone: 415-354-4878; Fax: 415.701.7457)
("Linuxcare") and the "Customer" listed below.
Customer: NEC Software Ltd. Contact: Atsuo Suzuki
Address: 1-18-6 Shinkiba Koutou-Ku Phone: +81-3-5569-3251
Tokyo 136-8608, Japan Fax: +81-3-5569-3308
E-Mail: [email protected]
SERVICES INFORMATION
Service Level: Gold SLA as defined in Exhibit B
Service Fee Period: October 1, 1999 - September 30, 2000
Service Incident Cap: 40
Service Fee: *
SERVICES PROVIDED
Subject to payment of all applicable fees, Linuxcare will use reasonable
commercial efforts to perform the support services specified in the Statement of
Work ("SOW") attached hereto as Exhibit B ("Services") and incorporated herein,
in accordance with the Terms and Conditions attached hereto as Exhibit A, and
incorporated herein (collectively the "Exhibits"). Linuxcare may change the SOW,
the Service Fee, and the services that will be performed for a particular
Service Level, at any time; such changes will take effect at the beginning of
the next Service Fee Period. Customer understands that Linuxcare's performance
is dependent in part on Customer's actions. Accordingly, any dates or time
periods relevant to performance of Services by Linuxcare shall appropriately and
equitably extended to account for any delays resulting from changes to Customer
products or otherwise due to Customer. Customer may request additional hours or
levels of Services ("Extended Services"), which Linuxcare may provide at
Linuxcare's sole discretion, provided that Customer pays Linuxcare's then
current fees for such Extended Services.
The Exhibits contain, among other things, warranty disclaimers and
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liability limitations. Any different or additional terms of any related purchase
- ---------------------
order, confirmation, or similar form even if signed by the parties after the
date hereof shall have no force or effect. References in this Agreement or the
Exhibits to a capitalized term appearing on this cover page shall have the
meaning or value of such term on this cover page.
NEC Software: Linuxcare:
By: /s/ YOSHINARI FURUMICHI By: /s/ Justin T. Powell
Name: YOSHINARI FURUMICHI Name: Justin T. Powell
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Title: GENERAL MANAGER Title: Director of Asia Pacific Operations
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[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
EXHIBIT A
TERMS AND CONDITIONS
1. Training. Subject to payment of all fees, Linuxcare will provide the
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training specified in Linuxcare's current, published "Linuxcare Training
Programs" documentation. Unless otherwise arranged between Customer and
Linuxcare, all training shall occur at Linuxcare's facilities in San
Francisco, California. The fees for training will be Linuxcare's current,
published training fees, less the Training Discount ("Training Fees").
2. Fees and Payment. Customer shall pay Linuxcare the fees for the selected
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Service Level shown in the Services Information section of this Master
Services Agreement for each Service Fee Period. ("Service Fees"). Customer
will pay the Service Fees for the initial Service Fee Period within 30 days
of the Effective Date. Customer will pay the Service Fees for subsequent
Service Fee Periods within 30 days after receipt of Linuxcare's invoice.
Customer will also pay Linuxcare all Training Fees and Extended Services
fees within 30 days after receipt of Linuxcare's invoice therefor. All
payments are non-refundable. Any payments over 15 days overdue will bear a
late payment fee of the lower of 1.5% per month of the outstanding balance
or the maximum rate allowed by law. Linuxcare shall refund to Customer any
amounts actually paid to Linuxcare by Customer which exceed amounts due
hereunder, minus any costs, fees, taxes, duties or other implications, if
any, arising in connection with such overpayment.
3. Proprietary Rights. As between the parties, Linuxcare will retain all
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right, title and interest in and to any software, tools, techniques, and
other materials used in connection with providing the Services ("Linuxcare
Materials"). As between the parties, Customer will retain all right, title
and interest in and to any software, products, documentation and other
materials it supplies. Linuxcare hereby assigns to Customer all right,
title and interest, in any work product created as part of the Services
("Work Product"), but this assignment does not include any portion of the
Linuxcare Materials, and will not prevent Linuxcare from using the
expertise, ideas and know-how learned while performing Services for other
purposes (including, without limitation, for itself or on behalf of third
parties).
4. Confidential Information. Each party ("receiving party") agrees that all
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code, inventions, algorithms, know-how and ideas and all other business,
technical and financial information it obtains from the other party
("disclosing party"), but not including work product that is assigned to
Customer by Linuxcare pursuant to Section 3, are the confidential property
of the disclosing party ("Confidential Information" of the disclosing
party). Except with the consent of the disclosing party, the receiving
party shall hold in confidence and not use or disclose any Confidential
Information of the disclosing party for at least five (5) years after this
Agreement expires or otherwise terminates. The receiving party's
nondisclosure obligation shall not apply to information it can document:
(i) is generally available to the public other than through breach of this
Agreement; (ii) is rightfully disclosed to the receiving party by a third
party; (iii) is independently developed by the receiving party without use
of any Confidential Information of the disclosing party, or (iv) is
disclosed to pursuant to law or an order requirement, guidance, or request
of a court or government authority. Because of the unique and proprietary
nature of the Confidential Information, it is understood and agreed that
the disclosing party's remedies at law for a breach by the receiving party
of its obligations under this Section will be inadequate and that the
disclosing party shall be entitled to equitable relief (including without
limitation provisional and permanent injunctive relief and specific
performance). Nothing stated herein shall limit any other remedies provided
under this Agreement or available to the disclosing party at law. Upon
expiration or termination of this Agreement for any reason, each party will
return all copies of all Confidential Information of the other party in its
possession or control.
5. Termination. This Agreement will have an initial term of the earlier of one
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year from the Effective Date or the date that Customer uses up its
Incidences under its Service Level (initial "Service Fee Period") and shall
automatically renew on each anniversary of the initial Service Fee Period
for subsequent Service Fee Periods (subject to payment of Linuxcare's then
current rates for additional Incidences)
<PAGE>
unless terminated by either party. For the purposes of this Agreement,
"Incident" shall mean a single identified customer issue or problem. Each
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Incident is only valid during the Service Fee Period it was purchased in.
One call or e-mail may include multiple Incidents, and a single Incident
may require more than one call or e-mail to resolve. Either party may
terminate this Agreement upon thirty (30) days written notice to the other
party, except if Linuxcare is terminating the Agreement such termination
will not be effective until the end of any fully paid-up Service Fee
Period. Linuxcare may terminate this Agreement at any time in the case of
non-payment by Customer of any fees, unless Customer pays such fees in full
within ten (10) days after such notice. Sections 4, 5, 7, 8, and 9 of this
Agreement, and all accrued rights to payment, shall survive termination.
Termination is not an exclusive remedy and all other remedies will be
available whether or not termination occurs.
6. Warranty and Disclaimer. Linuxcare hereby warrants to Customer, and only
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Customer, that all Services shall be performed in a professional and
workmanlike manner. THE PARTIES ACKNOWLEDGE THAT THIS IS AN AGREEMENT FOR
SERVICES AND NOT FOR THE SUPPLY OF GOODS. EXCEPT FOR THE FOREGOING,
LINUXCARE MAKES NO OTHER WARRANTIES OR REPRESENTATIONS AS TO THE SERVICES
RENDERED, AND HEREBY DISCLAIMS ALL EXPRESS AND IMPLIED WARRANTIES,
INCLUDING BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY,
FITNESS FOR A PARTICULAR PURPOSE, AND NONINFRINGEMENT. LINUXCARE FURTHER
DISCLAIMS ANY WARRANTY THAT THE SERVICES WILL SUCCEED IN RESOLVING ANY
PROBLEM, OR THAT ANY WORK PRODUCT OF THE SERVICES WILL BE FREE FROM PROGRAM
ERRORS.
7. Limitation of Liability. NOTWITHSTANDING ANYTHING ELSE IN THIS AGREEMENT OR
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OTHERWISE, AND EXCEPT FOR BODILY INJURY, LINUXCARE SHALL NOT BE LIABLE OR
OBLIGATED WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT OR UNDER ANY
CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY:
(I) FOR ANY AMOUNTS IN EXCESS IN THE AGGREGATE OF THE FEES PAID TO IT
HEREUNDER WITH RESPECT TO THE APPLICABLE SERVICES; (II) FOR ANY COST OF
PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY, SERVICES OR RIGHTS; OR (III)
FOR INTERRUPTION OF USE OR LOSS OR CORRUPTION OF DATA.
8. NEITHER PARTY TO THIS AGREEMENT SHALL BE LIABLE OR OBLIGATED WITH RESPECT
TO THE SUBJECT MATTER OF THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE,
STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY: (I) FOR ANY MATTER
BEYOND ITS REASONABLE CONTROL, OR (II) FOR ANY INCIDENTAL, INDIRECT OR
CONSEQUENTIAL DAMAGES OR LOST PROFITS.
9. Legal Compliance. Customer shall comply with the U.S. Foreign Corrupt
----------------
Practices Act and all applicable export laws, restrictions, and regulations
of the U.S. and foreign agency or authority. Each party agrees that it
shall comply with applicable law in performance of its obligations under
this Agreement.
10. Miscellaneous. This Agreement is not assignable or transferable by Customer
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without the prior written consent of Linuxcare; any attempt to do so
shall be void. Linuxcare may assign this Agreement in whole or in part, or
subcontract the performance of Services to third parties. Services may be
used solely by Customer for Customer's internal use for Customer's own
benefit. The parties agree that they are independent contractors and that
this Agreement and relations between Linuxcare and Customer hereby
established do not constitute a, joint venture, agency or contract of
employment between them, or any other similar relationship. Neither party
has the right or authority to assume or create any obligation or
responsibility on behalf of the other. Any notice, report, approval or
consent required or permitted hereunder shall be in writing. No failure or
delay in exercising any right hereunder will operate as a waiver thereof,
nor will any partial exercise of any right or power hereunder preclude
further exercise. If any provision of this Agreement shall be adjudged by
any court of competent jurisdiction to be unenforceable or invalid, that
provision shall be limited or eliminated to the minimum extent necessary so
that this Agreement shall otherwise remain in full force and effect and
enforceable. Any waivers or amendments shall be effective only if made in
writing. This Agreement is the complete and exclusive statement of the
mutual understanding of the parties and supersedes and cancels all previous
written and oral agreements and communications relating to the subject
matter of this Agreement. The prevailing party in any action to enforce
this Agreement will be entitled to recover its attorney's fees and costs in
connection with such action.
Page 2 of 3
<PAGE>
11. Governing Law and Jurisdiction. This Agreement which is in English, shall
------------------------------
be interpreted in accordance with the commonly understood meaning of
the words and phrases hereof in the United States of America. Any dispute,
controversy or claim arising out of or relating to this Agreement or to a
breach thereof, including its interpretation, performance or termination,
shall be finally resolved by arbitration. The arbitration shall be
conducted in English and in accordance with the commercial rules of the
International Chamber of Commerce which shall administer the arbitration
and act as appointing authority. The arbitration, including the rendering
of the award, shall take place in San Francisco, California which shall be
the exclusive forum for resolving such dispute, controversy or claim. For
the purposes of this arbitration, the provisions of this Agreement and all
rights and obligations thereunder shall be governed and construed in
accordance with the laws of the State of California. United States of
----------
America, without regard to the conflicts of laws provisions thereof. The
decision of the arbitrators shall be binding upon the parties hereto, and
the expense of the arbitration (including without limitation the award of
attorneys' fees to the prevailing party) shall be paid as the arbitrators
determine. The decision of the arbitrators shall be executory, and judgment
thereon may be entered by any court of competent jurisdiction.
Notwithstanding anything contained in this Paragraph, each party shall have
the right to institute judicial proceedings against the other party or
anyone acting by, through or under such other party in any federal or state
court located within the County of San Francisco, CA, USA in order to
enforce the instituting party's rights hereunder through reformation or to
obtain injunctive relief ("Court Actions"). Accordingly, each party agrees
to the exclusive and personal jurisdiction of the state and federal courts
located within the County of San Francisco, CA, USA for such Court Actions.
NEC Software: Linuxcare:
By: /s/ YOSHINARI FURUMICHI By: /s/ Justin T. Powell
Name: YOSHINARI FURUMICHI Name: Justin T. Powell
Title: GENERAL MANAGER Title: Director of Asia Pacific Operations
Page 3 of 3
<PAGE>
EXHIBIT B
STATEMENT OF WORK
CONTROL
Document ID NES_SOW
Location /Documents/Linuxcare/NEC/NES/NES_SOW.doc
Originator Jay Powell
Issue Date 9/21/1999
Status Approved
Version 1.0
DISTRIBUTION
Linuxcare Jay Powell, Jim Fisher
NES Atsuo Suzuki
VERSION MODIFIED BY DATE DESCRIPTION
0.1 Jay Powell 08/23/99 Draft Proposal
0.2 Jay Powell 09/10/99 Revised incident cap to by
Suzuki-san of NES. as
advised by Lawyers. lower
price as proposed Minor
formatting changes
1.0 Jay Powell 9/21/99 Revised incident cap to
proposed by Suzuki-san of
lower price further as NEC.
Page 1 of 7
<PAGE>
TABLE OF CONTENTS
-----------------
<TABLE>
<S> <C>
1 INTRODUCTION 3
2 RELATIONSHIP OBJECTIVES 4
2.1 SHORT-TERM OBJECTIVES 4
2.2 LONG TERM OBJECTIVES 4
3 SERVICE PROPOSAL-SHORT-TERM (REF 2.1) 5
3.1 SLA SERVICES 5
3.1.1 Hours of Operation: 5
3.1.2 Distribution: 5
3.1.3 Platforms: 5
3.1.4 Phone, Web, e-mail support: 5
3.1.5 Resolution or report: 5
3.1.6 First point of contact: 6
3.1.7 Authorized customer contacts: 6
3.1.8 Telnet access to customer's system: 6
3.1.9 View Active Incident Status online: 6
3.1.10 Software updates: 6
3.1.11 Access to Script library: 6
3.1.12 Access to online configuration DB: 6
3.2 PROBLEM REPORTING PROCEDURES 6
3.3 SERVICE RESTRICTIONS 7
3.4 SOW SERVICE PERIOD AND RENEWAL 7
</TABLE>
Page 2 of 7
<PAGE>
1 INTRODUCTION
This NEC Software Statement of Work No. 99-1 ("SOW") effective October 1, 1999
is agreed upon by sets forth the Agreement between Linuxcare Inc. ("Linuxcare")
and NEC Software, Ltd. ("NES") regarding the services to be provided by services
provided by Linuxcare pursuant to the Master Services Agreement between
Linuxcare and NES dated October 1, 1999.
This document is intended solely for NES and Linuxcare and is not be circulated
outside of these organizations without written consent from Linuxcare Inc.
Page 3 of 7
<PAGE>
2 RELATIONSHIP OBJECTIVES
2.1 SHORT-TERM OBJECTIVES
NES and Linuxcare shall undertake a 12-month trial composed of standard Gold
Service Level Agreement ("SLA") back-line support for NES's Linux system
integration business. The Gold SLA as specified herein will ensure that the NES
engineers are provided the support services that they require to provide the
quality of their Linux based support solutions to their business partners.
During this trial period Linuxcare and NES will evaluate their ability to work
together in the Japanese market to encourage the growth of Linux based solutions
deployed in corporate Japan.
2.2 LONG TERM OBJECTIVES
Assuming successful conclusions of the above objectives (Ref. 2.1) Linuxcare and
NES will evaluate NES entering into a "Linuxcare Certified Partner" program that
includes NES providing Linux Services across multiple lines of business
currently offered by Linuxcare.
Clarification of these objectives shall occur following evaluation of the first
year support agreement and the short-term objectives defined above (Ref. 2.1).
Should NES and Linuxcare decide to enter into a future agreement this shall
represent a separate contract from this initial backline support agreement.
Page 4 of 7
<PAGE>
3 SERVICE PROPOSAL - SHORT-TERM (REF 2.1)
Linuxcare will use reasonable commercial efforts to provide Gold SLA services,
which for purposes of this SOW has been deemed "Gold" Service Level Agreement
("SLA") as further defined in Section 3.1. These services are to be used by NES
to support NES's "Customer Base" from their Tokyo Linux support center.
"Customer Base" shall mean those third party customers, which NES has a
contractual obligation to provide Linux operating support services as of the
effective date of this SOW. Additional third party customers may be added to the
"Customer Base" with the prior written permission of Linuxcare.
3.1 SLA SERVICES
The Gold SLA is based on the following Linuxcare standard Gold SLA service
options set forth below:
3.1.1 HOURS OF OPERATION:
9am - 6pm (JST) weekdays excluding Japanese national holidays.
3.1.2 DISTRIBUTION:
Distribution support includes all major Distributions. Major Distributions are
defined as Caldera, Debian GNU/Linux, Laser5 Linux, Linux-Mandrake, LinuxPPC,
Red Hot, Slackware Linux, Stampede, SuSE, TurboLinux, UltraLinux, and Yellow
Dog.
3.1.3 PLATFORMS:
Platforms that will be supported are the Alpha, Intel, MIPS, and SPARC
platforms, and such other platforms as Linuxcare may make generally available to
its other Gold SLA service customers.
3.1.4 PHONE, WEB, E-MAIL SUPPORT:
Telephone, World Wide Web, and e-mail support services will be available during
the hours set forth above. Telephone support will be provided in the Japanese
language support subject to Linuxcare's ability (using commercially reasonable
efforts) to staff its Japanese office with trained personnel. NES and Linuxcare
will cooperate, with each providing assistance and each at their own respective
cost, to provide Japanese telephone support until such time as Linuxcare is able
to appropriately staff its Japanese office with trained personnel. Linuxcare's
shall have the right to use existing Japanese speaking staff based in its San
Francisco office to fulfill its obligations under this Section 3.1.4.
3.1.5 RESOLUTION OR REPORT:
Resolution or report will be issued one (i) business day (as defined by the
Hours of Operation) following report of an incident to Linuxcare.
Page 5 of 7
<PAGE>
3.1.6 FIRST POINT OF CONTACT:
The first point of contact for NES will be a Linuxcare level 2 engineer (as
defined by Linuxcare).
3.1.7 AUTHORIZED CUSTOMER CONTACTS:
NES shall designate two (2) Authorized customer contacts and provide their names
and contact information to Linuxcare. Linuxcare shall have no obligation to
provide support to NES personnel other than the NES Authorized customer
contacts.
3.1.8 TELNET ACCESS TO CUSTOMER'S SYSTEM:
Telnet access into the NES's support center servers provided to Linuxcare
engineers at the discretion of NES, but at no additional cost to Linuxcare.
3.1.9 VIEW ACTIVE INCIDENT STATUS ONLINE:
Linuxcare shall make summary online incident reports available to NES for each
incident reported to Linuxcare by NES.
3.1.10 SOFTWARE UPDATES:
Selected Linux software updates will be made available to NES through the
Linuxcare web site (http://www.linuxcare.com). NES rights with respect to such
------------------------
Software updated will be
subject to the applicable of source licenses.
3.1.11 ACCESS TO SCRIPT LIBRARY:
Access to the Linuxcare Script Library will be made available to NES (and not
NES customers) through the Linuxcare web site (http://www.linuxcare.com). These
------------------------
scripts are not to be released to NES customers without prior written consent
from Linuxcare for each instance.
3.1.12 ACCESS TO ONLINE CONFIGURATION DB:
Access to the Linuxcare online configuration database will be made available to
NES through the Linuxcare web pages (http://www.linuxcare.com). This access is
------------------------
solely granted to NES and is not to be released to NES customers.
3.2 PROBLEM REPORTING PROCEDURES
When NES contacts Linuxcare with an incident report, NES shall provide the
following information:
1. Name of NES engineer placing the call. This individual must be one of
the Authorized customer contacts.
Page 6 of 7
<PAGE>
2. Name of individual and individual's company that logged the initial
incident report with NES.
3. Description of the incident.
4. Description of the steps taken by NES to resolve the problem locally.
Linuxcare will track this information; NES shall not intentionally (or through
gross negligence) mislead Linuxcare regarding any of the above points.
3.3 SERVICE RESTRICTIONS
The services provided by Linuxcare are to be used at NES's support center and
are intended to allow for NES to support Customer Base. NES may not use
Linuxcare services provided hereunder for the purpose of providing corporate
Linux support. Accordingly, NES shall not:
* Sell Linuxcare support packages to Japanese corporate customers
without prior written consent from Linuxcare for each sale.
* Make any additional or conflicting representations or warranties on
behalf of Linuxcare.
* Use the trademark Linuxcare name, logo, or catch phrase "At the Center
of Linux" without prior written consent from Linuxcare in each case.
3.4 SOW SERVICE PERIOD AND RENEWAL
The initial term of this SOW shall continue for the period of 12 months of
service or 40 reported incidents, whichever comes first (the "Term"), unless
earlier terminated under this Master Service Agreement. This SOW shall renew for
additional Terms in accordance with the terms of the Master Service Agreement.
Two (2) months prior to expiration of an existing Term or at 30 reported
incidents (whichever comes first), NES and Linuxcare shall meet to: (1) evaluate
the quality of the service provided, and (2) evaluate whether it is appropriate
to adjust the duration of a future Term (including the number of incidents
reported therein), and (3) in the case of agreement with respect to an
adjustment of the duration of the Term, mutually agree in writing as to the
duration of such future Term.
NEC Software: Linuxcare:
By: Yoshinari Furumichi By: /s/ Justin T. Powell
Name: YOSHINARI FURUMICHI Name: Justin T. Powell
Title: GENERAL MANAGER Title: Director of Asia Pacific Operations
Page 7 of 7
<PAGE>
EXHIBIT 10.2.9
Agreement Number: _________________
MASTER SERVICES AGREEMENT
This agreement ("Agreement") is made as of OCTOBER 20, 1999
("Effective Date"), between Linuxcare, Inc., a Delaware corporation with an
office at 650 Townsend Street, San Francisco, CA 94103, USA (Phone: 415-354-
4878; Fax: 415.701.7457; E-mail: [email protected]) ("Linuxcare") and the
"Customer" listed below.
Customer: Sun Microsystems, Inc. Contact: STEVE GRUELLE
Address: 901 San Antonio Rd. Phone: 650-336-6321
Palo Alto, CA 94303 Fax: 650-336-1549
E-Mail: [email protected]
SERVICES INFORMATION
Service Fee Period: Oct 10, 1999 to Apr 10, 2000
Service Fee: [*] hour
SERVICES PROVIDED
Subject to payment of all applicable fees, Linuxcare will use
reasonable commercial efforts to perform the support services specified in
Linuxcare's current, published "Linuxcare Technical Support Programs"
documentation appropriate to the Service Level selected by Customer and the
Statement of Work ("SOW") attached hereto as Exhibit A ("Services"), in
accordance with the Terms and Conditions exhibit attached to this Agreement, and
incorporated herein. In the event of any conflict between the "Linuxcare
Technical Support Programs" documentation and the SOW, the SOW shall govern.
Linuxcare may change the "Linuxcare Technical Support Programs" documentation,
SOW, the Service Fee, and the services that will be performed for a particular
Service Level, at any time; such changes will take effect at the beginning of
the next Service Fee Period. Customer understands that Linuxcare's performance
is dependent in part on Customer's actions. Accordingly, any dates or time
periods relevant to performance of Services by Linuxcare shall appropriately and
equitably extended to account for any delays resulting from changes to Customer
products or otherwise due to Customer. Customer may request additional hours or
levels of Services ("Extended Services"), which Linuxcare may provide at
Linuxcare's sole discretion, provided that Customer pays Linuxcare's then
current fees for such Extended Services.
This Agreement includes the attached exhibits, statements of work, and
----------------------------------------------------------------------
contains, among other things, warranty disclaimers and liability limitations.
- ----------------------------------------------------------------------------
Any different or additional terms of any related purchase order, confirmation,
or similar form even if signed by the parties after the date hereof shall have
no force or effect. References in this Agreement or the exhibits to a
capitalized term appearing on this cover page shall have the meaning or value of
such term on this cover page.
Customer: Linuxcare:
By: /s/ Jon S. Williams By: /s/ Thomas W. Phillips
------------------- ----------------------
Name: Jon S. Williams Name: Thomas W. Phillips
--------------- ------------------
Title: Dir Marketing Title: V.P. World Wide Sales
------------- ---------------------
[*] = CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
<PAGE>
TERMS AND CONDITIONS EXHIBIT
1. Training. Subject to payment of all fees, Linuxcare will
--------
provide the training specified in Linuxcare's current, published "Linuxcare
Training Programs" documentation. Unless otherwise arranged between Customer and
Linuxcare, all training shall occur at Linuxcare's facilities in San Francisco,
California. The fees for training will be Linuxcare's current, published
training fees, less the Training Discount ("Training Fees").
2. Fees and Payment. Customer shall pay Linuxcare the fees for
----------------
the selected Service Level shown in the Services Information section of this
Master Services Agreement for each Service Fee Period. ("Service Fees").
Customer will pay the Service Fees for the initial Service Fee Period within 30
days of the Effective Date. Customer will pay the Service Fees for subsequent
Service Fee Periods within 30 days after receipt of Linuxcare's invoice.
Customer will also pay Linuxcare all Training Fees and Extended Services fees
within 30 days after receipt of Linuxcare's invoice therefor. All payments are
non-refundable. Any payments over 15 days overdue will bear a late payment fee
of the lower of 1.5% per month of the outstanding balance or the maximum rate
allowed by law. Linuxcare shall refund to Customer any amounts actually paid to
Linuxcare by Customer which exceed amounts due hereunder, minus any costs, fees,
taxes, duties or other implications, if any, arising in connection with such
overpayment.
3. Proprietary Rights. As between the parties, Linuxcare will
------------------
retain all right, title and interest in and to any software, tools, techniques,
and other materials used in connection with providing the Services ("Linuxcare
Materials"). As between the parties, Customer will retain all right, title and
interest in and to any software, products, documentation and other materials it
supplies. Linuxcare hereby assigns to Customer all right, title and interest, in
any work product created as part of the Services ("Work Product"), but this
assignment does not include any portion of the Linuxcare Materials, and will not
prevent Linuxcare from using the expertise, ideas and know-how learned while
performing Services for other purposes (including, without limitation, for
itself or on behalf of third parties).
4. Confidential Information. Each party ("receiving party")
------------------------
agrees that all code, inventions, algorithms, know-how and ideas and all other
business, technical and financial information it obtains from the other party
("disclosing party"), but not including work product that is assigned to
Customer by Linuxcare pursuant to Section 3, are the confidential property of
the disclosing party ("Confidential Information" of the disclosing party).
Except with the consent of the disclosing party, the receiving party shall hold
in confidence and not use or disclose any Confidential Information of the
disclosing party for at least seven (7) years after this Agreement expires or
otherwise terminates. The receiving party's nondisclosure obligation shall not
apply to information it can document: (i) is generally available to the public
other than through breach of this Agreement; (ii) is rightfully disclosed to the
receiving party by a third party; or (iii) is independently developed by the
receiving party without use of any Confidential Information of the disclosing
party. Because of the unique and proprietary nature of the Confidential
Information, it is understood and agreed that the disclosing party's remedies at
law for a breach by the receiving party of its obligations under this Section
will be inadequate and that the disclosing party shall be entitled to equitable
relief (including without limitation provisional and permanent injunctive relief
and specific performance). Nothing stated herein shall limit any other remedies
provided under this Agreement or available to the disclosing party at law. Upon
expiration or termination of this Agreement for any reason, each party will
return all copies of all Confidential Information of the other party in its
possession or control.
5. Termination. This Agreement will have an initial term of the
-----------
earlier of one year from the Effective Date or the date that Customer uses up
its Incidences under its Service Level (initial "Service Fee Period") and shall
automatically renew on each anniversary of the initial Service Fee Period for
subsequent Service Fee Periods (subject to payment of Linuxcare's then current
rates for additional Incidences) unless terminated by either party. For the
purposes of this Agreement, "Incident" shall mean a single identified customer
issue or problem. Each Incident is only valid during the Service Fee Period it
was purchased in. One call or e-mail may include multiple Incidents, and a
single Incident may require more than one call or e-mail to resolve. Either
party may terminate this Agreement upon thirty (30) days written notice to the
other party, except if Linuxcare is terminating the Agreement such termination
will not be effective until the end of any fully paid-up Service Fee Period.
Linuxcare may terminate this Agreement at any
<PAGE>
time in the case of non-payment by Customer of any fees, unless Customer pays
such fees in full within ten (10) days after such notice. Sections 4, 5, 7, 8,
and 9 of this Agreement, and all accrued rights to payment, shall survive
termination. Termination is not an exclusive remedy and all other remedies will
be available whether or not termination occurs.
6. Warranty and Disclaimer. Linuxcare hereby warrants to
-----------------------
Customer. and only Customer, that all Services shall be performed in a
professional and workmanlike manner. THE PARTIES ACKNOWLEDGE THAT THIS IS AN
AGREEMENT FOR SERVICES AND NOT FOR THE SUPPLY OF GOODS. EXCEPT FOR THE
FOREGOING, LINUXCARE MAKES NO OTHER WARRANTIES OR REPRESENTATIONS AS TO THE
SERVICES RENDERED, AND HEREBY DISCLAIMS ALL EXPRESS AND IMPLIED WARRANTIES,
INCLUDING BUT NOT LIMITED TO, IMPLIED WARRANTIES OF MERCHANTABILITY, FITNESS FOR
A
<PAGE>
PARTICULAR PURPOSE, AND NONINFRINGEMENT. LINUXCARE FURTHER DISCLAIMS ANY
WARRANTY THAT THE SERVICES WILL SUCCEED IN RESOLVING ANY PROBLEM, OR THAT ANY
WORK PRODUCT OF THE SERVICES WILL BE FREE FROM PROGRAM ERRORS.
7. Limitation of Liability. NOTWITHSTANDING ANYTHING ELSE IN
-----------------------
THIS AGREEMENT OR OTHERWISE, AND EXCEPT FOR BODILY INJURY, LINUXCARE SHALL NOT
BE LIABLE OR OBLIGATED WITH RESPECT TO THE SUBJECT MATTER OF THIS AGREEMENT OR
UNDER ANY CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE
THEORY: (I) FOR ANY AMOUNTS IN EXCESS IN THE AGGREGATE OF THE FEES PAID TO IT
HEREUNDER WITH RESPECT TO THE APPLICABLE SERVICES; (II) FOR ANY COST OF
PROCUREMENT OF SUBSTITUTE GOODS, TECHNOLOGY, SERVICES OR RIGHTS; OR (III) FOR
INTERRUPTION OF USE OR LOSS OR CORRUPTION OF DATA.
NEITHER PARTY TO THIS AGREEMENT SHALL BE LIABLE OR OBLIGATED WITH RESPECT
TO THE SUBJECT MATTER OF THIS AGREEMENT OR UNDER ANY CONTRACT, NEGLIGENCE,
STRICT LIABILITY OR OTHER LEGAL OR EQUITABLE THEORY: (I) FOR ANY MATTER BEYOND
ITS REASONABLE CONTROL, OR (II) FOR ANY INCIDENTAL, INDIRECT OR CONSEQUENTIAL
DAMAGES OR LOST PROFITS.
8. Export Control, Customer shall comply with the U.S. Foreign
--------------
Corrupt Practices Act and all applicable export laws, restrictions, and
regulations of the U.S. and foreign agency or authority.
9. Miscellaneous. This Agreement is not assignable or
-------------
transferable by Customer without the prior written consent of Linuxcare; any
attempt to do so shall be void. Linuxcare may assign this Agreement in whole or
in part, or subcontract the performance of Services to third parties. Services
may be used solely by Customer for Customer's internal use for Customer's own
benefit. The parties agree that they are independent contractors and that this
Agreement and relations between Linuxcare and Customer hereby established do not
constitute a, joint venture, agency or contract of employment between them, or
any other similar relationship. Neither party has the right or authority to
assume or create any obligation or responsibility on behalf of the other. Any
notice, report, approval or consent required or permitted hereunder shall be in
writing. No failure or delay in exercising any right hereunder will operate as a
waiver thereof, nor will any partial exercise of any right or power hereunder
preclude further exercise. If any provision of this Agreement shall be adjudged
by any court of competent jurisdiction to be unenforceable or invalid, that
provision shall be limited or eliminated to the minimum extent necessary so that
this Agreement shall otherwise remain in full force and effect and enforceable.
Any waivers or amendments shall be effective only if made in writing. This
Agreement is the complete and exclusive statement of the mutual understanding of
the parties and supersedes and cancels all previous written and oral agreements
and communications relating to the subject matter of this Agreement. The
prevailing party in any action to enforce this Agreement will be entitled to
recover its attorney's fees and costs in connection with such action.
10. Governing Law and Jurisdiction. This Agreement, which is in
------------------------------
English, shall be interpreted in accordance with the commonly understood meaning
of the words and phrases hereof in the United States of America. Any dispute,
controversy or claim arising out of or relating to this Agreement or to a breach
thereof, including its interpretation, performance or termination, shall be
finally resolved by arbitration. The arbitration shall be conducted in English
and in accordance with the commercial rules of the International Chamber of
Commerce, which shall administer the arbitration and act as appointing
authority. The arbitration, including the rendering of the award, shall take
place in San Francisco, California, which shall be the exclusive forum for
resolving such dispute, controversy or claim. For the purposes of this
arbitration, the provisions of this Agreement and all rights and obligations
thereunder shall be governed and construed in accordance with the laws of the
State of California. United States of America, without regard to the conflicts
----------
of laws provisions thereof. The decision of the arbitrators shall be binding
upon the parties hereto, and the expense of the arbitration (including without
limitation the award of attorneys' fees to the prevailing party) shall be paid
as the arbitrators determine. The decision of the arbitrators shall be
executory, and judgment thereon may be entered by any court of competent
jurisdiction. Notwithstanding anything contained in this Paragraph, each party
shall have the right to institute judicial proceedings against the other party
or anyone acting by, through or under such other party in order to enforce the
instituting party's rights hereunder through reformation of contract, specific
performance, injunction or similar equitable relief.
<PAGE>
STATEMENT OF WORK FOR NETBEANS IDE SUPPORT SERVICES
This Statement of Work for NetBeans IDE Support Services is the NetBeans IDE
Support Services Agreement ("Agreement") between Sun Microsystems Inc ("Sun"),
and LinuxCare, Inc. ("PROVIDER").
1. SERVICES TO BE PROVIDED BY PROVIDER.
------------------------------------
1.1 DEFINITIONS.
1.1.1 "Business Hours" means 8:00 a.m. To 8:00 p.m. Eastern Standard
Time, Monday through Friday, excluding Sun holidays.
1.1.2 "Call Back" means calls which, at the Support Customer's
request are handled by means of an e-mail to the contact of
record (as shown on the service order), by a PROVIDER support
engineer.
1.1.3 "Support Customer" or "End User" means a customer who directly
or indirectly received distribution of NetBeans IDE products
from Sun or from NetBeans.
1.1.4 "Support Services" means remote, centralized, software support
services of NetBeans IDE software products to be provided by
PROVIDER. This definition excludes on-site support services of
any kind.
1.1.5 "Call" or "Calls" means Support Customer's request for service
transmitted via e-mail,
1.1.6 "IAPT" means the Internet Applications and Performance Tools
group within the Software Products & Platforms division of Sun.
1.1.7 "CTE" means the Escalation Support group within IAPT.
1.1.8 "Service Order" means the documentation of a Support Services
Call.
1.1.9 "FAQ" or "FAQ's" means the frequently asked questions list.
1.2 SUPPORT SERVICES.
1.2.1. Services, PROVIDER will provide Support Services for Support
Customers during Business Hours only, Such Support Services
shall be limited to the NetBeans IDE software products and
their compatibility with any of the Linux platforms
(Hardware/operating system) with which they interoperate.
Support Services shall be provided in accordance with the
procedures outlined in Section 1.4 of this Exhibit A.
1.2.2. Assignment of Engineers. PROVIDER will assign engineers to
provide Support Services under this Exhibit who, at the time
of the assignment, are trained in providing support to
NetBeans IDE products.
1.3 NETWORK COSTS. PROVIDER will be responsible for all network costs
related to the provision of E-mail Support Services it provides from
the inbound arrival of E-mail at the PROVIDER's site to the
distribution of E-mail outbound from the PROVIDER's site.
1.4 TELECOM COSTS. PROVIDER will be responsible for all outbound
telecommunications costs related to the provision of Support Services
it provides.
1.5 PROCEDURES FOR SUPPORT SERVICES CALLS.
1.5.1. Receipt of Support Customer E-mails. CTE will forward to
PROVIDER Support Customer E-mail as fully described in Section
1.2.1. IAPT will establish a mechanism
1 of 6
<PAGE>
for the routing of Support customer E-mail to PROVIDER's
designated E-mail server(s). PROVIDER will identify E-mail
addresses required to allow proper Support Customer E-mail
routing and identification. PROVIDER employees shall always
identify themselves as "Sun Customer Care Center" employees
when replying or responding to Support Customer's E-mail. At no
time shall PROVIDER nor any of its employees or representatives
expose PROVIDER's identity to Support Customers.
1.5.2. Response. PROVIDER will respond to Calls by reviewing the
request and providing an initial response via e-mail to Support
Customers within 24 hours of receipt of Call. If the Customer
Support E-mail is sent to "netbeans-customer-
-------------------
[email protected]" E-mail alias, PROVIDER will provide for
---------------------
a 3 (three) day enclosure of the issue. Otherwise, PROVIDER
will provide for a 10 (ten) day closure of the issue. PROVIDER
will respond to Support Customer in English. Use of the phone
to provide support response is optional and is at PROVIDER's
discretion and expense. E-mail responses to Support Customers
shall indicate a Sun furnished e-mail address/alias, At no time
shall PROVIDER nor any of its employees or representatives
expose PROVIDER's identity to Support Customers.
1.5.3. Data Entry. PROVIDER shall record all relevant data (reference
SOW paragraph 1.5) concerning the Support Customer within
PROVIDER's call management system. PROVIDER shall furnish this
information to IAPT on a weekly basis. Additionally, PROVIDER
shall allow IAPT electronic access to Support customer Service
Orders within PROVIDER's call management system in order to
assist with troubleshooting and to monitor Support Service
activity.
1.5.4. Closure. PROVIDER acknowledges and agrees that Support Customer
determines when a Service Order is completed or "closed".
1.5.5. Escalation. If PROVIDER is unable to close a Service Order
within seventy-two (72) hours or if PROVIDER is requested to
escalate by Support Customer and/or IAPT, PROVIDER will
escalate Service Order immediately during Business Hours to
IAPT by sending all relevant data from Call (reference SOW
paragraph 1.5) via e-mail to the CTE designated escalation
alias.
1.6 DATA COLLECTION AND REPORTING. PROVIDER will collect and report the
following data on a weekly basis. Information shall be furnished
electronically in StarOffice Spreadsheet compatible format. For each
call taken, PROVIDER shall furnish:
a. Support Customer information (Support Customer Name, State,
Country)
b. Call complexity (Type of Problem, Resolution Time)
c. Support Customer platforms (Hardware and Operating System,
version of Java in use)
d. escalated back to CTE (Y/N)
e. summary reporting should include:
1) total number of Calls
2) # of Calls by Support Customer location (State, Country)
3) # of Calls by platform
4) # of Calls escalated back to Sun escalation alias
5) average resolution time
Additionally, PROVIDER will furnish updates to IAPT for the NetBeans
IDE Knowledge Database or NetBeans IDE FAQ's as new information is
discovered.
2. SUN OBLIGATIONS.
----------------
2.1 TRAINING. CTE will provide a trainer at a mutually agreeable time, who
will be available to
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PROVIDER for a minimum of five (5) business days, to train PROVIDER
personnel with respect to Support Services. Training will be held at
PROVIDER's San Francisco Office or at Sun's Mountain View Office.
2.2 TOOLS AND DATABASE ACCESS. Sun will allow PROVIDER access to Sun's
NetBeans IDE Knowledge Database and the NetBeans IDE FAQ's solely for
the purpose of providing Support Services. PROVIDER agrees and
acknowledges that the information contained in the Knowledge Database
and FAQ's are hereby identified, without the need for further
identification, as proprietary and subject to the provisions of
Section 2.3 of this Agreement.
2.3 ACCESS TO RESOURCE TOOLS AND INFORMATION. PROVIDER understands that
Sun may furnish PROVIDER with resource tools and information,
including but not limited to the non-exclusive right to use Sun's
NetBeans IDE Knowledge Database, Sun's NetBeans IDE FAQ's, and other
web-based resources associated with NetBeans IDE products for the
duration of this Agreement (collectively referred to as "Tools"), for
the sole purpose of providing Support Services to Support Customers
under this Agreement. PROVIDER will not use the furnished Tools for
any other purpose. Provider understands that all Tools are supplied
"AS IS" and Sun disclaims all warranties (as set forth below in
Section 4).
2.4 ESCALATION POINT OF CONTACT. CTE will make known to PROVIDER the e-
mail alias to be used when escalating a Call. CTE will provide Call
closure information on all escalated Calls so that PROVIDER reports
may be complete. It is the responsibility of the PROVIDER to request
Call closure information from CTE on Calls that are escalated back to
the escalation alias. If information is not available, PROVIDER shall
indicate so within its report.
3. METHOD AND CONDITIONS OF COMPENSATION
--------------------------------------
3.1 COMPENSATION. Sun will pay PROVIDER [*] per hour worked by PROVIDER
personnel in the Service Order acceptance and resolution of support E-
mail from Support Customers. A minimum of [*] and a maximum of [*]
will be paid for any one Call. After thirty (30) days, rates will be
reviewed to ensure adequacy of pricing. If required, a mutually
acceptable adjustment in pricing shall be made.
3.2 DETERMINATION OF FEES. PROVIDER shall provide a summary timesheet of
all employees' hours worked in support of Support Services. This
timesheet should identify each Service Order worked on, the actual
number of hours worked for each Call, and the billable hours for each
Service Order.
3.3 INVOICING OF FEES. PROVIDER's invoices will be paid in accordance with
the payment terms set forth in Paragraph 3.4 of this Agreement.
Invoices shall contain a summary of charges together with the Sun-
assigned accounting purchase order number clearly identified and a
summary timesheet as identified in SOW paragraph 3.2. Additionally,
PROVIDER's invoices should be submitted monthly by the second Tuesday
of the month following delivery of Support Services.
3.4 REMUNERATION FOR SERVICE. In consideration for Support Services
provided, Sun will provide remuneration to PROVIDER in accordance with
the applicable support fees rates set forth in paragraph 3.1 of this
Agreement. Remuneration will be provided within thirty (30) days after
receipt of PROVIDER's invoice and is considered made by Sun on the
date of mailing as evidenced by postmark. Any out-of-pocket expenses
(e.g., travel) incurred by PROVIDER in connection with providing
Support Services will be the sole responsibility of PROVIDER, unless
otherwise approved in writing by Sun prior to PROVIDER incurring
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
such expenses. Sun will only pay for actual expenses incurred by
PROVIDER's employees at fair and reasonable rates which were pre-
approved by Sun. PROVIDER will invoice Sun not more frequently than
monthly and as further detailed in Paragraph 3.3 of this Agreement.
4. PERFORMANCE STANDARDS.
----------------------
4.1 WARRANTY OF PROVIDER. PROVIDER warrants that the Support Services
shall be performed in a professional, good and workmanlike manner
consistent with the general industry standards.
4.2 MINIMUM STANDARDS. For thirty (30) days from the effective date of the
Agreement, PROVIDER will be furnishing Support Services on a probation
or trial basis. At any time during such period, Sun may terminate this
Agreement due to: (i) a failure of PROVIDER to meet mutually developed
performance metrics; or (ii) Sun's conclusion of a long term plan for
supporting Calls. At the end of each month following this trial
period, IAPT will evaluate PROVIDER's performance under this Exhibit,
including, but not limited to, the PROVIDER's service call information
and to conduct audits of service delivery to Support Customers.
4.3 NO WARRANTIES. PROVIDER makes no warranties regarding materials or
supplies provided by Sun.
5. TERM AND TERMINATION.
---------------------
5.1 TERM. This Agreement commences as of the date indicated in the
signature block below and will continue in full force and effect for
six (6) months, unless sooner terminated as provided herein. This
Agreement expires automatically upon the expiration of a six (6)
months term unless the Parties agree in writing to renew this
Agreement for an additional six (6) months term.
5.2 TERMINATION. Either Sun or PROVIDER may terminate this Agreement, with
or without cause, and for any reason, at any time upon thirty (30)
days prior written notice of termination to the other. Either Party
may terminate this Agreement: (i) immediately, by Notice upon material
breach by ther other Party, if such breach cannot be remedied; (ii) if
the other Party fails to cure any remedial material breach of this
Agreement within thirty (30) days of receipt of Notice of such breach;
and (iii) immediately, by Notice, if the other Party becomes
insolvent, makes a general assignment for the benefit of creditors,
files a voluntary petition of bankruptcy, suffers or permits the
appointment of a receiver for its business or assets, becomes subject
to any proceeding under any bankruptcy law, whether domestic or
foreign, or has wound up or liquidated its business voluntarily or
otherwise. Sun also may terminate this Agreement, without giving
notice to PROVIDER or an opportunity to cure, at any time within
thirty (30) days from the effective date of this Agreement in
accordance with Section 2.1 above, if PROVIDER fails to provide
Support Services to Sun's satisfaction within the first thirty (30)
days of this Agreement; and in such case, Sun shall compensate
PROVIDER by paying PROVIDER, at the support fees rate described in
this Agreement which had applied up to the date of termination, for
the remainder of such thirty (30 days period based on the average
daily call rate and hours spent per call as actually handled by
PROVIDER up to the date of termination.
5.3 EFFECT OF TERMINATION. Rights and obligations under this Agreement
which by their nature should survive, will remain in effect after
termination or expiration hereof. Provider agrees that it will have no
right to damages or indemnification of any nature due to any
expiration or termination of this Agreement, specifically including
commercial severance pay whether
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by way of loss of future profits, payment for goodwill generated or
other commitments made in connection with the business contemplated by
this Agreement or other similar matters.
Within fifteen (15) days after the effective date of termination,
PROVIDER will return to Sun, at PROVIDER's expense, all Service
materials, Business Information, Customer Information, training
materials, Tools, any Sun Confidential Information, and all other
items belonging to Sun.
6. OPERATIONAL CONTACTS. Both parties agree to designate one (1) employee
--------------------
and one (1) backup employee who will be the principal contacts for all day-
to-day operational activities relating to the provision of Support Services
hereunder.
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<PAGE>
As evidenced by the authorized signatures below, Sun and PROVIDER agree
that this Exhibit A shall be attached to and incorporated as a part of the
Agreement.
THE PARTIES HAVE READ AND AGREE TO BE BOUND HEREBY.
EFFECTIVE AS OF Oct / 20 / 1999
---------------
AGREED:
SUN MICROSYSTEMS, INC. PROVIDER:
LINUXCARE, INC.
By: /s/ Jon S. Williams By: /s/ Thomas W. Phillips
------------------- ----------------------
Print: Jon S. Williams Print: Thomas W. Phillips
--------------- -----------------
Title: Dir Marketing Title: VP World Wide Sales
------------- --------------------
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<PAGE>
EXHIBIT 10.2.10
Agreement Number ______________
STAROFFICE SUPPORT SERVICES AGREEMENT
THIS STAROFFICE AGREEMENT ("Agreement") is entered into between Sun
Microsystems, Inc., with its principal place of business at 901 San Antonio
Road, Palo Alto, California 94303 ("Sun"), and LinuxCare, Inc., with its
principal place of business at 650 Townsend Street, San Francisco, California
94103 ("Provider"). Sun and Provider are collectively referred to as the
"Parties".
1. SCOPE. This Agreement establishes the terms and conditions under which
Provider will provide support services for StarOffice TM software products,
on a non-exclusive basis, to Sun Customers in Canada, the United States of
America, and Latin America.
2. DEFINITIONS.
2.1 "BUSINESS INFORMATION" means: (i) the Sun business data that may be
provided to Provider on product performance and Sun customer accounts
in connection with the provision of Support Services, and (ii)
information and analysis about a Sun Customer which Provider
collects/compiles in connection with the provision of Support
Services.
2.2 "CUSTOMER INFORMATION" means all information belonging to a Sun
Customer.
2.3 "NOTICE" means written notification, delivered in person or by means
evidenced by a delivery receipt to the other Party, which is deemed
effective upon receipt.
2.4 "SUPPORT SERVICES" means all support, assessment, and other services
for StarOffice software products, as described in detail in the SOW,
to be performed by Provider under this Agreement.
2.5 "SERVICE MATERIALS" means those service-related materials (including
tools, documentation, and manuals) necessary for the delivery of the
Support Services and that will be furnished to Provider by Sun in
accordance with the terms set forth in the SOW.
2.6 "STATEMENT OF WORK" OR "SOW" means the statement of work (as it may be
amended from time to time by Sun) attached to this Agreement as
Exhibit A.
2.7 "SUPPORT CUSTOMER" means a StarOffice products customer for which
Support Services will be provided under this Agreement.
3. PROVIDER OBLIGATIONS.
3.1 SUPPORT SERVICES. This Agreement contains the terms and conditions
which apply to Sun's purchases of Support Services from Provider.
Notwithstanding any terms or conditions contained in any
acknowledgement or other business forms transmitted by Provider,
Provider will perform the work set forth in the SOW in accordance with
the terms and conditions of this Agreement. Support Services will
conform to the scope of work described in the SOW. Provider will
perform Support Services as an independent contractor and in a
professional and workmanlike manner consistent with industry standards
and conforming to applicable product specifications. All Provider
acknowledgements and transmittals must reference and are subject to
this Agreement.
3.2 PERSONNEL. Provider will secure all personnel required to perform
Support Services pursuant to this Agreement. Provider will use
technically qualified service personnel, as defined by Sun from time
to time, and employ adequate safety precautions in performing its
obligations hereunder. At Sun's request, Provider will consent to, and
have its service personnel consent to a background check. In the event
that Support Customers require that Sun or its subcontractors comply
with other conditions prior to the provision of Support Services (e.g.
drug testing), both Sun and Provider will attempt to accommodate the
Support Customer's requirements. The Parties agree that Provider is an
independent contractor and in no event will any personnel hired by
Provider to provide Support Services hereunder be considered an
employee or agent of Sun. Nothing herein will be construed to grant to
Provider any right or authority to create any obligation, express or
implied, on behalf of Sun, or to bind Sun or its Support Customers in
any manner whatsoever.
3.3 DIRECT CONTRACTING. Provider acknowledges that Sun has made a major
investment in establishing customer relationships with the Support
Customers for whom Provider will provide Support
[*]= CERTAIN INFORMATION IN THIS EXHIBIT HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
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<PAGE>
Services under this Agreement. Provider agrees not to solicit support
services business on StarOffice software and products from such
Support Customers for a period of twelve (12) months from the date of
the last provision of Support Services under this Agreement to such
Support Customer.
3.4 SUN INFORMATION AND MATERIALS. Provider acknowledges and understands
that Business Information and Service Materials (collectively "Sun
Information and Materials") are proprietary and Sun owns all right,
title and interest, including copyrights or other intellectual
property rights, in and to any and all ideas, concepts, expertise,
programs, systems, methodologies, compilations, analyses, data or
other materials embodied in, underlying or reduced to practice in said
Sun Information and Materials. Provider agrees that it shall use Sun
Information and Materials solely for the purposes of performing
Support Services.
3.5 INDEMNITY.
3.7.1 Provider agrees to defend, indemnify and hold harmless Sun, its
affiliates, directors, officers, employees and agents from and
against any and all claims, demands, judgments and awards and
expenses related thereto (including court costs and reasonable
fees of attorneys and other professionals) brought or
threatened by any third parties, including Support Customers,
and arising out of Provider's failure to comply with this
Agreement or arising out of or resulting from Provider's
negligent performance of Support Services or other conduct of
Provider's subcontractors, agents or employees in relation
thereto. Sun will have no authority to settle any claim without
the prior written consent of Provider if Provider will have any
obligation thereunder. Sun expressly reserves the right to
retain separate counsel at Sun's own expense to participate in
the defense or settlement of such claims.
3.7.2 Provider shall defend Sun and/or the Support Customer against
any claim that Support Services furnished hereunder infringe
any U.S. Patent, trade secret or copyright, and will indemnify
Sun and/or the Support Customer against any loss, damage or
liability arising from final award against Sun and/or the
Support Customer, provided that Sun notifies the Provider
promptly in writing of the claim and provides Provider with
reasonable assistance and sole authority to defend or settle
such claims, at Provider's sole expense. Provider shall not be
liable for any claim of infringement arising from Provider's
conformance with specifications provided by Sun and/or the
Support Customer.
3.6 INSURANCE.
3.6.1 Minimum Insurance Required. During the term of this Agreement,
--------------------------
Provider will obtain and maintain at its own expense, with
financially reputable insurers licensed to do business in all
jurisdictions where Support Services are performed, liability
insurance sufficient to protect Sun from any claims described
in Section 3.5 above, and in any event, no less than the
policies and limits set forth below. Provider will pay the
premiums therefor, and deliver to Sun, upon request, proof of
such insurance. Said insurance coverage may be modified or
terminated only upon thirty (30) days Notice to Sun.
(i) Workers' Compensation as required under any Workers'
Compensation or similar law in the jurisdiction where work is
performed, with an Employer's Liability limit of not less than
One Million Dollars ($1,000,000.00) per occurrence/annual
aggregate;
(ii) Commercial General Liability, including coverage for
contractual liability and products/completed operations
liability, with a limit of not less than Five Million Dollars
($5,000,000.00) combined single limit per occurrence for bodily
injury, personal injury and property damage liability;
(iii) Business Auto insurance covering the ownership,
maintenance or use of any owned, non-owned hired automobile
with a limit of not less than One Million Dollars
($1,000,000.00) per occurrence/annual aggregate for bodily
injury, including death and property damage liability; and
(iv) Professional Liability insurance covering errors and
omissions, with a limit of not less than One Million Dollars
($1,000,000.00) per
<PAGE>
occurrence.
3.6.2 CERTIFICATES OF INSURANCE. Provider will provide Sun with a
-------------------------
Certificate of Insurance showing that the foregoing insurance
policies are in full force and effect upon Sun's request. Any
approval by Sun of any insurance policies will not relieve
Provider of any
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<PAGE>
responsibility hereunder, including but not limited to, claims
in excess of limits and coverages described above. Each
liability insurance policy obtained by Provider will name Sun
as an "additional insured" except on Section 3.6.1(i). Each
policy will expressly provide that it will not be subject to
cancellation or material change without at least thirty (30)
days' prior Notice to Sun.
3.6.3 Limitations. Nothing contained in this Section 3.6 limits the
-----------
Parties' liability to the other to the limits of insurance
certified or carried.
3.7 PERFORMANCE. Sun will measure levels of service, quality and Support
Customer satisfaction with the use of surveys and/or audits performed
either by Sun personnel or an independent company engaged by Sun for
such purpose. Provider agrees to provide, in a format acceptable to
Sun, any and all reports and other information requested by Sun.
Provider agrees to cooperate with any surveys and/or audits which Sun
may request.
3.8 QUALITY ASSURANCE. In the event that Support Services are not
delivered in a manner consistent with the provisions of this
Agreement, the SOW, or Sun's quality standards, Sun may request that
the situation be cured. Upon Provider's receipt of such notice,
Provider and Sun will jointly develop and implement within fifteen
(15) days an action plan to remedy the situation. If the situation is
not corrected within a total of thirty (30) days after notification of
the problem, or within a reasonable length of time as dictated by the
agreed upon action plan, Sun may, without incurring any penalty, sever
Provider's provision of further Support Services to specific Customer
accounts.
3.9 FAIR REPRESENTATION. Provider will represent Sun fairly and will make
no representations or guarantees, concerning Sun or the Support
Services, which are false or misleading. Provider will comply with all
applicable laws and regulations in performing under this Agreement.
3.10 ACCESS TO RESOURCE TOOLS AND INFORMATION. Provider understands that
Sun may furnish Provider with resource tools and information,
including but not limited to the non-exclusive right to use Sun's
StarOffice Knowledge Database, Sun's StarOffice Autotext Database, and
other web-based resources associated with StarOffice products for the
duration of this Agreement (collectively referred to as "Tools"), for
the sole purpose of providing Support Services to Support Customers
under this Agreement. Provider will not use the furnished Tools for
any other purpose. Provider understands that all Tools are supplied
"AS IS" and Sun disclaims all warranties (as set forth below in
Section 11). Provider understands that the Tools are proprietary and
Sun owns all right, title and interest, including copyrights or other
intellectual property rights, in and to any and all ideas, concepts,
expertise, programs, systems, methodologies, data or other materials
embodied in, underlying or reduced to practice in said Tools.
4. SUN'S OBLIGATIONS AND RESPONSIBILITIES.
4.1 SUPPORT SERVICES TRAINING. Sun will furnish Provider with at least ten
(10) business days of StarOffice software support training in
accordance with Paragraph 2.1 of the SOW. Sun personnel furnished to
Provider for training also will assist in auditing Provider's ability
to furnish satisfactory Support Services to Support Customers, as
further detailed in Paragraph 4.2 of the SOW.
4.2 SUPPORT FEES. Sun will compensate Provider for the rendering of
Support Services hereunder in accordance with the support fees rates
in Paragraph 3 of the SOW and also with Section 6.1 of this Agreement.
For a limited time and until Provider receives written notice from Sun
otherwise, Provider will not charge Support Customers any fees,
charges, or assessments in connection with Provider rendering Support
Services hereunder.
5. MUTUAL RIGHTS AND OBLIGATIONS.
5.1 EMPLOYEE BENEFITS. Each Party is solely responsible for payment of
wages, salaries, fringe benefits and other compensation of, or claimed
by, its own employees including, without limitations, contributions to
any employee benefit, medical or savings plan, and each Party also is
solely responsible for payment of all payroll taxes including, without
limitation, the withholding and payment of all federal, state, and
local income taxes, FICA, unemployment
<PAGE>
taxes, and all other applicable payroll taxes. Each Party is also
solely responsible for compliance with applicable Workers'
Compensation coverages for its own employees. Each Party agrees to
indemnify and defend the other Party from all claims by any person,
government, or agency directly relating to failure to comply with this
section, including without limitation, any penalties and interest
which may be assessed against the other for breach of this provision.
Each Party will also indemnify
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<PAGE>
and defend the other from all claims by any person or governmental
agency which arise directly from any failure by that Party to comply
with applicable Workers' Compensation laws with respect to maintenance
of Workers' Compensation coverage for its own employees.
5.2 COMPLIANCE WITH LAWS AND REGULATIONS. The Parties must comply with all
applicable laws, orders, codes and regulations in the performance of
this Agreement.
5.3 PERMITS AND LICENSES. Provider shall acquire and maintain in good
standing, and at its sole expense, all permits, licenses and other
entitlements required of it in the performance of Support Services
under this Agreement.
5.4 DISCRIMINATION. Neither Party will discriminate in any manner against
any individual because of race, color, religion, national origin, age,
sex or handicap. Provider, in performing Support Services under this
Agreement, will comply with all applicable laws, rules and regulations
concerning the prohibition of discrimination in employment.
6. COMMERCIAL TERMS.
6.1 REMUNERATION FOR SERVICE. In consideration for Support Services
provided, Sun will provide remuneration to Provider in accordance with
the applicable support fees rates set forth in Paragraph 3 of the SOW.
Remuneration will be provided within thirty (30) days after receipt of
Provider's invoice and is considered made by Sun on the date of
mailing as evidenced by postmark. Any out-of-pocket expenses (e.g.,
----
travel) incurred by Provider in connection with providing Support
Services will be the sole responsibility of Provider, unless otherwise
approved in writing by Sun prior to Provider incurring such expenses.
Sun will only pay for actual expenses incurred by Provider's employees
at fair and reasonable rates which were pre-approved by Sun. Provider
will invoice Sun not more frequently than monthly and as further
detailed in Paragraph 3.3 of the SOW.
6.2 PAYMENT OF EMPLOYEES. Provider will promptly pay its employees for all
work performed. If Provider does not pay its employees on a current
basis for work performed in connection with this Agreement, such
nonpayment will be deemed a material breach of this Agreement and will
entitle Sun, in addition to all other remedies, to withhold all
further payments to Provider.
6.3 TAXES. Provider will be responsible for the payment of any and all
taxes and government assessments due as a result of the performance of
Support Services or the payment thereof. Provider acknowledges and
agrees that it is solely the responsibility of Provider to report as
income all compensation received hereunder and Provider will indemnify
and hold harmless Sun and its Support Customers from and against all
claims, damages, losses, and reasonable expenses of attorneys and
other professionals relating to any obligation to pay any sales,
service, value-added or withholding taxes, social security,
unemployment or disability insurance or similar charges or impounds,
including any interest or penalties thereof, in connection with any
payments made to Provider hereunder.
7. RELATIONSHIP.
7.1 Provider is not granted any exclusive rights of any nature whatsoever
by this Agreement.
7.2 This Agreement is not intended to create a relationship such as a
partnership, franchise, joint venture, agency, master/servant or
employment relationship. Neither Party may act in a manner which
expresses or implies a relationship other than that of an independent
contractor, nor bind the other Party. Provider will not be entitled to
receive any employee benefits provided to Sun employees.
7.3 Absent Sun's prior written consent, Provider will not, during the term
of this Agreement, accept, promote or solicit orders for the provision
of Support Services to any third party Sun service provider and/or to
any provider of any support programs for StarOffice products. The
obligations of Provider set out in this section are fair and
reasonable in the commercial circumstances of this Agreement, and this
Agreement fairly and adequately compensates Provider in
<PAGE>
consideration for such obligations.
8. OWNERSHIP, TRADEMARKS, LOGOS AND INVENTIONS.
8.1 "Sun Trademarks" means all names, marks, logos, designs, trade dress
and other brand designations used by Sun and its related companies, in
connection with products and services. Provider may refer to Support
Services by the associated Sun Trademarks only upon Sun's prior
written consent and provided that such reference is not misleading and
complies with the then current Sun Trademark and Logo Policies.
Provider will not remove, alter, or add to any Sun
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<PAGE>
Trademarks, nor will it co-logo products and services. Provider is
granted no right, title or license to, or interest in, any Sun
Trademarks. Provider acknowledges Sun's rights in Sun Trademarks and
agrees that any use of Sun Trademarks by Provider will inure to the
sole benefit of Sun. Provider agrees not to (i) challenge Sun'
ownership or use of, (ii) register, or (iii) infringe any Sun
Trademarks, nor will Provider incorporate any Sun Trademarks into
Provider's trademarks, service marks, company names, internet
addresses, domain names, or any other similar designations. If
Provider acquires any rights in any Sun Trademarks by operation of law
or otherwise, it will immediately at no expense to Sun, assign such
rights to Sun along with any associated goodwill, applications, and/or
registrations.
8.2 All right, title and interest in and to all code, modifications,
enhancements, derivative works of or improvements to any Service
Materials, confidential information, or any Sun product, hardware or
software, conceived or reduced to practice by Provider during and in
the course of performing Support Services (collectively, "Works")
shall be assigned to Sun at no cost and/or shall be considered "works
made for hire" under the United States Copyright Act or other
equivalent or similar law, to the fullest extent permitted under
applicable law. If any Work created hereunder shall not be deemed to
constitute a work made for hire, and/or in the event that Provider
should, by operation of law or otherwise, be deemed to retain any
rights in a Work, Provider will assign all right, title and interest
in any such Work to Sun. Provider agrees to cooperate with Sun and to
execute all documents reasonably necessary for Sun to secure
intellectual property protection for such Works, in Sun's name, in all
countries and jurisdictions. Provider agrees, and shall obligate
Provider's employees to agree, that all code or information developed
hereunder shall be kept in confidence by Provider and Provider's
employees and shall be used only in the performance of this Agreement,
and may not be used for other purposes except upon such terms as
agreed to under this Agreement. Sun shall have all right, title and
interest to such code and/or modifications. Sun shall acquire title,
upon its delivery, to all software media and other information,
communication, and copies of the code developed hereunder.
8.3 Provider represents and warrants that it has agreements in place with
its employees or will put the same in place before the effective date
of this Agreement sufficient to enable it to comply in all respects
with its obligations under Section 8.2. Provider will ensure that its
employees and contractors execute such documents as may be necessary
to waive any moral rights which they may have under applicable
Canadian law.
9. CONFIDENTIAL INFORMATION. If either party desires that information provided
to the other party under this Agreement be held in confidence, that party
will, prior to or at the time of disclosure, identify the information in
writing as confidential or proprietary. The recipient may not disclose such
confidential or proprietary information, may use it only for purposes
specifically contemplated in this Agreement, and must treat it with the
same degree of care as it does its own similar information, but with no
less than reasonable care. These obligations do not apply to information
which: a) is or becomes known by recipient without an obligation to
maintain its confidentiality; b) is or becomes generally known to the
public through no act or omission of recipient, or c) is independently
developed by recipient without use of confidential or proprietary
information. This Section will not affect any other confidential disclosure
agreement between the parties. All Customer Information, Support Customers'
identities, Business Information, Service Materials, support manuals,
documentation and software are deemed "Sun Confidential Information", and
Provider will hold Sun Confidential Information in confidence and use Sun
Confidential Information only for purposes specifically contemplated by
this Agreement. It is understood and agreed that in the event of a breach
of this Section 9, damages may not be an adequate remedy and Sun will be
entitled to injunctive relief to restrain any such breach, threatened or
actual.
10. AIRCRAFT SERVICE AND NUCLEAR APPLICATIONS. Provider acknowledges that
Service Materials, training materials, software, products, services and
technical data delivered by Sun are not designed or intended for use in on-
line control of aircraft, air traffic, aircraft navigation or aircraft
communications; or in the design, construction, operation or maintenance of
any nuclear facility. SUN DISCLAIMS ANY EXPRESS OR IMPLIED WARRANTY OF
FITNESS FOR SUCH USES.
11. WARRANTIES; DISCLAIMERS. Provider represents and warrants that (a) all
Support Services will be performed in a professional and workmanlike
manner, consistent with general industry standards; and (b) any hardware,
software, or equipment used by
<PAGE>
Provider in the performance of Support Services which is not directly
provided by Sun will not infringe or violate any patent, copyright, trade
secret, contract, or other proprietary or intellectual property rights of
any third party, and that Provider has full and complete authority to make
disclosure of, use, and incorporate into products such hardware, software,
or equipment in performing the Support Services. ALL OTHER EXPRESS OR
IMPLIED
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<PAGE>
CONDITIONS, REPRESENTATIONS AND WARRANTIES, INCLUDING ANY IMPLIED WARRANTY
OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE, OR NON-INFRINGEMENT,
ARE DISCLAIMED BY BOTH PARTIES, EXCEPT TO THE EXTENT THAT SUCH DISCLAIMERS
ARE HELD TO BE LEGALLY INVALID.
12. LIMITATION OF LIABILITY. SUN'S AGGREGATE LIABILITY TO PROVIDER FOR ANY
HARM, LOSS, DAMAGE, EXPENSE, LIABILITY OR INJURY ARISING OUT OF ANY CLAIM,
ACTION, SUIT, OR PROCEEDING IN CONNECTION WITH, RELATING TO OR ARISING FROM
THIS AGREEMENT, WHETHER ARISING IN CONTRACT, TORT, OR OTHERWISE, WILL IN NO
EVENT EXCEED THE LESSER OF (A) THE TOTAL VALUE OF ALL SUPPORT FEES PAID TO
PROVIDER WITHIN THE PRECEDING SIX (6) MONTHS; OR (B) US$150,000. SUN SHALL
NOT BE LIABLE FOR ANY INDIRECT, PUNITIVE, SPECIAL, INCIDENTAL OR
CONSEQUENTIAL DAMAGES IN CONNECTION WITH, RELATING TO OR ARISING FROM THIS
AGREEMENT (INCLUDING LOSS OF BUSINESS, REVENUE, PROFITS, USE, DATA OR OTHER
ECONOMIC ADVANTAGE), HOWEVER IT ARISES, WHETHER FOR BREACH OR IN TORT, EVEN
IF SUN HAS BEEN ADVISED OF THE POSSIBILITY OF SUCH DAMAGE. LIABILITY FOR
DAMAGES WILL BE SO LIMITED AND EXCLUDED, EVEN IF ANY REMEDY PROVIDED FOR IN
THIS AGREEMENT FAILS OF ITS ESSENTIAL PURPOSE.
13. TERM AND TERMINATION.
13.1 TERM. This Agreement commences as of the date indicated in the
signature block below and will continue in full force and effect for
six (6) months, unless sooner terminated as provided herein. This
Agreement expires automatically upon the expiration of a six (6)
months term unless the Parties agree in writing to renew this
Agreement for an additional six (6) months term.
13.2 TERMINATION. Either Sun or Provider may terminate this Agreement,
with or without cause, and for any reason, at any time upon thirty
(30) days prior written notice of termination to the other. Either
Party may terminate this Agreement: (i) immediately, by Notice upon
material, breach by the other Party, if such breach cannot be
remedied; (ii) if the other Party fails to cure any remedial material
breach of this Agreement within thirty (30) days of receipt of Notice
of such breach; and (iii) immediately, by Notice, if the other Party
becomes insolvent, makes a general assignment for the benefit of
creditors, files a voluntary petition of bankruptcy, suffers or
permits the appointment of a receiver for its business or assets,
becomes subject to any proceeding under any bankruptcy law, whether
domestic or foreign, or has wound up or liquidated its business
voluntarily or otherwise. Sun also may terminate this Agreement,
without giving notice to Provider or an opportunity to cure, at any
time within thirty (30) days from the effective date of this Agreement
in accordance with Section 4.1 above and Paragraph 4.2 of the SOW, if
Provider fails to provide Support Services to Sun's satisfaction
within the first thirty (30) days of this Agreement; and in such case,
Sun shall compensate Provider by paying Provider, at the support fees
rate in the SOW which had applied up to the date of termination, for
the remainder of such thirty (30) days period based on the average
daily call rate and hours spent per call as actually handled by
Provider up to the date of termination.
13.3 EFFECT OF TERMINATION. Rights and obligations under this Agreement
which by their nature should survive, will remain in effect after
termination or expiration hereof. Provider agrees that it will have no
right to damages or indemnification of any nature due to any
expiration or termination of this Agreement, specifically including
commercial severance pay whether by way of loss of future profits,
payment for goodwill generated or other commitments made in connection
with the business contemplated by this Agreement or other similar
matters.
Within fifteen (15) days after the effective date of termination,
Provider will return to Sun, at Provider's expense, all Service
Materials, Business Information, Customer Information, training
materials, Tools, any Sun Confidential Information, and all other
items belonging to Sun.
14. IMPORT AND EXPORT LAWS. All software, services, technical data and other
materials delivered under this Agreement are subject to U.S. export control
laws and may be subject to export or import regulations in other countries.
Provider agrees to comply strictly with all such laws and regulations and
acknowledges that it has the responsibility to obtain any required licenses
to export, re-export, transfer, whether directly or indirectly, or import
as may be required after delivery to Provider.
15. MISCELLANEOUS.
<PAGE>
15.1 ENTIRE AGREEMENT. This Agreement contains the terms and conditions
which apply to all purchases of Support Services made pursuant to this
Agreement, notwithstanding any terms or
Page 6 of 9
<PAGE>
conditions contained in any acknowledgement or other business forms
transmitted by Provider. It supersedes all prior or contemporaneous
oral or written communications, proposals, conditions,
representations and warranties and prevails over any conflicting or
additional terms of any quote, order, acknowledgement, or other
communication between the Parties relating to its subject matter
during the term of this Agreement. All Provider acknowledgements and
transmittals must reference this Agreement. No modification to this
Agreement will be binding, unless in writing and signed by an
authorized representative of each Party.
15.2 EXHIBITS. The current version of each Exhibit is hereby incorporated
by reference as part of this Agreement. Exhibits may be modified only
upon written consent by both Parties.
15.3 USE OF SUN'S NAME. Provider will not use Sun's name in any form of
publicity or release without Sun's prior written approval.
15.4 ATTORNEYS' FEES. In the event that any dispute arises between the
Parties hereto with regard to any of the provisions of this Agreement
of the performance of any of the terms and conditions hereof, the
prevailing Party in any such dispute will be entitled to recover
costs and expenses associated with resolving such dispute, including
reasonable attorneys' fees.
15.5 WAIVER OR DELAY. Any express waiver or failure to exercise promptly
any right under this Agreement will not create a continuing waiver or
any expectation of non-enforcement.
15.6 GOVERNMENT CONTRACTS. With respect to any Support Services performed
in connection with a government contract or subcontract, Provider
agrees to be bound by all those provisions of such contract or
subcontract which Sun is required to pass on to its subcontractors,
and such provisions are hereby incorporated by reference.
15.7 CHANGE OF CONTROL. In the event of the direct or indirect taking over
or assumption of control of Provider or of substantially all of its
assets by any government, governmental agency or other third party,
Sun may terminate this Agreement immediately upon written notice to
Provider.
15.8 ASSIGNMENT. Neither Party may assign or otherwise transfer any of its
rights or obligations under this Agreement, either in whole or in
part, without the prior written consent of the other Party, except
that Sun may assign this or any Agreement to an affiliated company,
or any of these. Any assignment or delegation by Provider without
such consent will be null and void, and will give Sun the right
immediately to terminate this Agreement without liability for Support
Services performed after such termination. The rights and liabilities
of the Parties hereto will be binding upon and inure to the Parties'
permitted successors and assigns.
15.9 NOTICES. All Notices must be in writing and delivered either in
person or by a means evidenced by delivery receipt to the address
specified below. Such Notice will be effective upon receipt.
<TABLE>
<CAPTION>
Sun: Provider:
<S> <C>
Sun Microsystems, Inc. LinuxCare, Inc.
901 San Antonio Road 650 Townsend Street
Palo Alto, California 94303 San Francisco, California 94103
Attn: Enterprise Services Director of Attn: TOM PHILLIPS
------------
Strategic Partners and Alliances VP WORLDWIDE SALES
cc: General Counsel, Enterprise Services Legal
500 Eldorado Boulevard, MS BRM01-200
Broomfield, Colorado 80021
</TABLE>
15.10 SEVERABILITY. If any provision, or part thereof, in an Agreement, is
held to be invalid, void, or illegal, it shall be severed from the
Agreement, and shall not affect, impair, or invalidate any other
provision, or part thereof, and it shall be replaced by a provision
which comes closest to such severed provision, or part thereof, in
language and intent, without being invalid, void, or illegal.
<PAGE>
15.11 MEANING OF CERTAIN WORDS. The term "includes" and "including" will
not be construed to imply any limitation. Unless otherwise stated,
any reference contained in this Agreement to a Section refers to the
provision of this Agreement. Wherever the context may require, any
pronouns used in this Agreement will include the corresponding
masculine, feminine, or neuter forms, and the singular form of nouns
or pronouns, including all defined terms, will include the plural and
visa versa.
Page 7 of 9
<PAGE>
15.12 HEADINGS; ORDER OF PRECEDENCE. Section titles and captions contained
in this Agreement are for reference only and in no way define, limit,
extend or describe the scope of this Agreement or the intent of any
of its provisions. If any inconsistencies or conflicts arise between
the provisions of this Agreement and the SOW, the following order of
precedence shall apply in order of priority: (1) the Agreement, and
(2) the SOW.
15.13 GOVERNING LAW. This Agreement and any dispute or action related
hereto will be governed by, and construed in accordance with, the
laws of California and controlling U.S. federal law, excluding choice
of law rules of any jurisdiction and the United Nations Convention
for the International Sale of Goods.
15.14 COUNTERPARTS. This Agreement may be executed in counterparts.
THIS AGREEMENT IS EFFECTIVE AS OF 9/24/99. THE PARTIES HAVE READ THIS AGREEMENT
AND AGREE TO BE BOUND THEREBY.
SUN MICROSYSTEMS, INC. PROVIDER LINUXCARE, INC.
By: /s/ Richard Ford By: /s/ Thomas W. Phillips
----------------------------- -----------------------------
Print: Richard Ford Print: Thomas W. Phillips
------------ ------------------
Title: Director of Strategic Alliance Title: V.P. World Wide Sale
------------------------------ --------------------
Page 8 of 9
<PAGE>
EXHIBIT A
STATEMENT OF WORK
(attached hereto)
Page 9 of 9
<PAGE>
EXHIBIT A - STATEMENT OF WORK FOR STAR OFFICE SUPPORT SERVICES
This Statement of Work for StarOffice Support Services is Exhibit A to the
StarOffice Support Services Agreement ("Agreement") between Sun
Microsystems Inc, ("Sun") and LinuxCare, Inc, ("PROVIDER"). This Exhibit A
is incorporated by reference as part of the Agreement.
1. SERVICES TO BE PROVIDED BY PROVIDER.
-----------------------------------
1.1 DEFINITIONS.
1.1.1 "Business Hours" means 8:00 a.m. to 8:00 p.m. Eastern
Standard Time, Monday through Friday, excluding Sun
holidays.
1.1.2 "Call Back" means calls which, at the Support Customer's
request are handled by means of a returned telephone call
to the contact of record (as shown on the service order),
by a PROVIDER support engineer.
1.1.3 "Support Customer" or "End User" means a customer who
directly or indirectly received distribution of StarOffice
products from Sun or from StarDivision prior to its
acquisition by Sun.
1.1.4 "Live Transfer" means calls which, at the Support
Customer's request, are directly connected to a PROVIDER
support engineer.
1.1.5 "Support Services" means remote, centralized, software
support services of StarOffice software products to be
provided by PROVIDER. This definition excludes on-site
support services of any kind.
1.1.6 "Call" or "Calls" means Support Customer's request for
service regardless of method of transmission.
1.1.7 "Enterprise Services" means the Enterprise Services
Division of Sun.
1.1.8 "Service Order" means the documentation of a Support
Services Call.
1.2 SUPPORT SERVICES.
1.2.1 Services. PROVIDER will provide Support Services for
Support Customers during Business Hours only. Such Support
Services shall be limited to the StarOffice software
products and their compatibility with any of the platforms
(hardware/operating system) and peripheral devices (e.g.
printers) with which they interoperate. Support Services
shall be provided in accordance with the procedures
outlined in Section 1.4 of this Exhibit A.
1.2.2 Assignment of Engineers. PROVIDER will assign engineers to
provide Support Services under this Exhibit who, at the
time of the assignment, are trained in providing support
to StarOffice products.
1.3 TELECOM COSTS. PROVIDER will be responsible for all outbound
telecommunications costs related to the provision of Support
Services it provides.
Page 1 of 5
<PAGE>
1.4 PROCEDURES FOR SUPPORT SERVICE CALLS.
1.4.1 Receipt of Support Customer Calls. Support Customer Calls
will be received via phone, email, and fax. Enterprise
Services will establish automatic routing of Support
Customer phone calls, emails and faxes to PROVIDER
designated communication equipment. PROVIDER will identify
DNIS numbers, email addresses and phone numbers required
to allow proper Support Customer Call routing. PROVIDER
employees dealing with Support Customers shall identify
themselves as "Sun Customer Care Center" employees and
answer frontline calls accordingly. At no time shall
PROVIDER nor any of its employees or representatives
expose PROVIDER's identity to Support Customers.
1.4.2 Response. PROVIDER will respond to Calls by reviewing the
request and providing an initial response via email to
Support Customers within 24 hours of receipt of Call. It
is understood that Support Customers corresponding via
email through the Sun web site may submit requests in
foreign languages. PROVIDER will use best efforts to
respond in Support Customers' native language. It is also
understood that some Support Customers may require
assistance over the phone for more complex issues.
PROVIDER will use its judgment to determine if phone
assistance is required. It is the intent of Enterprise
Services to change the expectations of Support Customers
to use electronic means for submitting requests and
receiving responses. Email responses to Support Customers
shall indicate a Sun-furnished mail address/alias. At no
time shall PROVIDER nor any of its employees or
representatives expose PROVIDER's identity to Support
Customers.
1.4.3 Data Entry. PROVIDER shall record all relevant data
(reference SOW paragraph 1.5) concerning the Support
Customer within PROVIDER's call management system.
PROVIDER shall furnish this information to Enterprise
Services on a weekly basis. Additionally, PROVIDER shall
allow Enterprise Services electronic access to Support
Customer Service Orders within PROVIDER's call management
system in order to assist with troubleshooting and to
monitor Support Service activity.
1.4.4 Closure. PROVIDER acknowledges and agrees that Support
Customer determines when a Service Order is completed or
"closed".
1.4.5 Escalation. If PROVIDER is unable to close a Service Order
within twenty-four (24) hours, PROVIDER will escalate Call
immediately during Business Hours to Enterprise Services
by contacting the designated Enterprise Services point of
contact.
1.5 DATA COLLECTION AND REPORTING. PROVIDER will collect and report
the following data on a weekly basis. Information shall be
furnished electronically in StarOffice Spreadsheet compatible
format. For each call taken, PROVIDER shall furnish:
a. Support Customer information (Support Customer Name,
Address, City, State, Country)
b. type of End User (Enterprise, Educational, Personal)
c. Call complexity (Type of Problem, Resolution Time)
d. Support Customer platforms (Hardware and Operating System)
Page 2 of 5
<PAGE>
e. escalated back to Enterprise Services (Y/N)
f. method of Support Customer contact (phone, email, fax)
g. method of response to Support Customer (phone, email, fax)
h. summary reporting should include:
1) total number of Calls
2) # of Calls by Support Customer location (State, Country)
3) # of Calls by type of End User
4) # of Calls by platform
5) # of Calls escalated back to Enterprise Services
6) # of Calls by type of problem (e.g. registration,
printer drivers, etc.)
7) average resolution time
Additionally, PROVIDER will furnish updates to Enterprise Services for
the StarOffice Knowledge Database or StarOffice Autotext Database as
new information is discovered.
2. ENTERPRISE SERVICES OBLIGATIONS.
-------------------------------
2.1 TRAINING. Enterprise Services will provide an on-site trainer,
who will be available to PROVIDER for a minimum of ten (10) business
days, to train PROVIDER personnel with respect to Support Services.
2.2 TOOLS AND DATABASE ACCESS. Enterprise Services will allow
PROVIDER access to Enterprise Services' StarOffice Knowledge Database
and the StarOffice Autotext Database solely for the purpose of
providing Support Services. PROVIDER agrees and acknowledges that the
information contained in the Knowledge and Autotext databases are
hereby identified, without the need for further identification, as
proprietary and subject to the provisions of Section 3.10 of the
Agreement, Access to Resource Tools and Information.
2.3 TELECOM COSTS. Enterprise Services will be responsible for
inbound telecommunications costs to PROVIDER which are incurred
through the provision of Support Services EXCEPT that Enterprise
Services will not reimburse collect calls that are placed to PROVIDER
by Support Customers.
2.4 ESCALATION POINT OF CONTACT. Enterprise Services will make known
to PROVIDER the contact information for the engineer(s) that will be
responsible for accepting Call escalations. Enterprise Services will
provide Call closure information on all escalated Calls so that
PROVIDER reports may be complete. It is the responsibility of the
PROVIDER to request Call closure information from Enterprise Services
on Calls that are escalated back to Enterprise Services. If
information is not available, PROVIDER shall indicate so within its
report.
3. METHOD AND CONDITIONS OF COMPENSATION.
-------------------------------------
Page 3 of 5
<PAGE>
3.1 Compensation. Enterprise Services will pay PROVIDER [*] per hour
worked by PROVIDER personnel in the Call acceptance and resolution of
support requests by Support Customers. A minimum of [*] and a maximum of
[*] will be paid for any one Call. After thirty (30) days, rates will be
reviewed to ensure adequacy of pricing. If required, a mutually acceptable
adjustment in pricing shall be made.
3.2 DETERMINATION OF FEES. PROVIDER shall provide a summary timesheet of
all employees' hours worked in support of Support Services. This timesheet
should identify each Service Order worked on, the actual number of hours
worked for each Call, and the billable hours for each Call.
3.3 INVOICING OF FEES. PROVIDER's invoices will be paid in accordance with
the payment terms set forth in Section 6.1 of the Agreement. Invoices shall
contain a summary of charges together with the Sun-assigned accounting
purchase order number clearly identified and a summary timesheet as
identified in SOW paragraph 3.2. Additionally, PROVIDER's invoices should
be submitted monthly by the second Tuesday of the month following delivery
of Support Services.
4. PERFORMANCE STANDARDS.
----------------------
4.1 WARRANTY OF PROVIDER. PROVIDER warrants that the Support Services
shall be performed in a professional, good and workmanlike manner
consistent with the general industry standards.
4.2 MINIMUM STANDARDS. For thirty (30) days from the effective date of the
Agreement, PROVIDER will be furnishing Support Services on a probation or
trial basis. At any time during such period, Enterprise Services may
terminate this Agreement due to: (i) a failure of PROVIDER to meet mutually
developed performance metrics; or (ii) a significant reduction in the
volume of Support Services Calls; or (iii) Enterprise Services' conclusion
of a long term plan for supporting Calls. At the end of each month
following this trial period, Enterprise Services will evaluate PROVIDER's
performance under this Exhibit, including, but not limited to, the
PROVIDER's ability to resolve calls in an accurate and timely fashion.
Enterprise Services reserves the right to contact its Support Customers to
verify the accuracy of PROVIDER's service call information and to conduct
audits of service delivery to Support Customers.
4.3 NO WARRANTIES. PROVIDER makes no warranties regarding materials or
supplies provided by Enterprise Services.
5. OPERATIONAL CONTACTS. Both parties agree to designate one (1) employee and
---------------------
one (1) backup employee who will be the principal contacts for all day-to-day
operational activities relating the provision of Support Services hereunder.
[*] = CERTAIN INFORMATION ON THIS PAGE HAS BEEN OMITTED AND FILED SEPARATELY
WITH THE COMMISSION. CONFIDENTIAL TREATMENT HAS BEEN REQUESTED WITH RESPECT TO
THE OMITTED PORTIONS.
Page 4 of 5
<PAGE>
As evidenced by the authorized signatures below, Sun and PROVIDER agree that
this Exhibit A shall be attached to and incorporated as a part of the Agreement.
THE PARTIES HAVE READ AND AGREE TO BE BOUND HEREBY.
EFFECTIVE AS OF 9 / 24 / 99
- -- --
AGREED:
SUN MICROSYSTEMS, INC. PROVIDER:
LINUXCARE, INC.
By: /s/ Richard Ford By: /s/ Thomas W. Phillips
Print: Richard Ford Print: Thomas W. Phillips
------------ ------------------
Title: Director of Strategic Alliance Title: V.P. World Wide Sales
------------------------------ ---------------------
Page 5 of 5
<PAGE>
EXHIBIT 10.3.1
Keizersgracht 62-64
1015 CS Amsterdam
The Netherlands
Phone: 31(0)20 520 75 00
Fax: 31(0)20 520 75 10
E-mail:[email protected]
Bank Account no 54,91.12.332
Chamber of Commerce:
Amsterdam 33148590
FAX
FOR : Mr A.F Tyde III
FAXNO. : + 1 415 701 7457
FROM : Euro Business Center
Our ref :
DATE : 17-9-99
PAGES : 7
Please contact us if incomplete or illegible: Tel.: +31 20 520 7500 / Fax: +31
20 520 7510
Dear Mr Tyde,
Herewith we fax you the contract for office A101 and a102.
Yours sincerely,
EURO BUSINESS CENTER
AMSTERDAM
/s/ John Milhado
John Milhado
Managing Director
www.eurobc.nl
<PAGE>
THIS AGREEMENT is made this Friday 17 September 1999
BETWEEN:
(1) EURO BUSINESS CENTER at Keizersgracht 62-64, Amsterdam (hereinafter
referred to as "EBC");
(2) and Linuxcare, Inc. (hereinafter referred to as "the client").
Our ref.
WHEREAS:
(a) The business conducted by EBC consists of the provision of services for
companies, by way of temporary office accommodation and facilities,
including supervisory, administrative and secretarial services;
(b) for the purposes of conducting its business activities as described under
(a) above, EBC occupies premises situated at Keizersgracht 62-64, 97-99 and
106, in Amsterdam ("the premises");
(c) the client wishes to avail itself of said services in the manner, and under
the terms and conditions, provided for in this Agreement.
IT IS AGREED AS FOLLOWS:
1. (1) EBC shall supply office A101 and A102 at Keizersgracht 106;
(2) the client may use the offices as its registered office under the name
of Linuxcare, Inc.;
(3) the client shall not, without the prior written consent of EBC, employ
or directly engage the services of any member of EBC's staff; each and
any breach of this provision shall be subject to a penalty payment of
Guilders 25,000.00 (twenty-five thousand Guilders);
(4) the client agrees that it will conduct its business in such a way as
not to interfere with the business activities of any other client or
clients of EBC; the client further agrees to instruct its designated
employees to act accordingly; the client shall not accept any collect
calls and shall not make use of teleservices such as message services,
teleplus services and conference calls;
1
<PAGE>
(5) the client indemnifies EBC against any claims by the client or by
third parties in respect of damages suffered as a result of the
client's failure to fulfil its obligations under sub-clause (4).
2. THIS AGREEMENT is entered upon for a period of 12 months and commencing on
1 October 1999 and therefore ending on 30 September 2000. If no written
notice is received 3 months before the end of the contract, the contract
will automatically be renewed with 12 months.
3. (1) The client is entitled to use the address of EBC as its mailing
address on its stationery and other printed matter;
(2) EBC shall arrange for incoming post, telephone, fax messages and other
items which arrive at the premises for the client, to be delivered
promptly to the client;
(3) should the client so require, EBC shall arrange for the client's name
and the telephone number accorded to it to be entered in the local
(Amsterdam) and national telephone directories at cost; in this case,
the client shall give timely written notice of its wishes to EBC;
(4) the client is entitled to use the reception services operated by EBC
at the Premises;
(5) besides the services described under Clause 1 (1) and Clause 3 (1) to
(4), which are covered by the monthly service charge stated in Clause
4 (1) below, the client is also entitled to additional services to be
provided by EBC;
(6) the rights and services to which the client is entitled under the
terms of this agreement are personal to the client and its designated
employees, and such rights and services may not, without the prior
written consent of EBC, be transferred or assigned to any third party.
4. (1) The client agrees to pay to EBC for the duration of this Agreement a
general charge of Guilders 6,000.00 per month, including a private
telephone and fax number(no and ), plus 17.5% VAT. Rent is payable
three months in advance. Furthermore a deposit of Guilders 6,000.00 is
required ;
(2) the security deposit referred to in sub-clause of this Clause shall be
repaid to the client within thirty days after termination of this
Agreement, after receipt of all outstanding amounts due by the client
to EBC;
2
<PAGE>
(3) the monthly payment stated in sub-clause (1) of this Clause may be
increased twice-yearly by EBC, provided that a minimum of one calendar
month notice is given in writing;
(4) in addition, EBC shall render a Statement of any charge due for
additional services provided to the client during the preceding month,
and shall specify in such Statement any amounts due in respect of
postal, fax and telephone expenses etc. incurred on behalf of the
client during the same period. For prices we refer to our general
documentation;
(5) the client shall pay the amount reflected in the said Statement to EBC
no later than seven days after the date of such Statement; this amount
(including VAT) shall not exceed the sum paid as deposit. Should it
reach the deposit figure, immediate payment must be made by cash,
credit card or telephonic transfer, failing which EBC reserves the
right to suspend all services until such time as payment in full has
been received. The foregoing shall in no way invalidate the client's
contractual obligations, which will remain in force in to
notwithstanding.
(6) The use of a meeting room one day a month is included in the rental
price.
5. (1) The client agrees that EBC shall in no event be held liable for
loss of, or damage to, any documents or other items resulting from
services provided by the Dutch Post Office, courier service and/or
other companies;
(2) with reference to that stated in sub-clause (1) of this Clause, any
insurance cover required by the client shall be arranged by the client
at its own expense.
6. The client is entitled to a key card for the front door of Keizersgracht
106.
7. Clients of Euro Business Center are permitted to place their own nameplate
in the lobby at Keizersgracht 106.
8. This agreement shall be interpreted and effected in accordance with the
Laws of the Netherlands, and the parties hereto agree to adhere to the
exclusive jurisdiction of the Court of Amsterdam.
9. All our offers, agreements and services, apply to the General Conditions of
Euro Business Center as registered with the Chamber of Commerce in
Amsterdam dated 12 May 1992.
The signature below certifies that a copy of these has been received, the
contents duly noted,
3
<PAGE>
and that these Terms and Conditions are hereby accepted.
Signed at Friday 17 September 1999 (Please sign every page)
By: By:
Jacqueline Welleman Arthur Tyde
Manager
/s/ Arthur Tyde 9/27/99
For and on behalf of: For and on behalf of:
EURO BUSINESS CENTER Linuxcare, Inc.
AMSTERDAM
4
<PAGE>
EXHIBIT 10.3.2
OFFICE OCCUPATION
AGREEMENT
1. THE OCCUPIER
NAME: LINUXCARE INC
ADDRESS: 850 TOWNSEND STREET, SAN FRANCISCO, CA 94103,.
2. THE OWNER
NAME: SWALLOWFIELD OFFICE SERVICES LIMITED
ADDRESS: 5 PARK PLACE, LONDON, SW1A 1LP
3. OFFICES
BUILDING IN WHICH THE OFFICES ARE LOCATED: WYVOLS COURT, SWALLOWFIELD, READING,
RG7 1WY
OFFICE NUMBER/REFERENCE: 22.
4. TERMS OF OCCUPATION
COMMENCEMENT DATE: 1ST NOVEMBER 1999 TERMINATION DATE: 30TH APRIL 2000
MONTHLY OCCUPATION FEE (PLUS VAT):
pounds1,350.00 + VAT
SERVICE RETAINER: pounds2,700.00
THE OTHER TERMS AND CONDITIONS OF OCCUPATION ARE SET OUT OVERLEAF AND THE
OCCUPIER HEREBY ACKNOWLEDGES THAT IT HAS READ AND UNDERSTOOD THEM.
5. PRELIMINARY AGREEMENT AND COURT ORDER
COURT: N/A PRELIMINARY AGREEMENT: NO
DATE OF COURT ORDER: N/A DATE OF PRELIMINARY AGREEMENT: N/A
NUMBER OF COURT ORDER: N/A
6. SIGNATURE AND DATE
<TABLE>
<S> <C>
SIGNED BY AN AUTHORISED SIGNATORY FOR AND ON SIGNED BY AN AUTHORISED SIGNATORY FOR AND ON
BEHALF OF THE OWNER: BEHALF OF THE OCCUPIER:
NAME (printed): NAME (printed): X ANTHONY V. POLLACE, CFO
SIGNATURE: SIGNATURE: X /s/ Signature Illegible CFO
</TABLE>
DATE OF THIS OFFICE OCCUPATION AGREEMENT:
<PAGE>
OFFICE OCCUPATION
AGREEMENT
1. THE OCCUPIER
NAME: LINUXCARE INC
ADDRESS: 650 TOWNSEND STREET, SAN FRANCISCO, CA 94103,,
2. THE OWNER
NAME: SWALLOWFIELD OFFICE SERVICES LIMITED
ADDRESS: 5 PARK PLACE, LONDON, SW1A 1LP
3. OFFICES
BUILDING IN WHICH THE OFFICES ARE LOCATED: WYVOLS COURT, SWALLOWFIELD, READING,
RG7 1WY
OFFICE NUMBER/REFERENCE: 22.
4. TERMS OF OCCUPATION
COMMENCEMENT DATE: 1ST NOVEMBER 1999 TERMINATION DATE: 30TH APRIL 2000
MONTHLY OCCUPATION FEE (PLUS VAT):
pounds1,350.00 + VAT
SERVICE RETAINER: pounds2,700.00 /s/ Signature Illegible
THE OTHER TERMS AND CONDITIONS OF OCCUPATION ARE SET OUT OVERLEAF AND THE
OCCUPIER HEREBY ACKNOWLEDGES THAT IT HAS READ AND UNDERSTOOD THEM.
5. PRELIMINARY AGREEMENT AND COURT ORDER
COURT: N/A PRELIMINARY AGREEMENT: NO
DATE OF COURT ORDER: N/A DATE OF PRELIMINARY AGREEMENT: N/A
NUMBER OF COURT ORDER: N/A
6. SIGNATURE AND DATE
<TABLE>
<S> <C>
SIGNED BY AN AUTHORISED SIGNATORY FOR AND ON SIGNED BY AN AUTHORISED SIGNATORY FOR AND ON
BEHALF OF THE OWNER: BEHALF OF THE OCCUPIER:
NAME (printed): NAME (printed): X X
SIGNATURE: SIGNATURE: X X.
</TABLE>
DATE OF THIS OFFICE OCCUPATION AGREEMENT:
<PAGE>
7. INTERPRETATION
In this Agreement the expressions set out below carry the following
meanings:
"Agreement" - this Office Occupation Agreement;
"Common Parts" - the parts of the Building from time to time designated
as such by the Owner;
"Chargeable Services" - any services (other than the Inclusive
Services) which are at any time made available to the Occupier by the
Owner and details of which are available at the Building;
"Fixtures and Fittings" - the fixtures and fittings listed in an
Inventory to be agreed between and signed on behalf of the Owner and
the Occupier;
"Inclusive Services" - the services specified in the Schedule;
"Occupier", "Owner", "Offices", "Commencement Date", "Building",
"TERMINATION DATE", "Monthly Occupation Fee" and "Service Retainer"
carry the meanings given in Clauses 1 to 4 and "Term" means the term of
this Agreement commencing on the Commencement Date and terminating on
the Termination Date
References to the parties shall include their respective successors in
title and references to the Owner shall also include any person or
company appointed by the Owner to carry out all or part of the Owner's
obligations under this Agreement.
8 DEMISE AND TERM
8.1 The Owner lets to the Occupier the Offices including the Fixtures and
Fittings for the duration of the Term.
8.2 The Owner grants to the Occupier the right in common with the Owner and
all other persons so entitled:
(a) to use such lavatories and kitchens as are designated by the Owner for
use by the Occupier; and
(b) to use the entrance hall, passages, staircases and the lift(s) within
the Common Parts for the purposes only of gaining access to and egress
from the Offices.
8.3 The Offices are let to the Occupier subject to the rights of the Owner,
and all others authorised from time to time by the Owner to use,
repair, maintain and replace any service conducting media within the
Offices which rights are hereby reserved.
9. FINANCIAL MATTERS
9 1 The Occupier shall pay by Direct Debit:-
(a) the Monthly Occupation Fee plus VAT in advance on the 1st day of each
calendar month of the Term; and
(b) on demand from time to time any sums due in respect of the use of any
Chargeable Services plus VAT.
9.2 The Monthly Occupation Fee includes the cost of providing the Inclusive
Services but not the cost of providing the Chargeable Services.
9.3 On or before the Commencement Date the Occupier shall pay the Service
Retainer which will be held by the Owner for the benefit of the Owner
as security for any breach of the terms of this Agreement.
The Owner may withdraw money from the Service Retainer at any time in
order to make good any sums payable by the Owner or the Occupier as the
case may be which result from any breach by the Occupier of any of the
terms of this Agreement. After any withdrawal from the Service
Retainer, the Occupier shall on demand by the Owner pay such sum as is
necessary to restore the Service Retainer to its full amount as set out
in Clause 4. Any withdrawal from the Service Retainer shall be without
prejudice to any other rights or remedies of the Owner in relation to
the relevant breach of the terms of this Agreement.
<PAGE>
The Service Retainer (or such balance of it, if any, as remains after
any withdrawals) shall be refunded to the Occupier within twenty one
days from the Termination Date or sooner at the Owner's absolute
discretion.
The Service Retainer may not be used by the Occupier as payment for any
sum due under this Agreement.
9.4 The Occupier shall keep the Owner indemnified from and against all
expenses, losses and claims arising from any breach of the Occupier's
obligations contained in this Agreement, or from the use of the Offices
by the Occupier, or arising from any act, omission, neglect or default
of the Occupier.
9.5 If the Occupier fails to pay the Monthly Occupation Fee or any other
monies due under this Agreement on the due date (whether formally
demanded or not), the Occupier shall pay interest at 5% above the base
rate of National Westminster Bank Plc from time to time on such overdue
sums calculated from the due date to the date of payment (subject to a
minimum interest payment of pounds200).
9.6 The Occupier shall pay all costs and expenses (including legal costs
and surveyors' fees) which may be incurred by the Owner in connection
with the recovery of arrears of the Monthly Occupation Fee or other
monies payable under this Agreement or for the purposes of or
incidental to the preparation and service of any notices or proceedings
under section 146 of the Law of Property Act 1925 notwithstanding that
forfeiture may be avoided otherwise than by relief granted by the
Court.
9.7 All sums payable under this Agreement shall be paid to the Owner in
pounds sterling in cleared funds for value to the Owner without any
deduction for set off, counterclaim or tax.
10. OCCUPIER'S COVENANTS
The Occupier covenants with the Owner:
REPAIR AND ALTERATIONS
10 1 not to make any alteration or addition to the Offices or the Building;
10.2 to keep the Offices and the Fixtures and Fittings in the same state of
repair and condition as they are now in (fair wear and tear excepted);
10.3 not to damage any of the decorations or any of the Fixtures and
Fittings or any equipment in the Offices or the Building;
10.4 not to display or affix any notice advertisement placard or name plate
to any part of the Offices or Building;
10.5 not, without the previous written consent of the Owner, to install any
fixtures, fittings or equipment in the Offices;
ACCESS
10.6 to permit the Owner and those authorised by the Owner to enter the
Offices for any reasonable purpose upon reasonable prior notice subject
to such parties making good all damage thereby occasioned to the
Offices or the Occupier's fixtures and fittings,
ALIENATION
10 7 not to assign, charge, sublet or part with or share possession of the
whole or any part or parts of the Offices;
USE
10.8 to use the Offices only as high-class offices in connection with the
Occupier's business;
10.9 to comply with all statutory requirements relating to the Offices,
including but without limitation all town and country planning
legislation;
10.10 to comply with the requirements of any insurers of the Offices and/or
the Building and not to do or omit anything which would result in any
policy of insurance in respect of the Offices and/or the Building
becoming void or voidable or otherwise prejudiced, or which would cause
the premium for such policy to be increased;
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[INTENTIONALLY LEFT BLANK]
1
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10.11 to comply with all existing and future regulations as the Owner may
from time to time impose in relation to the use of the Offices, the
Building or facilities therein and/or the management of the Building
and car parking;
10.12 not to do anything in the Offices or the Building which is or may
become a nuisance or annoyance or cause danger, injury or damage to the
Owner or other occupiers of the Building:
10.13 not to use the address of the Building or the Offices as the Occupier's
registered office;
10.14 not to invite the public generally to come to the Offices or the
Building and not to use the Offices, or the Building or the address of
either or purport to use the Offices, or the Building or the address of
either for any purpose which might attract casual callers;
10.15 not to use any electrical appliance within the Offices or the Building
which has not been tested on a regular basis in accordance with the
Electricity at Work Regulations (1989);
10.16 not to bring any animal into the Offices or the Building;
10.17 not to smoke in any part of the Offices or the Building or in the
immediate vicinity of the Building
10.18 not to introduce any hazardous substances or known pollutants into the
Offices of the Building.
10.19 not during the term of this Agreement or for a period of 6 months after
the expiration of sooner determination of the term of this Agreement to
employ (directly or indirectly) any person who has been in the
employment of the Owner at the Building during the term and if the
Occupier breaches the provisions of this clause the Occupier shall pay
to the Owner on demand by way of liquidated damages an amount equal to
40% of the gross annual remuneration of such employee
11. OWNER'S COVENANTS
Subject to the Occupier paying the Monthly Occupation Fee when due and
performing and observing the obligations on its part contained in this
Agreement, the Owner agrees:
11.1 that the Occupier may peaceably hold and enjoy the Offices during the
Term without any interruption;
11.2 to use reasonable endeavours to provide the Inclusive Services:
11.3 to grant 24 hour access seven days a week to the Offices.
12. PROVISOS
The Owner and the Occupier agree as follows:
12.1 In either or both of the circumstances set out in Sub-clauses (a)-(b)
of this Clause 12.1, it shall be lawful for the Owner or any person
duly authorised by it to re-enter upon the Offices or any part thereof
in the name of the Owner at which time this Agreement shall absolutely
determine but without prejudice to any rights of the Owner in respect
thereof or antecedent claim or breach of any of the terms of this
Agreement:
(a) If and whenever the Monthly Occupation Fee or any part of it is in
arrears and unpaid for ten working days after becoming due (whether
formally demanded or not);
(b) if the Occupier at any time fails or neglects to perform or observe any
of the covenants, terms, conditions of agreements contained in this
Agreement;
12.2 Upon the expiry or sooner determination of this Agreement (for whatever
reason) the Occupier shall:
(a) immediately vacate the Offices;
(b) remove all its goods and effects from the Offices; and
<PAGE>
(c) cease to make use of or benefit from the Inclusive Services or
Chargeable Services;
12.3 In default of immediate compliance with the obligations by the Occupier
in clause 12.2, the provisions of this clause 12.3 shall apply:-
(a) The Owner or any servant or agent of the Owner shall be entitled
forthwith to enter the Offices and remove the Occupier's goods and
effects and deposit the same (at the Occupier's own risk) in an
appropriate part of the Building or elsewhere for collection.
(b) Subject to Clause 12.3(c) the Occupier irrevocably appoints the Owner
to be the Occupier's agent to sell or dispose of (at the Owner's
absolute discretion) any goods and effects left by the Occupier for
more than five days after the expiry or sooner determination of the
Term subject to any conditions which the Owner thinks fit and without
the Owner being liable to the Occupier save to account for the net
proceeds of sale less the cost of storage (if any) and of sale and any
other expenses reasonably incurred by the Owner.
(c) Any goods or other effects left at the Offices by the Occupier shall be
subject to a lien in favour of the Owner in respect of any liability of
the Occupier to the Owner pursuant to or arising out of this Agreement
and the Owner shall have power to sell or otherwise dispose of or
direct the sale or disposal of all such goods and effects on whatever
terms the Owner shall think fit and to apply the net proceeds of such
sale or disposal (less any deductions as referred to in Clause 12.3(b))
towards satisfaction of such liability.
12.4
(a) The Owner does not exclude or limit its liability to the Occupier in
respect of liability for death or personal injury to the extent that it
results from the negligence of the Owner or its employees, agents or
sub-contractors;
(b) Except as provided in clause 12.4(a) the Owner shall not be liable to
the Occupier nor shall the Occupier have any claim against the Owner in
tort, contract or otherwise for any loss, damage, injury or expense
arising out of or in connection with the Occupier's occupation of the
Offices or the provision of any services by the Owner including
(without prejudice to the generality of the foregoing) in respect of
any loss of profit, production, anticipated savings, goodwill or
business opportunities or any type of indirect, economic or
consequential loss, even if that loss or damage was reasonably
foreseeable or the Owner was aware of the possibility of that loss or
damage arising.
12.5 If the Offices or any part shall at any time be destroyed so as to be
unfit for occupation or use then, save to the extent that the insurance
of the Offices shall have been invalidated or payment of the policy
monies refused by or in consequence of any act, neglect, omission or
default of the Occupier, the Monthly Occupation Fee, or a fair
proportion of it according to the nature and extent of the damage
sustained, shall be suspended from the date of such damage or
destruction until the Offices shall have been rebuilt or reinstated and
made fit for occupation, and any dispute concerning this provision
shall be determined by an arbitrator in accordance with the Arbitration
Act 1996.
12.6 The Owner shall be entitled to discontinue the provision of the
Inclusive Services and/or the Chargeable Services in respect of any
period or periods during which the Occupier shall be in breach of any
of the provisions of this Agreement.
12.7 Section 196 of the Law of Property Act 1925 (as to service of notices)
as amended by the Recorded Delivery Service Act 1962 shall apply to
this Agreement provided that the addresses for service of notices on
the Occupier or the Owner shall be those set out in Clauses 1 and 2
respectively or such other addresses as either party may notify to the
other from time to time.
13 EXCLUSION OF SECURITY OF TENURE
Having been authorised so to do by order of the Court under the
provisions of section 38(4) of the Landlord and Tenant Act 1954,
details of which are set out in Clause 5, the Owner and the Occupier
agree that the provisions of sections of 24-28 of the Act shall be
excluded in relation to the tenancy hereby created.
2
<PAGE>
SCHEDULE
(INCLUSIVE SERVICES)
* Business rates
* Water rates
* Reception services
* Personalised telephone answering services
* Heating
* Lighting
* Electricity
* Cleaning
* Repair and Maintenance of the Building
* Insurance of the Building & Owner's contents
* One switchboard extension with DDI facilities and standard handset per desk
provided by the Owner
* Subject to availability, courtesy Network access of two hours per month at
the other UK centres and eight hours per month at all other worldwide
centres in the HQ Business Centre network (hours may not be carried forward
if unused).
Further details of the Inclusive Services are available on request from the
Owner.
3
<PAGE>
EXHIBIT 10.3.3
THIRD AMENDMENT TO LEASE
------------------------
This Third Amendment to Lease ("Third Amendment") dated this 7th day of
October, 1999, (the "Amendment Date") is entered into by and between ZORO, LLC,
a California limited liability company ("Lessor"), and LINUXCARE, INC., a
Delaware corporation ("Lessee").
The parties enter into this Third Amendment on the basis of the following
facts, understandings and intentions:
RECITALS
A. Capitalized terms used in this Third Amendment without definition shall
have the meanings ascribed to such terms in the Lease (as hereinafter defined).
B. Lessee and Lessor entered into that certain Lease dated February 11, 1999
(the "Original Lease") with respect to certain premises located on the third
floor, suites 320 and 335, consisting of approximately 4,783 Adjusted Rentable
Square Feet (the "Original Premises") in the Townsend Center in San Francisco,
California (the "Building").
C. By amendment dated April 30, 1999, (the "First Amendment") Lessee leased
additional space in the Building located on the third floor, suite 345,
consisting of approximately 5,721 Adjusted Rentable Square Feet (the "Expansion
Premises").
D. By amendment dated May 26, 1999, (the "Second Amendment"), Lessee leased
more additional space in the Building located on the third floor, suite 300,
consisting of approximately 4,135 Adjusted Rentable Square Feet (the "Second
Expansion Premises" or the "Notch Space"). (The Original Lease, the First
Amendment, and the Second Amendment are collectively referred to herein as the
"Lease", and the Original Premises and the Expansion Premises are sometimes
collectively referred to herein as the "Third Floor Premises.")
E. Lessee now desires to lease additional space in the concourse level of the
Building (the "Concourse Space") consisting of approximately 29,996 Adjusted
Rentable Square Feet as identified on the floor plan attached as Exhibit C-5
hereto, and to terminate its Lease of the Notch Space.
F. Lessee desires the option to terminate its Lease as to all or a portion of
the Third Floor Premises and Lessor desires to provide Lessee with such option
subject to the terms of this Third Amendment.
G. Lessee and Lessor desire to amend the Lease to provide the terms and
conditions pursuant to which Lessor shall lease to Lessee and Lessee shall lease
from Lessor the Concourse Space and terminate the Lease of the Notch Space; for
adjustment of Rent and other charges payable to Lessor under the Lease; for
Lessee's option to terminate all or a portion of the remaining Third Floor
Premises; to reflect the correct total Adjusted Rentable Square Feet for the
entire Building; and for certain other matters as provided herein.
1.
<PAGE>
AGREEMENTS
1. Lease of Concourse Space
------------------------
1.1. Premises and Term. Lessor hereby leases the Concourse Space to
-----------------
Lessee and Lessee hereby leases the Concourse Space from Lessor, on all of the
terms, covenants and conditions of the Lease as amended by this Third Amendment,
for a term commencing on the Concourse Space Commencement Date (as hereinafter
defined) and ending, unless sooner terminated, five (5) calendar years
thereafter (the "Concourse Space Expiration Date").
1.2. Commencement Date. The Term of the Lease and Lessee's
-----------------
obligations to pay rent for the Concourse Space to Lessor pursuant to Article 7
of the Lease, (the "Concourse Space Commencement Date") shall commence on the
earlier of the following dates:
(a) the date upon which the City of San Francisco ("City")
issues its certificate of occupancy for the Concourse Space (or other evidence
that Lessee may legally occupy the Concourse Space);
(b) Ninety (90) days following the date upon which Lessor
Substantially Completes Lessor Work (i.e., Lessor's work has sufficiently
advanced so that completion thereof would not materially interfere with Lessee's
commencement of its Tenant Improvements) as set forth in Schedule 1 to Exhibit
D-3 hereto; or
(c) the date Lessee commences operations in any portion of the
Concourse Space.
1.3. Delivery Date. Subject to approval by City of the new smoke
-------------
evacuation system for the Concourse Space, and subject further to completion of
Lessor's Work as set forth in the Concourse Space Work Letter attached hereto as
Exhibit D-3 (the "Concourse Space Work Letter") to the extent possible subject
to City approvals, Lessor's estimated date for Lessee's early possession and
entry for measurement and planning is September 30, 1999, with the estimated
delivery date for the Concourse Space being November 1, 1999 (the "Concourse
Space Delivery Date"). Except with respect to satisfactory completion of
Lessor's Work specified in the Concourse Space Work Letter attached to this
Third Amendment, Lessee hereby accepts the Concourse Space in an "AS-IS"
condition on the date of occupancy and Lessee hereby affirms and acknowledges
the conditions of Section 12.2 of the Lease.
1.4. Construction.
------------
(a) Lessor and Lessee agree that the Concourse Space Work Letter
attached to this Third Amendment (and not Exhibit D to the Original Lease) shall
control the rights and obligations of the parties with respect to initial
construction of the Concourse Space. Lessee agrees to construct Tenant
Improvements for the Concourse Space in
2.
<PAGE>
accordance with, and to be bound by, all the terms and conditions of the
Concourse Space Work Letter.
(b) Lessee acknowledges that Lessor will be performing
additional base building upgrades to the Building during the initial
construction period of Tenant Improvements, and that the multi-tenant corridor
separating the Concourse Space from the common areas may not be complete on the
Concourse Space Delivery Date.
(c) Lessee acknowledges that the ceiling of the Leased Premises
is the primary horizontal riser access for other tenants of the Building.
Accordingly, Lessor may enter the Concourse Space, upon twenty-four (24) hours'
notice to Lessee, except in the case of emergencies when no notice is required,
to install future systems and maintain existing systems in the ceiling of the
Concourse Space, provided that Lessor will exercise its good faith efforts not
to materially interfere with Lessee's use of the Concourse Space.
1.5. Operating Costs of Concourse Space. The following sentences
----------------------------------
shall be added at the commencement of subsection 8.2(a): "Lessee shall pay to
Lessor as additional Rent in accordance with Section 8.3 hereof, one hundred
percent (100%) of the electricity and other separately metered utility charges
for the Concourse Space. (Operating Costs for the VAC system shall be charged in
accordance with the Building rules and regulations.)"
2. Third Floor Premises; Lessee's Termination Rights; Term.
-------------------------------------------------------
2.1 Termination of Notch Space (Suite 300). Effective as of the
--------------------------------------
Amendment Date, Lessee shall have the right, exercisable only upon written
notice to Lessor delivered within twenty-four (24) hours of the Amendment Date,
to continue Lessee's Lease of the Notch Space. Failure by Lessee to so notify
Lessor shall result in termination of Lessee's Lease of the Notch Space as of
the Amendment Date.
2.2. Lessee's Option to Terminate the Original Premises and Expansion
----------------------------------------------------------------
Premises (Suites 320, 335 and 345). Commencing on the Amendment Date and ending
- ----------------------------------
seventy-five (75) days prior to the Concourse Space Commencement Date, Lessee
shall have the right, upon not less than seventy-five (75) days' prior written
notice to Lessor, and contingent upon the occurrence of the Concourse Space
Commencement Date, to terminate the Lease as to all or a portion of the Third
Floor Premises on a suite-by-suite basis (but not as to premises consisting of
less than a full suite) by written notice delivered to Lessor, specifying the
suite or suites as to which Lessee is terminating the Lease. The parties
acknowledge the provisions of paragraph 41 of the Original lease. In event of a
termination of a portion of the Third Floor Premises, the rent shall be reduced
by a percentage of the applicable rent, the numerator of which is the Adjusted
Rentable Square Feet terminated and the denominator of which is 9,856.
2.3. Condition of Terminated Space. As to all terminated space, the
-----------------------------
provisions of the Lease, including but not limited to Section 15.4, Restoration,
shall apply.
2.4. Term Expiration Dates of Third Floor Premises Not Terminated. As
------------------------------------------------------------
to
3.
<PAGE>
all Third Floor Premises not terminated by Lessee, the Lease shall remain in
full force and effect, but shall have the following expiration dates:
(a) The Term for the Notch Space (if continued pursuant to
Section 2.1(a)) and Suite 320 of the Original Premises shall expire on December
31, 2003. There is no option to extend the Term as to Suite 320 or the Notch
Space.
(b) The Term for Suites 335 and 345 of the Third Floor Space
shall be extended to expire concurrently with the Concourse Space Expiration
Date.
3. Option to Renew.
---------------
3.1. Option Period. Lessee shall have the right to extend the Term of
-------------
this Lease for all of the Concourse Space, Suites 335 and 345 of the Third Floor
Premises unless terminated pursuant to Section 2.2 herein (Suites 335 and 345
together with the Concourse Space are collectively referred to herein as the
"Renewable Spaces"), for one (1) additional period of five (5) years (such
period being referred to as a "Renewal Term"), provided that not more than two
failures to abide by the terms of the Lease which have caused Lessor to properly
issue a notice of default under the provisions of Article 29 shall have occurred
during the preceding Term and provided that the Lease has not been previously
terminated. The option herein applies to all the Renewable Spaces in the
aggregate and may not be exercised as to portions of the Renewable Spaces.
3.2. Option Terms.
------------
(a) Manner of Exercise. Lessee may exercise the option, if at
------------------
all, by written notice to Lessor delivered no later than twelve (12) months
prior to the Concourse Space Expiration Date (the "Outside Exercise Date").
Unless all of the above conditions precedent have been satisfied, Lessee's
exercise of any option shall be of no force or effect and the Renewal Term shall
lapse. If all of the above conditions precedent are satisfied, then the term of
this Lease shall be extended for the Renewal Term, and all of the terms,
conditions and provisions of this Lease shall continue in full force and effect
throughout the Renewal Term, except that the Minimum Rent to be paid by Lessee
for the Renewal Term shall be 100% of the Fair Market Rental (as defined below)
value of the Renewable Spaces as of the Concourse Space Expiration Date, but in
no event shall the Minimum Rent for the Renewal Term be less than the Minimum
Rent payable in the last month of the Term of this Lease prior to the Concourse
Space Expiration Date. The option granted herein is personal to Lessee.
(b) Fair Market Rental. If Lessee exercises the right to extend
------------------
the Term, then the Minimum Rent shall be adjusted to equal the Fair Market
Rental for the Renewable Spaces as of the date of the commencement of the
Renewal Term, pursuant to the procedures hereinafter set forth. The term "Fair
Market Rental" means the Minimum Rent chargeable for the Renewable Spaces based
upon the following factors applicable to the Renewable Spaces or any comparable
premises:
4.
<PAGE>
(i) Rental rates being charged for comparable premises in
the same geographical location.
(ii) The relative locations of the comparable premises.
(iii) Improvements, or allowances provided for
improvements, or to be provided.
(iv) Rental adjustments, if any, or rental concessions.
(v) Services and utilities provided or to be provided.
(vi) Use limitations or restrictions.
(vii) Any other relevant Lease terms or conditions.
The Fair Market Rental evaluation may include provision for further rent
adjustments during the Renewal Term in question if such adjustments are commonly
required in the market place for similar types of leases.
(c) Determination of Fair Market Rental. Upon exercise of the
-----------------------------------
right to extend the Term, and included within the Notice of Exercise, Lessee
shall notify Lessor of its opinion of Fair Market Rental as above defined for
the Renewal Term. If Lessor disagrees with Lessee's opinion of the Fair Market
Rental, it shall so notify Lessee ("Lessor's Value Notice") within thirty (30)
days after receipt of Lessee's Notice of Exercise. If the parties are unable to
resolve their differences within ten (10) days thereafter or if separated by
more than ten percent (10%), either party may apply for Arbitration as provided
below. If the values are within ten percent (10%), they shall be averaged. If
neither party applies for Arbitration within ten (10) days after receipt by
Lessee of Lessor's Value Notice, Lessee shall be bound to the Fair Market Rental
stated in Lessor's Value Notice. Should either party elect to arbitrate, and if
the arbitration is not concluded before the commencement of the Renewal Term,
Lessee shall pay Minimum Rent to Lessor in an amount equal to the Fair Market
Rental set forth in Lessor's Value Notice, until the Fair Market Rental is
determined in accordance with the arbitration provisions hereof ("Arbitration").
If the Fair Market Rental as determined by Arbitration differs from that stated
in Lessor's Value Notice, then any adjustment required to correct the amount
previously paid by Lessee shall be made by payment by the appropriate party
within thirty (30) days after the determination of Fair Market Rental by
Arbitration has been concluded, as provided herein. Lessee shall be obligated to
make payment during the entire Renewal Term of the Minimum Rent determined in
accordance with the Arbitration procedures hereunder.
(d) Arbitration. In the event either party seeks Arbitration of
-----------
Fair Market Rental under the provisions hereof for the Renewal Term, the other
party shall be bound to submit the matter for determination by Arbitration. The
Arbitration shall be conducted and determined in the County where the Renewable
Spaces are located.
5.
<PAGE>
(e) Demand for Arbitration. A party demanding Arbitration
----------------------
hereunder shall make its demand in writing ("Demand Notice") within ten (10)
days after service of Lessor's Value Notice.
(f) Appraiser Notice. Within ten (10) days after service of a
----------------
Demand Notice, Lessor shall provide Lessee with the names of three (3)
appraisers. Each appraiser shall be a member of the American Institute of Real
Estate Appraisers (or its successor), or real estate professionals qualified by
appropriate training and experience and having at least ten (10) years
experience dealing with commercial office leasing in the San Francisco South of
Market and Financial districts ("Appraiser Notice"). Within ten (10) days after
service of the Appraiser Notice, Lessee shall notify Lessor of Lessee's
selection of one of the appraisers designated in the Appraiser Notice and that
Appraiser shall serve as the Arbitrator.
(g) Decision of the Arbitrator. The Arbitrator so selected shall,
--------------------------
within ninety (90) days after his appointment, state in writing his
determination as to whether Lessor's valuation, or Lessee's valuation of Fair
Market Rental, most closely approximates his own. The Arbitrator may not state
his own opinion of Fair Market Rental, but is strictly limited to the selection
of Lessor's Fair Market Rental evaluation as stated in Lessor's Value Notice or
Lessee's Fair Market Rental evaluation as stated in the Notice of Exercise. The
Arbitrator shall have the right to consult experts and competent authorities
with factual information or evidence pertaining to a determination of Fair
Market Rental, but any such consultation shall be made in the presence of both
parties with full right to cross examine. The Arbitrator shall have no right to
propose a middle ground or any modification of either of the proposed
valuations, and shall have no power to modify the provisions of this Lease. The
valuation so chosen as most closely approximating that of the Arbitrator shall
constitute the decision of the Arbitrator and shall be final and binding upon
the parties, absent fraud or gross error. The Arbitrator shall render a decision
and award in writing, with counterpart copies to each party and judgment thereon
may be entered in any court of competent jurisdiction.
(h) Successor Arbitrator; Fees and Expenses. In the event of
---------------------------------------
failure, refusal, or inability of the Arbitrator to act in a timely manner, a
successor shall be appointed in the same manner as such Arbitrator was first
chosen hereunder. The fees and expenses of the Arbitrator and any administrative
hearing fee, if any, shall be divided equally between the parties. Each party
shall bear its own attorneys' fees and other expenses including fees for
witnesses in presenting evidence to the Arbitrator.
4. Additional Rights of Lessee.
---------------------------
4.1. Tenant's Right of First Offer. Provided that no default has
-----------------------------
occurred during the Lease Term, Lessee shall have the right and option to lease
additional space on the Concourse Level of Building (a "First-Offer Right") in
the areas delineated in Exhibit C-5 as the Colo.Com Premises and Macromedia
Premises (each, an "Offer Space") as follows:
6.
<PAGE>
(a) Superior Rights. The First Offer Right shall commence upon
---------------
the expiration of the occupancy of the Colo.Com Premises or the Macromedia
Premises by Colo.com, Macromedia or their sublessees or assignees (the "Superior
Occupants"). The rights of the Superior Occupants include rights that any of
them may have as at the date hereof, or that the Lessor may grant to them at any
time subsequent hereto and whether under an express written provision, or by
lease amendment, whether arising heretofore or hereafter (collectively the
"Superior Rights:").
(b) Procedure for Lessor's Offer. Lessor shall provide Lessee
----------------------------
with written notice (the "Term Sheet") from time to time when Lessor determines
that any portion of an Offer Space is or will become available for lease to
third parties, as determined by Lessor, as long as no holder of a Superior Right
desires to lease the Offer Space. The Term Sheet shall:
(i) Describe the Offer Space that will become available for
lease; and
(ii) State the terms upon which Lessor would lease the Offer
Space to Lessee.
(c) Procedure for Lessee's Acceptance. If Lessee wishes to
---------------------------------
exercise Lessee's First-Offer Right with respect to the Offer Space, Lessee
shall, within ten (10) business days after receipt of the Term Sheet (time being
of the essence), deliver its written acceptance therein to Lessor.
(d) Effect of Lessee's Failure to Accept the Term Sheet. If
---------------------------------------------------
Lessee does not deliver its written acceptance of the Term Sheet to Lessor
within the ten (10) day period specified in subsection (c) above, the First-
Offer Right shall terminate for such Offer Space; this paragraph 4.1 shall
become null and void and of no further force or effect; and Lessor shall be free
to lease such space to a third party on such terms as Lessor, in its sole
discretion, shall determine.
(e) Restrictions on First-Offer Right. The First-Offer Right
---------------------------------
shall be personal to Lessee and shall be exercisable only by the Lessee and not
any assignee, sublessee, or other transferee of Lessee's interest in the Lease.
4.2. Assignment and Subletting. The provisions of Article 25 of the
-------------------------
Lease shall apply to assignment and subletting of the Concourse Space, except
that the following shall be added thereto:
(a) Section 25.6(a) shall be amended to add thereto the following
sentence before the final sentence in that Section:
"Notwithstanding anything to the contrary contained in this
Section 25.6(a), in the event Lessee notifies Lessor
pursuant to this Section of Lessee's intent to assign or
sublease all or any
7.
<PAGE>
portion of the Concourse Space, Lessor may, upon written
notice to Lessee, terminate this Lease as to the portion of
the Concourse Space proposed to be assigned or sublet."
(b) Section 25.8(b) shall be amended to add the following
sentence at the end thereof:
"Notwithstanding anything to the contrary contained in this
Section 25.8(b), Lessee shall pay to Lessor, on a monthly
basis, sixty percent (60%) of the excess of any sums of
money or other economic consideration received by Lessee
from the Transferee of the Concourse Space in such month
(whether or not for a period longer than one month),
adjusted as set forth in subsections (i) and (ii) above."
5. Further Amendments to the Lease. Effective as of the Concourse Space
-------------------------------
Commencement Date, the Lease is hereby amended in the following respects.
5.1. Definition of "Leased Premises". The term "Leased
------------------------------
Premises" as defined in the Lease shall be deemed to refer to the
Original Premises, as reflected and outlined in Exhibit C-1 and C-2 to
the Original Lease, the Expansion Premises as reflected in Exhibit C-3
to the First Amendment and the Concourse Space as reflected in Exhibit
C-5 hereto. Suite 300, third floor (the "Notch Space"), unless
specifically continued in this Lease by Lessee pursuant to Section
2.1(a), is not a part of the Leased Premises.
5.2. List of Leased Premises and Areas. Section 1.3(B) of the Original
---------------------------------
Lease, Section 7(b) of the First Amendment and Section 7(b) of the Second
Amendment are all hereby deleted in their entirety and the following is
substituted in the lieu thereof.
"1.3 Premises: (B) Leased Premises, indicated on Exhibits C-1,
C-2, C-3 and C-5 and consisting of the following:
<TABLE>
<CAPTION>
Rentable Adjusted
Suite Usable Area Area Rentable Area
----- ----------- -------- -------------
<S> <C> <C> <C>
320 1,145 1,670 1,489*
335 2,534 3,697 3,294*
345 4,401 6,420 5,721*
Con- 24,997 34,028 29,996**
course
Totals 33,077 45,815 40,500
</TABLE>
8.
<PAGE>
(*based on the Usable square feet multiplied by a
load factor of 1.3)
(**based on the Usable square feet multiplied by a
load factor of 1.2)"
5.3. Rent. Section 1.5 of the Original Lease, Section 7(c) of the
----
First Amendment and Section 7(c) of the Second Amendment are all hereby deleted
in their entirety and the following substituted in lieu thereof:
"1.5 Rent: Minimum Rent:
(a) From the Commencement Date with
respect to the Original Premises:
$129,141.00 per year; $10,761.75 per
month ($27.00/ARSF per year; $2.25/ARSF
per month).
(b) From the Expansion Premises
Commencement Date with respect to the
Original Premises and the Expansion
Premises: ($283,608.00 per year;
$23,634.00 per month ($27.00/ARSF per
year; $2.25/ARSF per month).
(c) From the Concourse Space
Commencement Date with respect to the
Concourse Space: $858,485.52 per year;
$71,540.46 per month ($28.62/ARSF per
year; $2.385 ARSF/per month)."
5.4. Security Deposit.
----------------
(a) Section 1.6 of the Original Lease, Section 7(d) of the
First Amendment and Section 7(d) of the Second Amendment are hereby deleted in
their entirety and the following is substituted in lieu thereof:
"1.6 Security Deposit: (a) Letter of Credit in the amount of
One Million One Hundred Fifty Thousand
One Hundred Sixty Three Dollars
($1,150,163.00) (reduced, however, in
the sole discretion of Lessor, by an
amount representing the former security
for performance of the Lease by Lessee
with respect to the Notch Space); or
(b) the Guaranty of Lease by Comdisco,
Inc. in the form attached hereto as
Exhibit B.
(Section 10.1)"
(b) Article 10 of the Lease, "SECURITY DEPOSIT," is hereby
amended to add thereto the following:
9.
<PAGE>
"10.6 Guaranty of Lease: Lessee, at Lessee's option, may,
-----------------
in lieu of the Letter of Credit described in Sections 10.1 through 10.5 above,
provide a Guaranty of Lease in the form of Exhibit B attached hereto, executed
by Comdisco, Inc."
5.5. Lessee's Pro Rata Share. Section 1.8 of the Original Lease,
-----------------------
Section 7(e) of the First Amendment and Section 7(c) of the Second Amendment are
all hereby deleted in their entirety and the following substituted in lieu
thereof:
"1.8 Pro Rata Percent:
.80% Commencement of the
(5367/672,788) Original Lease;
1.75% Expansion Premises
(11,787/672,788) Commencement Date;
2.44% Second Expansion Premises
(16,428/672,788) Commencement Date;
7.5% Concourse Space
(50,456/672,788) Commencement Date if
Notch Space retained;
6.81% Concourse Space
(45,815/672,788) Commencement Date if
Notch Space terminated."
All of the above is subject to pro-rata adjustment in event of a partial
termination of the Third Floor Premises, as described in Section 2.2 of this
Third Amendment.
5.6. Base Operating Costs. Section 1.9 of the Original Lease is hereby
--------------------
deleted in its entirety and the following is substituted in lieu thereof:
"1.9 Base Operating
Cost for the
Complex: Third Floor Space:
------------------
1999 Base Expense Year,
1998-1999 Base Tax Year
Concourse Space:
---------------
2000 Base Expense Year
1999-2000 Base Tax Year
(Section 8.2)
(Section 16.3)"
10.
<PAGE>
5.7. Building Rentable Area. Section 1.11 of the Original Lease is
----------------------
hereby deleted in its entirety and the following substituted in lieu thereof:
"1.11 Rentable Area of the Building
at Commencement:
Rentable Area at Original 670,604 sq.ft.
Commencement Date
Rentable Area at Concourse Space 672,788 sq.ft.
Commencement Date"
6. Additional Allowance. Section 29.1(a) is deleted and the following
--------------------
inserted in its stead:
"(a) Any failure by Lessee to pay the rent or make any other
payment required to be made by Lessee hereunder when due, specifically
including the payment that may be due at the end of the forty-eighth
(48th) month with respect to the provisions of paragraph 3.1(b) of
Exhibit D-3;"
7. Miscellaneous.
-------------
7.1 Brokers. Lessee represents and warrants to Lessor that Lessee has
-------
had no dealings with any broker, finder or similar person who is or might be
entitled to a commission or other fee in connection with this Third Amendment.
Lessee shall protect defend and indemnify Lessor against, and hold Lessor
harmless from, any and all claims, demands, liability and costs (including
reasonable attorneys' fees), of any person, other than Lessor's Broker, who
claims to have dealt with Lessee in connection with the transaction contemplated
by this Third Amendment. Lessor shall protect, defend and indemnify Lessee
against, and hold Lessee harmless from, any and all claims, demands, liability
and costs (including reasonable attorneys' fees), of any person who claims to
have dealt with Lessor in connection with the transaction contemplated by this
Third Amendment.
7.2 No Default. Lessee represents and warrants that there are no
----------
defaults of Lessor under the Lease or any existing conditions, which upon the
giving of notice or the lapse of time, or both, would constitute a default under
the Lease.
7.3. Successors and Assigns. This Third Amendment shall bind and inure
----------------------
to the benefit of the parties hereto and their respective successors and
assigns.
7.4. Full Force and Effect. Except as specifically amended hereby, the
---------------------
Lease remains in full force and effect in accordance with its terms.
7.5. Other Instruments. Lessor and Lessee agree that they shall
-----------------
execute such other and further documents as are necessary or convenient to
effect the objectives of this Second Amendment.
11.
<PAGE>
7.6. Counterparts. This Third Amendment may be executed in one or more
------------
counterparts, each of which shall be deemed to be an original and all of which,
when taken together, shall constitute one and the same instrument.
7.7. Captions. The captions and headings used in this Third Amendment
--------
are for convenience and reference only and are not a part of this Third
Amendment for the purposes of interpretation.
IN WITNESS WHEREOF, the parties have executed this Third Amendment as of the day
and year first above written.
LESSOR:
ZORO, LLC., a California limited liability LINUXCARE, INC., a Delaware
company corporation
/s/ Signature Illegible
By:____________________________ By:_________________________
Martin I. Zankel Its: EVP
---
Its Managing Member
/s/ Signature Illegible
By:_________________________
Its: CFO
---
12.
<PAGE>
GUARANTY OF LEASE
Comdisco, Inc. ("Guarantor"), whose address is __________________________
as a material inducement to and in consideration of ("Lessor") entering into a
written lease (the "lease") with Linuxcare, Inc. ("Lessee"), dated the same date
as this Guaranty, pursuant to which Lessor leased to Lessee and Lessee leased
from Lessor, premises located in the City of San Francisco, County of San
Francisco, State of California, unconditionally guarantees and promises to and
for the benefit of Lessor that Lessee shall perform the provisions of the lease
that Lessee is to perform. The parties acknowledge that the term "lease"
includes that certain Lease dated February 11, 1999; that certain First
Amendment dated April 30, 1999; that certain Second Amendment dated May 26, 1999
and that certain Third Amendment dated October 7, 1999, all of which are between
Lessee and ZORO, LLC ("Lessor") for portions of the Premises at 650 Townsend
Street, San Francisco, CA.
If Guarantor is more than one person, Guarantor's obligations are joint and
several and are independent of Lessee's obligations. A separate action may be
brought or prosecuted against any Guarantor whether the action is brought or
prosecuted against any other Guarantor or Lessee, or all, or whether any other
Guarantor Lessee, or all, are joined in the action.
Guarantor waives the benefit of any statute of limitations affecting
Guarantor's liability under this Guaranty.
The provisions of the lease may be changed by agreement between Lessor and
Lessee at any time, or by course of conduct, without the consent of or without
notice to Guarantor. This Guaranty shall guarantee the performance of the lease
as changed. Assignment of the lease (as permitted by the lease) shall not affect
this Guaranty.
This Guaranty shall not be affected by Lessor's failure or delay to enforce
any of its rights.
If Lessee defaults under the lease, Lessor can proceed immediately against
Guarantor or Lessee, or both, or Lessor can enforce against Guarantor or Lessee,
or both, any rights that it has under the lease, or pursuant to applicable laws.
If the lease terminates and Lessor has any rights it can enforce against Lessee
after termination, Lessor can enforce those rights against Guarantor without
giving previous notice to Lessee or Guarantor, or without making any demand on
either of them.
Guarantor waives the right to require Lessor to (1) proceed against Lessee;
(2) proceed against or exhaust any security that Lessor holds from Lessee; or
(3) pursue any other remedy in Lessor's power. Guarantor waives any defense by
reason of any disability of Lessee, and waives any other defense based on the
termination of Lessee's liability from any cause. Until
1.
EXHIBIT B
<PAGE>
all Lessee's obligations to Lessor have been discharged in full, Guarantor has
no right of subrogation against Lessee. Guarantor waives its right to enforce
any remedies that Lessor now has, or later may have, against Lessee. Guarantor
waives any right to participate in any security now or later held by Lessor.
Guarantor waives all presentments, demands for performance, notices of
nonperformance, protests, notices of protest, notices of dishonor, and notices
of acceptance of this Guaranty, and waives all notices of the existence,
creation, or incurring of new or additional obligations.
If Lessor disposes of its interest in the lease, "Lessor" as used in this
Guaranty, shall mean Lessor's successors.
If Lessor is required to enforce Guarantor's obligations by legal
proceedings, Guarantor shall pay to Lessor all costs incurred, including,
without limitation, reasonable attorneys' fees.
Guarantor's obligations under this Guaranty shall be binding on Guarantor's
successors.
Within ten (10) days after written request therefor from Lessor, Guarantor
shall deliver to Lessor or its designee, an estoppel certificate from Guarantor,
confirming that the Guaranty remains in full force and effect in accordance with
its terms and ratifying Guarantor's obligation thereunder. The failure of
Guarantor to provide such an estoppel certificate shall be deemed a default
under the Lease and this Guaranty.
Dated:______________________
________________________
2.
EXHIBIT B
<PAGE>
[CHART OMITTED]
EXHIBIT C-5
<PAGE>
EXHIBIT D-3
CONCOURSE SPACE WORK LETTER AGREEMENT
-------------------------------------
(LESSOR'S AND LESSEE'S WORK)
A. LESSOR'S WORK
The Leased Premises shall be delivered to Lessee in "AS-IS" condition, and
without any obligation on the part of Lessor to perform improvements to the
Leased Premises, except for the work expressly set forth in Schedule 1 (the
"Lessor's Work").
B. LESSEE'S WORK
1. PLANS/SPECIFICATIONS
1.1 PLAN DESIGN
Prior to commencing work on the leasehold improvements to the Leased
Premises as hereinafter provided ("Tenant Improvements"), Lessee shall submit to
Lessor complete and detailed plans and specifications for the Tenant
Improvements ("Plans"). The Plans shall be prepared by Lessee's architect, who
shall be approved in writing by Lessor, which approval Lessor shall not
unreasonably withhold ("Architect") and by Mazzetti & Associates for mechanical
engineering and Camissa and Wipf as electrical engineers ("Engineers"), both
licensed to practice in the State of California.
1.2 (A) COORDINATION
------------
The Architect shall coordinate with Lessor's Project Manager Joseph Mock to
assure that the Plans are consistent with the existing design and construction
of the Leased Premises. Lessee acknowledges that Lessor has provided Lessee with
a set of base building drawings for the Leased Premises ("Building Drawings").
However, Lessor does not warrant, and Lessee should not rely upon, the accuracy
of the Building Drawings. Lessee, therefore, should undertake its own
investigation of the Leased Premises to confirm existing conditions, rather than
relying on the Building Drawings.
(B) GOVERNMENTAL
------------
Lessee acknowledges that Lessor has established procedures for
relations with the Building and Planning Departments of the City and County of
San Francisco and that Lessee, Lessee's representatives, architects, or agents
shall not contact any representatives of
1
<PAGE>
the City and County of San Francisco without the presence of Lessor's
representative to assure consistency of treatment of the Building and its
lessees by such governmental agencies. Any such contact by Lessee's
representatives in contravention of this provision which causes an alteration in
governmental treatment of the Building which results in additional costs to the
Building or any lessee therein, shall be borne by the Lessee.
1.3 SCHEMATICS
Lessee shall deliver to Lessor the schematic drawings ("Schematic
Drawings") upon which the Plans shall be based not later than October 16, 1999.
The Schematic Drawings and the Plans shall conform with standards set forth by
Lessor for material specifications and construction specifications which are
applicable for the Building in general. Lessor shall have ten (10) working days
after receipt thereof to review and approve/disapprove the Schematic Drawings.
Once Lessor has approved the Schematic Drawings, Lessee shall cause the
Architect to prepare the Plans which must be consistent with the approved
Schematic Drawings. Provided Lessor has approved the Schematic Drawings, Lessee
shall deliver the Plans to Lessor for its approval, in one or more stages,
during the period between November 1 and November 15, 1999. Lessor shall not
unreasonably withhold its approval of the Plans so long as the Plans are
consistent with the Schematic Drawings. In scheduling the preparation of the
Schematic Drawings and the Plans, Lessee shall allow sufficient time for review
and approval by Lessor and by the appropriate government agencies. Lessee shall
pay for the cost of Lessor's architect and engineer to review Lessee's Schematic
Drawings and Plans.
1.4 SCHEMATICS APPROVAL
If Lessor disapproves of the Schematic Drawings or the Plans or any portion
of either, Lessor shall promptly notify Lessee thereof in writing and of the
revisions which Lessor requires in order for Lessee to obtain Lessor's approval.
As promptly as reasonably possible, but in no event later than fifteen (15) days
thereafter, Lessee shall submit to Lessor a revised set of Schematic Drawings or
Plans incorporating the changes required by Lessor. Said revisions shall also be
subject to Lessor's approval. Lessor shall have ten (10) working days after
receipt of the revised Schematic Drawings or Plans to notify Lessee in writing
of Lessor's approval or disapproval of same. If Lessor again disapproves of or
requests revisions to the Schematic Drawings or the Plans, Lessee shall submit
to Lessor, within ten (10) business days after receiving Lessor's written
disapproval or request for revisions, a further revised set of Schematic
Drawings or Plans incorporating the changes required by Lessor. This process
shall continue until Lessor has approved the Schematic Drawings and the Plans.
2
<PAGE>
1.5 FINAL PLANS
The Plans, approved by Lessor, shall be referred to as the "Final Plans."
The Final Plans shall be signed by Lessor and Lessee. After approval of the
Final Plans, Lessee shall not make any changes thereto without Lessor's prior
written approval in accordance with the provisions of this Exhibit D-3.
1.6 PERMITS
Subject to the provisions of paragraph 1.2(b), Lessee shall be solely
responsible for obtaining all necessary governmental approvals and permits
(including but not limited to the approval of the San Francisco City Planning
Department) required to commence and complete the Tenant Improvements after
obtaining the prior approval of Lessor before making any submittal to any
governmental agency for permit, which approval of Lessor shall not be
unreasonably withheld; and immediately upon receipt thereof, Lessee shall
deliver copies of all such approvals and permits to Lessor.
1.7 CODE COMPLIANCE
Except as expressly set forth to the contrary in the Lease with respect to
Code Compliance, it shall be Lessee's sole responsibility to satisfy all
applicable building code requirements and governmental rules and regulations
concerning the design and construction of the Tenant Improvements. Lessor's
approval of the Final Plans is not intended, and should not be understood by
Lessee, as an affirmation that the Final Plans comply with applicable building
codes or other governmental rules and regulations or that the Final Plans are in
conformance with standards of good workmanship as practiced by
architects/engineers in the San Francisco Bay Area. Lessor's review of the Final
Plans is solely for Lessor's benefit, and Lessee shall not rely upon that review
for any purpose whatsoever in connection with the work on or the design of the
Tenant Improvements.
1.8 CONTRACTOR
Lessor hereby approves Rudolph Commercial Interiors as general contractor
to perform the Tenant Improvements ("Contractor"), duly licensed in the State of
California and familiar with all applicable building code requirements.
3
<PAGE>
2. SCHEDULING AND LESSEE'S PRIOR ACCESS TO THE PREMISES
2.1 SCHEDULE
At least five (5) days prior to the start of construction of the Tenant
Improvements, Lessee shall deliver to Lessor the proposed schedule of the
Lessee's Work to be performed ("TI Schedule"). The TI Schedule shall be prepared
by the Contractor, and it shall show the schedule for the submission of all shop
drawings/submittals and for the performance of each portion of the Tenant
Improvements. Lessee and the Architect shall either consult with the Contractor
or the Architect shall perform the necessary investigation to determine the
availability of the equipment and materials to be incorporated into the Tenant
Improvements and which portions of the Tenant Improvements will require long
lead time for ordering and/or manufacturing. The TI Schedule shall be in the
form of a Critical Path Method schedule.
2.2 COMMENCEMENT OF CONSTRUCTION
Upon delivery of the Leased Premises to Lessee and Lessee's receipt of all
approvals of the Final Plans and the acquisition by Lessee of all necessary
permits, Lessee shall commence the construction of the Tenant Improvements.
Lessor and Lessee agree that Lessor must perform certain Lessor's Work, and that
both parties will use all commercially reasonable efforts to coordinate their
respective work inside the space; however, in event of any conflict between
Lessor's Work and Lessee's Work, on one day's prior written notice Lessee shall
either accommodate Lessor's requirements or vacate the Leased Premises until
completion of Lessor's Work. In addition to the foregoing, Lessor shall permit
Lessee access to the Leased Premises, prior to approval of Final Plans and the
acquisition of permits, for the purposes of obtaining measurements of the Leased
Premises, confirming existing conditions and for space planning preparation
purposes. Lessee's entry to the Leased Premises prior to the Delivery Date for
such purposes shall be upon all of the terms and conditions of the Lease,
including, without limitation the provisions regarding insurance and
indemnification, but excepting the payment of Minimum Rent and additional Rent.
Lessee shall be solely responsible for all costs and expenses incurred in
connection with the Tenant Improvements and any pre-Delivery Date activities,
and Lessee hereby agrees to indemnify, defend, and hold harmless Lessor from and
against any loss, cost, expense, liability, damage, or injury in connection
therewith.
4
<PAGE>
3. PAYMENT FOR TENANT IMPROVEMENTS AND THE CONSTRUCTION CONTRACT
3.1 CONSTRUCTION COSTS
(a) The Allowance. As an inducement to Lessee to enter into the Lease,
-------------
but subject to paragraph 3.2 below and as otherwise provided in the Lease and
this Exhibit D-3, Lessor agrees to reimburse Lessee for: (1) the cost of
construction of the Tenant Improvements identified on the approved Final Plans;
(2) costs of any permits or licensing fees; (3) payment of the fees of the
Architect, Engineer and Lessee's space planner (the "Planner") (at a cost not to
exceed twenty cents ($.20) per Adjusted Rentable Square Foot of the Leased
Premises for the services of the Planner) for the Tenant Improvements; and (4)
any other costs approved by Lessor including planning and design costs ("Tenant
Improvement Costs") up to a cost not to exceed twenty dollars ($20) for each
Adjusted Rentable Square Foot in the Leased Premises (the "Allowance"). If the
Allowance is not used for Tenant Improvement Costs, the unused portion shall
revert to Lessor and shall not be available for any other purpose by Lessee.
(b) Additional Allowance. In addition to the Allowance specified in
--------------------
subparagraph (a) above, Lessee shall have the option, upon thirty (30) days
prior written notice to Lessor, and provided that Lessee presents evidence to
------------
Lessor that it has spent at least $1,200,000 (including Lessor's Allowance) for
Tenant Improvement Costs to require that Lessor advance an additional sum for
Tenant Improvement Costs, up to another $10.00 for each Adjusted Rentable Square
Foot in the Leased Premises ($299,960) which Lessee incurs for real estate
improvements to the Leased Premises which exceeds $1,200,000 (the "Additional
Allowance"). For purposes of this Exhibit D-3, the term Allowance shall include
the Additional Allowance, if advanced. Should Lessee exercise its right to the
Additional Allowance, upon payment thereof, and as a condition thereto, the
parties shall execute an amendment increasing the Minimum Rent by an amount
sufficient to amortize the Additional Allowance over a period of ten (10) years
at a rate of nine percent (9%) per annum. However, if the option to extend the
term described in paragraph 3 of the Third Amendment is not exercised by the
Tenant by the last day of the forty-eighth (48th) month of the Lease Term, the
unamortized portion of the sum calculated in this paragraph 3.1 (b) as
Additional Allowance shall be immediately due and payable in full in cash as
additional rent.
3.2 PAYMENT OF ALLOWANCE
(a) Payment Procedure. Excepting only as to the fees of the Planner,
-----------------
for which Lessor shall reimburse Lessee within thirty (30) days after the
Amendment Date, Lessor shall reimburse Lessee for the Tenant Improvement Costs
up to the Allowance upon the last to occur of: (i) substantial completion of the
Tenant Improvements; (ii) receipt by Lessor of
5
<PAGE>
invoices for all portions of the Tenant Improvements from the person(s)
performing the work or rendering the services, together with such supporting
documentation as Lessor may reasonably request in connection therewith, and
(iii) receipt by Lessor of unconditional lien releases with respect to the
entirety of the Tenant Improvements from all contractors, subcontractors and
materialmen who performed the work or rendered services or materials. Lessor
shall have no obligation to pay all or any portion of the Allowance at any time
following the occurrence, and during the continuance, of any event of default by
Lessee under the Lease.
(b) Primary Obligation. Lessee shall pay all costs incurred in
------------------
connection with the construction of the Tenant Improvements.
(c) Project Management Services. In consideration of the supervisory,
---------------------------
logistical and oversight and review work to be performed by Lessor in connection
with the Tenant Improvements, Lessee agrees that Lessor shall be entitled to
charge against the Allowance a construction management fee (the "Coordination
Fee") in the amount of one and one-half percent (1.5%) of the total cost of the
Tenant Improvements. Lessor shall deduct the Coordination Fee from the
Allowance.
3.3 CONTRACT TERMS
The construction contract for the Tenant Improvements shall include all of
the provisions which are included herein and identified as "Construction
Contract Terms;" provided, however, that the Construction Contract Terms may be
revised with Lessor's approval, which approval shall not be unreasonably
withheld, in a manner which does not expose Lessor to additional liability.
4. CHANGES, ADDITIONS, AND ALTERATIONS
4.1 MATERIALITY
From time to time Lessee may make nonmaterial changes in the Final Plans
prior to final completion with Lessor's prior approval, which approval shall not
be unreasonably withheld. Lessee shall not make any material changes to the
Final Plans (which shall mean a change the cost of which will be in excess of
$5,000.00, or is visible from the exterior of the Leased Premises, or affects
the structure, roof, central building systems or exterior walls of the Leased
Premises) without securing the prior written approval of Lessor, which approval
may be withheld by Lessor in its sole discretion. In seeking Lessor's approval
for changes to the
6
<PAGE>
Final Plans, Lessee shall deliver to Lessor such documentation as the
Construction Contract shall require for changes in the Contract Price or an
extension of the Completion Date.
4.2 RENT COMMENCEMENT
No such changes in the Final Plans shall delay the Rent Commencement Dates
set forth in the Lease. Lessor shall approve or disapprove any such changes
within ten (10) working days after the receipt of a request from Lessee. Upon
approval by Lessor, such change shall be included within the phrase "Final
Plans."
5. CONSTRUCTION AND DELAYS
5.1 The performance of the Tenant Improvements shall be subject to the
following terms and conditions:
(a) Compliance by Lessee and the Contractor and its subcontractors,
material suppliers, and equipment renters of whatever tier ("Lessee's
Contractors") with the applicable provisions of the Lease;
(b) All of the Tenant Improvements, which are performed by Lessee's
Contractors, shall be scheduled through Lessee;
(c) All of the Tenant Improvements shall be performed in accordance
with the reasonable rules and regulations which Lessor may issue from time to
time;
(d) Lessor shall have no responsibility whatsoever for the supervision
or coordination of Lessee's Contractors, the Architect, or the Engineer, the
quality of their work or any other matter with respect to Lessee's Contractors,
the Architect, or the Engineer; however, Lessee shall coordinate all Tenant
Improvements with Lessor's Project Manager as described herein and as set forth
in the TI Schedule.
(e) Although Lessor shall have no responsibility as set forth in
subparagraph (d) above, Lessor's Project Manager may, at his option, demand a
stop in Lessee's Work if any terms of this Exhibit D-3 are violated or
threatened to be violated by Lessee or Lessee's contractor or if the Tenant
Improvement Work is not being performed in accordance with the approved Final
Plans.
(f) In connection with the construction of the Tenant Improvements,
Lessee's Contractor and subcontractors shall not be charged for the use of
utilities, loading dock and freight elevators during normal business hours.
7
<PAGE>
6. SUBSTANTIAL COMPLETION
6.1 DEFINITION
For purposes of this Exhibit D-3 and the Lease, "Substantial Completion" of
the Tenant Improvements shall mean the date that (i) the Architect certifies to
Lessor that the Tenant Improvements have been completed in accordance with the
Final Plans; and (ii) the Rent Commencement Date under the Lease has occurred,
and (iii) Lessor has received unconditional lien releases with respect to the
Tenant Improvement work performed.
7. DEFAULT
7.1 Any default by Lessee under this Exhibit D-3 shall be deemed an
immediate event of default under the Lease, entitling Lessor to exercise any and
all of its rights and remedies available to Lessor under the Lease, at law or in
equity for nonpayment of Rent. In addition to all other amounts payable by
Lessee hereunder, upon the default by Lessee under this Exhibit D-3, and
notwithstanding anything to the contrary contained herein, Lessee shall pay
Lessor upon demand all costs and expenses incurred by Lessor in connection with
its review of the Plans, the Final Plans, the TI Schedule and any construction
documents, and in connection with the construction of the Tenant Improvements.
8. CONSTRUCTION CONTRACT TERMS
8.1 INDEMNIFICATION BY CONTRACTOR
Contractor shall defend, protect, indemnify, and hold harmless Lessee and
Lessor and their respective, directors, officers, shareholders, members,
managers, agents and employees (collectively referred to as "Indemnitees") from
and against all liability, liens, injuries, claims, damages, fines, penalties,
costs, and expenses, including attorneys' fees and litigation or arbitration
costs, arising out of or resulting from the performance of the Work and/or
breach of the Contract Documents, provided that any such liability, lien,
injury, claim, damage, cost, or expense is caused, in whole or in part, by any
act of omission of Contractor, its subcontractors of any lower tier, anyone
directly or indirectly employed by any of them, or anyone for whose acts any of
them may be liable. Contractor's indemnity obligation shall be binding upon
Contractor regardless of whether any of the Indemnitees is negligent, actively,
passively, or not at all. However, Contractor shall not be required to indemnify
any Indemnitee whose sole negligence or willful misconduct is responsible for
the liability, lien, injury, claim, damage, cost, or expense. Contractor shall,
upon demand by any of its Indemnitees, defend any action of proceeding brought
against any of its Indemnitees with
8
<PAGE>
respect to the matters set forth in this Construction Contract; but any of the
Indemnitees shall have the right to conduct its own defense if it chooses to do
so.
8.2 INSURANCE REQUIRED TO BE CARRIED BY CONTRACTOR
Contractor shall at all times carry with companies acceptable to Lessee all
necessary Worker's Compensation and other insurance required by law and a
Commercial General Liability Insurance policy in amounts not less than
$5,000,000.00 per occurrence for bodily injury and property damage. Such policy
or policies shall include coverage for premises and operations liability,
contractual liability (including, but not limited to, Contractor's indemnity
obligation to the Indemnitees), completed operations coverage, products
liability, broad form property damage liability, liability which Contractor may
incur as a result of the operations, acts, or omissions of its subcontractors,
suppliers, or materialmen, and their agents or employees, automobile liability,
including owned, non-owned, and hired vehicles. Such policy or policies shall be
endorsed to include all Indemnitees as additional insureds and to stipulate that
such insurance shall be primary insurance and that any insurance carried by any
Indemnitees shall be excess and not contributory insurance.
8.3 INSURANCE REQUIREMENTS
All insurance coverage procured by the Contractor shall (i) list all of the
named insureds under the policy, (ii) be issued by an insurer admitted to
transact insurance in the State of California with a financial rating of at
least an A:VII as rated in the most recent edition of Best's Insurance Reports,
(iii) contain an endorsement requiring at least thirty (30) days written notice
form the insurance company to all of the named additional insureds before any
cancellation or material change in coverage, scope, or amount of the insurance
policy, and (iv) contain an endorsement stating that no additional insured will
be excluded from coverage in the event that the additional insured is alleged or
found to be negligent in connection with any claim made under the policy or
otherwise.
8.4 DELIVERY OF CERTIFICATES OF INSURANCE AND POLICY ENDORSEMENTS TO
LESSOR AND LESSEE
If Contractor fails to deliver to Lessor and Lessee insurance certificates
and policy endorsements which reflect the requirements specified in this
Construction Contract within forty-eight (48) hours after demand, and in any
event prior to commencement of Contractor's Work on the Project, Lessor may, but
shall not be obligated to, obtain such insurance for Contractor and pay the
premiums thereon, and Contractor shall repay Lessor, on demand, any sum or sums
paid therefor, or Lessor may deduct such premiums from any money due or
9
<PAGE>
to become due to Contractor under this Agreement. In the alternative, Lessor may
declare Contractor in default under this Construction Contract.
10
<PAGE>
[CHART OMITTED]
SCHEDULE 2
To Exhibit D-3
<PAGE>
EXHIBIT 10.5
LINUXCARE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
The following constitute the provisions of the 2000 Employee Stock Purchase
Plan of Linuxcare, Inc.
1. Purpose. The purpose of the Plan is to provide employees of the Company
-------
and its Designated Subsidiaries with an opportunity to purchase Common Stock of
the Company through accumulated payroll deductions. It is the intention of the
Company to have the Plan qualify as an "Employee Stock Purchase Plan" under
Section 423 of the Internal Revenue Code of 1986, as amended. The provisions of
the Plan, accordingly, shall be construed so as to extend and limit
participation in a manner consistent with the requirements of that section of
the Code.
2. Definitions.
-----------
(a) "Board" shall mean the Board of Directors of the Company or any
-----
committee thereof designated by the Board of Directors of the Company in
accordance with Section 14 of the Plan.
(b) "Code" shall mean the Internal Revenue Code of 1986, as amended.
----
(c) "Common Stock" shall mean the common stock of the Company.
------------
(d) "Company" shall mean Linuxcare, Inc. and any Designated Subsidiary
-------
of the Company.
(e) "Compensation" shall mean all base straight time gross earnings
------------
and commissions, but exclusive of payments for overtime, shift premium,
incentive compensation, incentive payments, bonuses and other compensation.
(f) "Designated Subsidiary" shall mean any Subsidiary that has been
---------------------
designated by the Board from time to time in its sole discretion as eligible to
participate in the Plan.
(g) "Employee" shall mean any individual who is an Employee of the
--------
Company for tax purposes whose customary employment with the Company is at least
twenty (20) hours per week and more than five (5) months in any calendar year.
For purposes of the Plan, the employment relationship shall be treated as
continuing intact while the individual is on sick leave or other leave of
absence approved by the Company. Where the period of leave exceeds 90 days and
the individual's right to reemployment is not guaranteed either by statute or by
contract, the employment relationship shall be deemed to have terminated on the
91st day of such leave.
(h) "Enrollment Date" shall mean the first Trading Day of each
---------------
Offering Period.
(i) "Exercise Date" shall mean the last Trading Day of each Purchase
-------------
Period.
<PAGE>
(j) "Fair Market Value" shall mean, as of any date, the value of
-----------------
Common Stock determined as follows:
(i) If the Common Stock is listed on any established stock
exchange or a national market system, including without limitation the Nasdaq
National Market or The Nasdaq SmallCap Market of The Nasdaq Stock Market, its
Fair Market Value shall be the closing sales price for such stock (or the
closing bid, if no sales were reported) as quoted on such exchange or system for
the last market trading day prior to the date of determination, as reported in
The Wall Street Journal or such other source as the Board deems reliable;
(ii) If the Common Stock is regularly quoted by a recognized
securities dealer but selling prices are not reported, its Fair Market Value
shall be the mean of the closing bid and asked prices for the Common Stock prior
to the date of determination, as reported in The Wall Street Journal or such
other source as the Board deems reliable;
(iii) In the absence of an established market for the Common
Stock, the Fair Market Value thereof shall be determined in good faith by the
Board; or
(iv) For purposes of the Enrollment Date of the first Offering
Period under the Plan, the Fair Market Value shall be the initial price to the
public as set forth in the final prospectus included within the registration
statement in Form S-1 filed with the Securities and Exchange Commission for the
initial public offering of the Company's Common Stock (the "Registration
Statement").
(k) "Offering Periods" shall mean the periods of approximately
----------------
twenty-four (24) months during which an option granted pursuant to the Plan may
be exercised, commencing on the first Trading Day on or after May 1 and November
1 of each year and terminating on the last Trading Day in the periods ending
twenty-four months later; provided, however, that the first Offering Period
under the Plan shall commence with the first Trading Day on or after the date on
which the Securities and Exchange Commission declares the Company's Registration
Statement effective and ending on the last Trading Day on or before
April 30, 2002. The duration and timing of Offering Periods may be changed
pursuant to Section 4 of this Plan.
(l) "Plan" shall mean this 2000 Employee Stock Purchase Plan.
----
(m) "Purchase Period" shall mean the approximately six-month period
---------------
commencing after one Exercise Date and ending with the next Exercise Date,
except that the first Purchase Period of any Offering Period shall commence on
the Enrollment Date and end with the next Exercise Date.
(n) "Purchase Price" shall mean 85% of the Fair Market Value of a
--------------
share of Common Stock on the Enrollment Date or on the Exercise Date, whichever
is lower; provided however, that the Purchase Price may be adjusted by the Board
pursuant to Section 20.
(o) "Reserves" shall mean the number of shares of Common Stock
--------
covered by each option under the Plan which have not yet been exercised and the
number of shares of Common Stock which have been authorized for issuance under
the Plan but not yet placed under option.
-2-
<PAGE>
(p) "Subsidiary" shall mean a corporation, domestic or foreign, of
----------
which not less than 50% of the voting shares are held by the Company or a
Subsidiary, whether or not such corporation now exists or is hereafter organized
or acquired by the Company or a Subsidiary.
(q) "Trading Day" shall mean a day on which national stock exchanges
-----------
and the Nasdaq System are open for trading.
3. Eligibility.
-----------
(a) Any Employee who shall be employed by the Company on a given
Enrollment Date shall be eligible to participate in the Plan.
(b) Any provisions of the Plan to the contrary notwithstanding, no
Employee shall be granted an option under the Plan (i) to the extent that,
immediately after the grant, such Employee (or any other person whose stock
would be attributed to such Employee pursuant to Section 424(d) of the Code)
would own capital stock of the Company and/or hold outstanding options to
purchase such stock possessing five percent (5%) or more of the total combined
voting power or value of all classes of the capital stock of the Company or of
any Subsidiary, or (ii) to the extent that his or her rights to purchase stock
under all employee stock purchase plans of the Company and its subsidiaries
accrues at a rate which exceeds Twenty-Five Thousand Dollars ($25,000) worth of
stock (determined at the fair market value of the shares at the time such option
is granted) for each calendar year in which such option is outstanding at any
time.
4. Offering Periods. The Plan shall be implemented by consecutive,
----------------
overlapping Offering Periods with a new Offering Period commencing on the first
Trading Day on or after May 1 and November 1 each year, or on such other date as
the Board shall determine, and continuing thereafter until terminated in
accordance with Section 20 hereof; provided, however, that the first Offering
Period under the Plan shall commence with the first Trading Day on or after the
date on which the Securities and Exchange Commission declares the Company's
Registration Statement effective and ending on the last Trading Day on or before
April 30, 2002. The Board shall have the power to change the duration of
Offering Periods (including the commencement dates thereof) with respect to
future offerings without shareholder approval if such change is announced at
least five (5) days prior to the scheduled beginning of the first Offering
Period to be affected thereafter.
5. Participation.
-------------
(a) An eligible Employee may become a participant in the Plan by
completing a subscription agreement authorizing payroll deductions in the form
of Exhibit A to this Plan and filing it with the Company's payroll office prior
to the applicable Enrollment Date.
(b) Payroll deductions for a participant shall commence on the first
payroll following the Enrollment Date and shall end on the last payroll in the
Offering Period to which such authorization is applicable, unless sooner
terminated by the participant as provided in Section 10 hereof.
-3-
<PAGE>
6. Payroll Deductions.
------------------
(a) At the time a participant files his or her subscription
agreement, he or she shall elect to have payroll deductions made on each pay day
during the Offering Period in an amount not exceeding 10% of the Compensation
which he or she receives on each pay day during the Offering Period.
(b) All payroll deductions made for a participant shall be credited
to his or her account under the Plan and shall be withheld in whole percentages
only. A participant may not make any additional payments into such account.
(c) A participant may discontinue his or her participation in the
Plan as provided in Section 10 hereof, or may increase or decrease the rate of
his or her payroll deductions during the Offering Period by completing or filing
with the Company a new subscription agreement authorizing a change in payroll
deduction rate. The Board may, in its discretion, limit the number of
participation rate changes during any Offering Period. The change in rate shall
be effective with the first full payroll period following five (5) business days
after the Company's receipt of the new subscription agreement unless the Company
elects to process a given change in participation more quickly. A participant's
subscription agreement shall remain in effect for successive Offering Periods
unless terminated as provided in Section 10 hereof.
(d) Notwithstanding the foregoing, to the extent necessary to comply
with Section 423(b)(8) of the Code and Section 3(b) hereof, a participant's
payroll deductions may be decreased to zero percent (0%) at any time during a
Purchase Period. Payroll deductions shall recommence at the rate provided in
such participant's subscription agreement at the beginning of the first Purchase
Period which is scheduled to end in the following calendar year, unless
terminated by the participant as provided in Section 10 hereof.
(e) At the time the option is exercised, in whole or in part, or at
the time some or all of the Company's Common Stock issued under the Plan is
disposed of, the participant must make adequate provision for the Company's
federal, state, or other tax withholding obligations, if any, which arise upon
the exercise of the option or the disposition of the Common Stock. At any time,
the Company may, but shall not be obligated to, withhold from the participant's
compensation the amount necessary for the Company to meet applicable withholding
obligations, including any withholding required to make available to the Company
any tax deductions or benefits attributable to sale or early disposition of
Common Stock by the Employee.
7. Grant of Option. On the Enrollment Date of each Offering Period, each
---------------
eligible Employee participating in such Offering Period shall be granted an
option to purchase on each Exercise Date during such Offering Period (at the
applicable Purchase Price) up to a number of shares of the Company's Common
Stock determined by dividing such Employee's payroll deductions accumulated
prior to such Exercise Date and retained in the Participant's account as of the
Exercise Date by the applicable Purchase Price; provided that in no event shall
an Employee be permitted to purchase during each Purchase Period more than 5,000
shares of the Company's Common Stock (subject to any adjustment pursuant to
Section 19), and provided further that such purchase shall be subject to the
limitations set forth in Section 3(b) and 12 hereof. The Board may, for future
Offering Periods, increase or decrease, in its absolute discretion, the maximum
number of shares of
-4-
<PAGE>
the Company's Common Stock an Employee may purchase during each Purchase Period
of such Offering Period. Exercise of the option shall occur as provided in
Section 8 hereof, unless the participant has withdrawn pursuant to Section 10
hereof. The option shall expire on the last day of the Offering Period.
8. Exercise of Option.
------------------
(a) Unless a participant withdraws from the Plan as provided in
Section 10 hereof, his or her option for the purchase of shares shall be
exercised automatically on the Exercise Date, and the maximum number of full
shares subject to option shall be purchased for such participant at the
applicable Purchase Price with the accumulated payroll deductions in his or her
account. No fractional shares shall be purchased; any payroll deductions
accumulated in a participant's account which are not sufficient to purchase a
full share shall be retained in the participant's account for the subsequent
Purchase Period or Offering Period, subject to earlier withdrawal by the
participant as provided in Section 10 hereof. Any other monies left over in a
participant's account after the Exercise Date shall be returned to the
participant. During a participant's lifetime, a participant's option to purchase
shares hereunder is exercisable only by him or her.
(b) If the Board determines that, on a given Exercise Date, the number
of shares with respect to which options are to be exercised may exceed (i) the
number of shares of Common Stock that were available for sale under the Plan on
the Enrollment Date of the applicable Offering Period, or (ii) the number of
shares available for sale under the Plan on such Exercise Date, the Board may in
its sole discretion (x) provide that the Company shall make a pro rata
allocation of the shares of Common Stock available for purchase on such
Enrollment Date or Exercise Date, as applicable, in as uniform a manner as shall
be practicable and as it shall determine in its sole discretion to be equitable
among all participants exercising options to purchase Common Stock on such
Exercise Date, and continue all Offering Periods then in effect, or (y) provide
that the Company shall make a pro rata allocation of the shares available for
purchase on such Enrollment Date or Exercise Date, as applicable, in as uniform
a manner as shall be practicable and as it shall determine in its sole
discretion to be equitable among all participants exercising options to purchase
Common Stock on such Exercise Date, and terminate any or all Offering Periods
then in effect pursuant to Section 20 hereof. The Company may make pro rata
allocation of the shares available on the Enrollment Date of any applicable
Offering Period pursuant to the preceding sentence, notwithstanding any
authorization of additional shares for issuance under the Plan by the Company's
shareholders subsequent to such Enrollment Date.
9. Delivery. As promptly as practicable after each Exercise Date on which
--------
a purchase of shares occurs, the Company shall arrange the delivery to each
participant, as appropriate, of a certificate representing the shares purchased
upon exercise of his or her option.
10. Withdrawal.
----------
(a) A participant may withdraw all but not less than all the payroll
deductions credited to his or her account and not yet used to exercise his or
her option under the Plan at any time by giving written notice to the Company in
the form of Exhibit B to this Plan. All of the participant's payroll deductions
credited to his or her account shall be paid to such participant
-5-
<PAGE>
promptly after receipt of notice of withdrawal and such participant's option for
the Offering Period shall be automatically terminated, and no further payroll
deductions for the purchase of shares shall be made for such Offering Period. If
a participant withdraws from an Offering Period, payroll deductions shall not
resume at the beginning of the succeeding Offering Period unless the participant
delivers to the Company a new subscription agreement.
(b) A participant's withdrawal from an Offering Period shall not have
any effect upon his or her eligibility to participate in any similar plan which
may hereafter be adopted by the Company or in succeeding Offering Periods which
commence after the termination of the Offering Period from which the participant
withdraws.
11. Termination of Employment.
-------------------------
Upon a participant's ceasing to be an Employee, for any reason, he or
she shall be deemed to have elected to withdraw from the Plan and the payroll
deductions credited to such participant's account during the Offering Period but
not yet used to exercise the option shall be returned to such participant or, in
the case of his or her death, to the person or persons entitled thereto under
Section 15 hereof, and such participant's option shall be automatically
terminated. The preceding sentence notwithstanding, a participant who receives
payment in lieu of notice of termination of employment shall be treated as
continuing to be an Employee for the participant's customary number of hours per
week of employment during the period in which the participant is subject to such
payment in lieu of notice.
12. Interest. No interest shall accrue on the payroll deductions of a
--------
participant in the Plan.
13. Stock.
-----
(a) Subject to adjustment upon changes in capitalization of the
Company as provided in Section 19 hereof, the maximum number of shares of the
Company's Common Stock which shall be made available for sale under the Plan
shall be 1,000,000 shares plus an annual increase to be added on the first day
of the Company's fiscal year beginning in 2001, equal to the lesser of (i)
1,000,000 shares, (ii) 2% of the outstanding shares on such date or (iii) a
lesser amount determined by the Board.
(b) The participant shall have no interest or voting right in shares
covered by his option until such option has been exercised.
(c) Shares to be delivered to a participant under the Plan shall be
registered in the name of the participant or in the name of the participant and
his or her spouse.
14. Administration. The Plan shall be administered by the Board or a
--------------
committee of members of the Board appointed by the Board. The Board or its
committee shall have full and exclusive discretionary authority to construe,
interpret and apply the terms of the Plan, to determine eligibility and to
adjudicate all disputed claims filed under the Plan. Every finding, decision and
determination made by the Board or its committee shall, to the full extent
permitted by law, be final and binding upon all parties.
-6-
<PAGE>
15. Designation of Beneficiary.
--------------------------
(a) A participant may file a written designation of a beneficiary who
is to receive any shares and cash, if any, from the participant's account under
the Plan in the event of such participant's death subsequent to an Exercise Date
on which the option is exercised but prior to delivery to such participant of
such shares and cash. In addition, a participant may file a written designation
of a beneficiary who is to receive any cash from the participant's account under
the Plan in the event of such participant's death prior to exercise of the
option. If a participant is married and the designated beneficiary is not the
spouse, spousal consent shall be required for such designation to be effective.
(b) Such designation of beneficiary may be changed by the participant
at any time by written notice. In the event of the death of a participant and in
the absence of a beneficiary validly designated under the Plan who is living at
the time of such participant's death, the Company shall deliver such shares
and/or cash to the executor or administrator of the estate of the participant,
or if no such executor or administrator has been appointed (to the knowledge of
the Company), the Company, in its discretion, may deliver such shares and/or
cash to the spouse or to any one or more dependents or relatives of the
participant, or if no spouse, dependent or relative is known to the Company,
then to such other person as the Company may designate.
16. Transferability. Neither payroll deductions credited to a
---------------
participant's account nor any rights with regard to the exercise of an option or
to receive shares under the Plan may be assigned, transferred, pledged or
otherwise disposed of in any way (other than by will, the laws of descent and
distribution or as provided in Section 15 hereof) by the participant. Any such
attempt at assignment, transfer, pledge or other disposition shall be without
effect, except that the Company may treat such act as an election to withdraw
funds from an Offering Period in accordance with Section 10 hereof.
17. Use of Funds. All payroll deductions received or held by the Company
------------
under the Plan may be used by the Company for any corporate purpose, and the
Company shall not be obligated to segregate such payroll deductions.
18. Reports. Individual accounts shall be maintained for each participant
-------
in the Plan. Statements of account shall be given to participating Employees at
least annually, which statements shall set forth the amounts of payroll
deductions, the Purchase Price, the number of shares purchased and the remaining
cash balance, if any.
19. Adjustments Upon Changes in Capitalization, Dissolution, Liquidation,
--------------------------------------------------------------------
Merger or Asset Sale.
- --------------------
(a) Changes in Capitalization. Subject to any required action by the
-------------------------
shareholders of the Company, the Reserves, the maximum number of shares each
participant may purchase each Purchase Period (pursuant to Section 7), the
number of shares that may be added annually to the shares reserved under the
Plan (pursuant to Section 13(a)(i), as well as the price per share and the
number of shares of Common Stock covered by each option under the Plan which has
not yet been exercised shall be proportionately adjusted for any increase or
decrease in the number of issued shares of Common Stock resulting from a stock
split, reverse stock split, stock dividend, combination or reclassification of
the Common Stock, or any other increase or decrease in the number of shares of
Common Stock effected without receipt of consideration by the Company; provided,
however, that conversion of
-7-
<PAGE>
any convertible securities of the Company shall not be deemed to have been
"effected without receipt of consideration." Such adjustment shall be made by
the Board, whose determination in that respect shall be final, binding and
conclusive. Except as expressly provided herein, no issuance by the Company of
shares of stock of any class, or securities convertible into shares of stock of
any class, shall affect, and no adjustment by reason thereof shall be made with
respect to, the number or price of shares of Common Stock subject to an option.
(b) Dissolution or Liquidation. In the event of the proposed
--------------------------
dissolution or liquidation of the Company, the Offering Period then in progress
shall be shortened by setting a new Exercise Date (the "New Exercise Date"), and
shall terminate immediately prior to the consummation of such proposed
dissolution or liquidation, unless provided otherwise by the Board. The New
Exercise Date shall be before the date of the Company's proposed dissolution or
liquidation. The Board shall notify each participant in writing, at least ten
(10) business days prior to the New Exercise Date, that the Exercise Date for
the participant's option has been changed to the New Exercise Date and that the
participant's option shall be exercised automatically on the New Exercise Date,
unless prior to such date the participant has withdrawn from the Offering Period
as provided in Section 10 hereof.
(c) Merger or Asset Sale. In the event of a proposed sale of all or
--------------------
substantially all of the assets of the Company, or the merger of the Company
with or into another corporation, each outstanding option shall be assumed or an
equivalent option substituted by the successor corporation or a Parent or
Subsidiary of the successor corporation. In the event that the successor
corporation refuses to assume or substitute for the option, any Purchase Periods
then in progress shall be shortened by setting a new Exercise Date (the "New
Exercise Date") and any Offering Periods then in progress shall end on the New
Exercise Date. The New Exercise Date shall be before the date of the Company's
proposed sale or merger. The Board shall notify each participant in writing, at
least ten (10) business days prior to the New Exercise Date, that the Exercise
Date for the participant's option has been changed to the New Exercise Date and
that the participant's option shall be exercised automatically on the New
Exercise Date, unless prior to such date the participant has withdrawn from the
Offering Period as provided in Section 10 hereof.
20. Amendment or Termination.
------------------------
(a) The Board of Directors of the Company may at any time and for any
reason terminate or amend the Plan. Except as provided in Section 19 hereof, no
such termination can affect options previously granted, provided that an
Offering Period may be terminated by the Board of Directors on any Exercise Date
if the Board determines that the termination of the Offering Period or the Plan
is in the best interests of the Company and its shareholders. Except as provided
in Section 19 and this Section 20 hereof, no amendment may make any change in
any option theretofore granted which adversely affects the rights of any
participant. To the extent necessary to comply with Section 423 of the Code (or
any successor rule or provision or any other applicable law, regulation or stock
exchange rule), the Company shall obtain shareholder approval in such a manner
and to such a degree as required.
(b) Without shareholder consent and without regard to whether any
participant rights may be considered to have been "adversely affected," the
Board (or its committee) shall be entitled to change the Offering Periods, limit
the frequency and/or number of changes in the amount
-8-
<PAGE>
withheld during an Offering Period, establish the exchange ratio applicable to
amounts withheld in a currency other than U.S. dollars, permit payroll
withholding in excess of the amount designated by a participant in order to
adjust for delays or mistakes in the Company's processing of properly completed
withholding elections, establish reasonable waiting and adjustment periods
and/or accounting and crediting procedures to ensure that amounts applied toward
the purchase of Common Stock for each participant properly correspond with
amounts withheld from the participant's Compensation, and establish such other
limitations or procedures as the Board (or its committee) determines in its sole
discretion advisable which are consistent with the Plan.
(c) In the event the Board determines that the ongoing operation of
the Plan may result in unfavorable financial accounting consequences, the Board
may, in its discretion and, to the extent necessary or desirable, modify or
amend the Plan to reduce or eliminate such accounting consequence including, but
not limited to:
(i) altering the Purchase Price for any Offering Period
including an Offering Period underway at the time of the change in Purchase
Price;
(ii) shortening any Offering Period so that Offering Period ends
on a new Exercise Date, including an Offering Period underway at the time of the
Board action; and
(iii) allocating shares.
Such modifications or amendments shall not require stockholder
approval or the consent of any Plan participants.
21. Notices. All notices or other communications by a participant to the
-------
Company under or in connection with the Plan shall be deemed to have been duly
given when received in the form specified by the Company at the location, or by
the person, designated by the Company for the receipt thereof.
22. Conditions Upon Issuance of Shares. Shares shall not be issued with
----------------------------------
respect to an option unless the exercise of such option and the issuance and
delivery of such shares pursuant thereto shall comply with all applicable
provisions of law, domestic or foreign, including, without limitation, the
Securities Act of 1933, as amended, the Securities Exchange Act of 1934, as
amended, the rules and regulations promulgated thereunder, and the requirements
of any stock exchange upon which the shares may then be listed, and shall be
further subject to the approval of counsel for the Company with respect to such
compliance.
As a condition to the exercise of an option, the Company may require
the person exercising such option to represent and warrant at the time of any
such exercise that the shares are being purchased only for investment and
without any present intention to sell or distribute such shares if, in the
opinion of counsel for the Company, such a representation is required by any of
the aforementioned applicable provisions of law.
23. Term of Plan. The Plan shall become effective upon the earlier to
------------
occur of its adoption by the Board of Directors or its approval by the
shareholders of the Company. It shall continue in effect for a term of ten (10)
years unless sooner terminated under Section 20 hereof.
-9-
<PAGE>
24. Automatic Transfer to Low Price Offering Period. To the extent
-----------------------------------------------
permitted by any applicable laws, regulations, or stock exchange rules if the
Fair Market Value of the Common Stock on any Exercise Date in an Offering Period
is lower than the Fair Market Value of the Common Stock on the Enrollment Date
of such Offering Period, then all participants in such Offering Period shall be
automatically withdrawn from such Offering Period immediately after the exercise
of their option on such Exercise Date and automatically re-enrolled in the
immediately following Offering Period as of the first day thereof.
-10-
<PAGE>
EXHIBIT A
---------
LINUXCARE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
SUBSCRIPTION AGREEMENT
_____ Original Application Enrollment Date:__________
_____ Change in Payroll Deduction Rate
_____ Change of Beneficiary(ies)
1. _____________ hereby elects to participate in the Linuxcare, Inc. Employee
Stock Purchase Plan (the "Employee Stock Purchase Plan") and subscribes to
purchase shares of the Company's Common Stock in accordance with this
Subscription Agreement and the Employee Stock Purchase Plan.
2. I hereby authorize payroll deductions from each paycheck in the amount of
_____% of my Compensation on each payday (from 0 to _____%) during the
Offering Period in accordance with the Employee Stock Purchase Plan.
(Please note that no fractional percentages are permitted.)
3. I understand that said payroll deductions shall be accumulated for the
purchase of shares of Common Stock at the applicable Purchase Price
determined in accordance with the Employee Stock Purchase Plan. I
understand that if I do not withdraw from an Offering Period, any
accumulated payroll deductions will be used to automatically exercise my
option.
4. I have received a copy of the complete Employee Stock Purchase Plan. I
understand that my participation in the Employee Stock Purchase Plan is in
all respects subject to the terms of the Plan. I understand that my ability
to exercise the option under this Subscription Agreement is subject to
shareholder approval of the Employee Stock Purchase Plan.
5. Shares purchased for me under the Employee Stock Purchase Plan should be
issued in the name(s) of (Employee or Employee and Spouse only).
6. I understand that if I dispose of any shares received by me pursuant to the
Plan within 2 years after the Enrollment Date (the first day of the
Offering Period during which I purchased such shares) or one year after the
Exercise Date, I will be treated for federal income tax purposes as having
received ordinary income at the time of such disposition in an amount equal
to the excess of the fair market value of the shares at the time such
shares were purchased by me over the price which I paid for the shares. I
-
hereby agree to notify the Company in writing within 30 days after the
----------------------------------------------------------------------
date of any disposition of my shares and I will make adequate provision for
---------------------------------------------------------------------------
Federal, state or other tax withholding obligations, if any, which arise
------------------------------------------------------------------------
upon the
--------
<PAGE>
disposition of the Common Stock. The Company may, but will not be obligated
-------------------------------
to, withhold from my compensation the amount necessary to meet any
applicable withholding obligation including any withholding necessary to
make available to the Company any tax deductions or benefits attributable
to sale or early disposition of Common Stock by me. If I dispose of such
shares at any time after the expiration of the 2-year and 1-year holding
periods, I understand that I will be treated for federal income tax
purposes as having received income only at the time of such disposition,
and that such income will be taxed as ordinary income only to the extent of
an amount equal to the lesser of (1) the excess of the fair market value of
the share at the time of such disposition over the purchase price which I
paid for the shares, or (2) 15% of the fair market value of the shares on
the first day of the Offering Period. The remainder of the gain, if any,
recognized on such disposition will be taxed as capital gain.
7. I hereby agree to be bound by the terms of the Employee Stock Purchase
Plan. The effectiveness of this Subscription Agreement is dependent upon my
eligibility to participate in the Employee Stock Purchase Plan.
8. In the event of my death, I hereby designate the following as my
beneficiary(ies) to receive all payments and shares due me under the
Employee Stock Purchase Plan:
NAME: (Please
print) _____________________________________________________
(First) (Middle) (Last)
-------------------- --------------------------------------
Relationship
--------------------------------------
(Address)
-2-
<PAGE>
Employee's Social
Security Number: ____________________________________________________
Employee's Address: ____________________________________________________
____________________________________________________
____________________________________________________
I UNDERSTAND THAT THIS SUBSCRIPTION AGREEMENT SHALL REMAIN IN EFFECT THROUGHOUT
SUCCESSIVE OFFERING PERIODS UNLESS TERMINATED BY ME.
Dated:_________________ ____________________________________________________
Signature of Employee
____________________________________________________
Spouse's Signature (If beneficiary other than spouse)
-3-
<PAGE>
EXHIBIT B
---------
LINUXCARE, INC.
2000 EMPLOYEE STOCK PURCHASE PLAN
NOTICE OF WITHDRAWAL
The undersigned participant in the Offering Period of the Linuxcare, Inc.
Employee Stock Purchase Plan which began on _______________, _______ (the
"Enrollment Date") hereby notifies the Company that he or she hereby withdraws
from the Offering Period. He or she hereby directs the Company to pay to the
undersigned as promptly as practicable all the payroll deductions credited to
his or her account with respect to such Offering Period. The undersigned
understands and agrees that his or her option for such Offering Period will be
automatically terminated. The undersigned understands further that no further
payroll deductions will be made for the purchase of shares in the current
Offering Period and the undersigned shall be eligible to participate in
succeeding Offering Periods only by delivering to the Company a new Subscription
Agreement.
Name and Address of Participant:
__________________________________
__________________________________
__________________________________
Signature:
__________________________________
Date:_____________________________
<PAGE>
Exhibit 23.1.1
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 4, 2000, (except with respect to the
matters referred to in paragraph 7 of Note 8, as to which the date is January
19, 2000), in the Registration Statement (Form S-1 No. 33- ) and related
Prospectus of Linuxcare for the registration of shares of common stock.
/s/ Ernst & Young LLP
Palo Alto, California
January 19, 2000
<PAGE>
Exhibit 23.1.2
Consent of Independent Auditors
We consent to the reference to our firm under the caption "Experts" and to
the use of our report dated January 7, 2000 in the Registration Statement (Form
S-1 No. 33- ) and related Prospectus of Linuxcare for the registration of
shares of common stock.
Ottawa, Canada
January , 2000
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C> <C>
<PERIOD-TYPE> OTHER 9-MOS
<FISCAL-YEAR-END> DEC-31-1998 DEC-31-1999
<PERIOD-START> DEC-09-1998 JAN-01-1999
<PERIOD-END> DEC-31-1999 SEP-30-1999
<CASH> 138,920 863,459
<SECURITIES> 0 0
<RECEIVABLES> 0 207,664
<ALLOWANCES> 0 31,000
<INVENTORY> 0 0
<CURRENT-ASSETS> 0 0
<PP&E> 0 990,600
<DEPRECIATION> 0 138,386
<TOTAL-ASSETS> 200,300 3,357,548
<CURRENT-LIABILITIES> 13,458 231,073
<BONDS> 0 0
0 6,326,365
0 0
<COMMON> 706 875
<OTHER-SE> (13,864) (6,936,470)
<TOTAL-LIABILITY-AND-EQUITY> (13,158) (6,955,595)
<SALES> 0 304,591
<TOTAL-REVENUES> 0 304,591
<CGS> 0 1,329,960
<TOTAL-COSTS> 13,458 8,799,975
<OTHER-EXPENSES> 0 0
<LOSS-PROVISION> 0 0
<INTEREST-EXPENSE> 0 199,368
<INCOME-PRETAX> (13,458) (10,024,712)
<INCOME-TAX> 0 0
<INCOME-CONTINUING> (13,458) (13,458)
<DISCONTINUED> 0 0
<EXTRAORDINARY> 0 0
<CHANGES> 0 (127,689)
<NET-INCOME> (13,458) (10,152,401)
<EPS-BASIC> 0 (1.37)
<EPS-DILUTED> 0 (1.37)
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